Cash application isn’t about managing the entire accounts receivable process. Revise it to focus on matching incoming payments with the right customer accounts and invoices. Cash application is vital to accounts receivable, ensuring payments are accurately matched with customer invoices and accounts. Manual processes, though, could be faster, prone to mistakes, and can cause delays in payment postings, which impact vendor payments and financial reporting.
By automating cash application, businesses can streamline operations, reduce errors, and gain real-time insights into cash flow. This enables finance leaders to make smarter decisions, improve forecasts, and drive growth.
Cash application process automation is the use of technology, like AI and machine learning, to streamline the task of matching incoming payments with open invoices. In traditional cash application, finance teams manually match payment data with invoices—a time-consuming, error-prone task. By automating this process, businesses can speed up cash reconciliation, minimize errors, and reduce the time it takes to clear payments, which improves cash flow visibility and frees up resources for higher-value tasks.
Cash application is a critical process in managing accounts receivable and cash flow. It involves matching incoming payments with open invoices to ensure accurate and timely posting of payments. Cash application teams receive checks, ACH, wire, or card payments and match those payments with the outstanding invoices to mark them as paid.
However, this seemingly simple process can be complicated and error-prone due to several factors, such as incomplete or inaccurate remittance advice, discrepancies between payment amount and invoice amount, and deductions taken from payments.
Here are the six major steps that cover the cash application process flow:
The benefits of automating your cash application process are many, let’s take a closer look at some of them below:
Organizations need to adopt strategies that streamline operations for a more efficient and error-free cash application process. Here are six proven methods that can elevate your cash application process:
Simplify the collection of payment and remittance data by utilizing digital tools. Automated data extraction from various sources can save time and reduce errors.
Harness the power of automation to match payments with open invoices accurately. Automated matching algorithms can swiftly identify and link payments to corresponding invoices.
Develop predefined workflows for handling exceptions and coding deductions. Streamlining this process can help reduce delays and errors in cash application.
Seamlessly integrate your cash application system with your ERP (Enterprise Resource Planning) software. This ensures efficient cash posting and keeps your financial records up to date.
Conduct periodic reconciliation audits to ensure your cash application process is operating smoothly. Identify and rectify any discrepancies promptly.
Keep a close eye on key performance indicators (KPIs) such as cash conversion cycle, cash forecasting accuracy, and deduction resolution time. Use these metrics to identify areas for improvement and continually refine your cash application process.
Automating the cash application process can bring significant benefits to organizations in terms of efficiency, accuracy, and cost savings. Manual cash application processes can be time-consuming and error-prone, leading to delays in posting payments and strained relationships with customers.
Additionally, organizations end up spending a lot on FTE costs, processing fees for third-party vendors, or bank lockbox key-in fees, making cash application an expensive process.
By automating the cash application process, businesses can reduce their reliance on human resources and bank lockbox fees. This results in increased productivity and faster cash application rates.
Automated solutions can match payments to open invoices accurately, handle exceptions and deductions efficiently, and post cash to the ERP system in real-time, ensuring accurate and timely financial reporting.
Cash application automation can also reduce operating costs by streamlining accounts receivable processes and eliminating the need for manual data entry, reconciliation, and fetching. With more than 95% straight-through cash posting rates, businesses can reduce their processing costs and improve their bottom line.
Automating the cash application process can have a significant impact on an organization’s financial health. However, it’s essential to consider the right focus areas to ensure a smooth transition to automation. Here are the top ten focus areas that any A/R leader should consider while automating their cash application process:
You should automate the capture of remittance details across emails(both email body and attachments), web portals, EDIs, and other formats. Additionally, you must accept all standard file formats, including CSVs, PDFs, JPEG, PNG, XML, HTML, excel.
Want to overcome remittance challenges and build a seamless workflow for checks and e-payments?
To reduce dependency on bank lockbox key-in fees or in-house resources, cash application teams should leverage AI-based OCR engines to accurately capture check stub information. This is how they can eliminate lockbox key-in fees.
For electronic payments, customers send cash remittances through emails, EDIs, or even upload them to their A/P portals. Cash application teams manually extract these remittances and map them to the incoming payments with the correct invoice number, payment data, etc. However, exceptions often arise due to incomplete and non-standard remittance information. Organizations should implement automation to automatically link payment and remittance files for e-payments.
As soon as the payment information is received, the cash application system should be able to auto-match the payments to the customers’ open invoices. Customer identification takes place through customer reference fields such as MICR and IBANs for checks and account numbers in the case of e-remittance and payments.
Mapping payments to customers is often complicated due to the parent-child relationships. In some scenarios, sales invoices are closed on a parent account level, but the deductions are posted at the child level. Technology should help your cash application teams to identify and map parent-child relationships in the customer master to avoid exceptions during cash posting.
Cash application teams often encounter exceptions such as missing remittance information or incorrect invoice number. This leads to unapplied payments or, sometimes, delays in cash posting. How could you prevent unapplied and misapplied payments?
The answer is through automation. Cash application automation should be able to match invoices to payments even in exceptions with the help of AI-based technology.
Sometimes, customers make short payments and might not share the reason code information how you expect them to. An ideal cash application tool should identify short payments and map the customer-provided reason code to your internal reason codes.
Cash application automation tools should be able to generate output files that are compatible with any ERP system. This requires the capability to generate file formats as per the particular ERP system’s requirements, including BAI, EDI, and several others. Therefore it reduces the manual effort to reconfigure the file, and the cash directly gets posted to the ERP system.
Cash application teams would ideally want to encounter fewer exceptions so that they can spend more time on root-cause analysis. With the help of AI and machine learning algorithms, the auto cash application tool can self-learn from the exceptions and the analyst behavior in the past so that these exceptions can be automatically resolved in the future without human intervention.
Automation in cash application should help A/R managers and executives to monitor day-to-day activities, analyst KPIs, and cash application process metrics. With intuitive reports and dashboards, the C-suite will be able to analyze the performance of the cash application process in O2C on a global and regional scale.
When choosing a vendor for automating cash application, it’s crucial to consider the benefits and features of their solution. This chapter will help you develop a business case for implementing an automated cash application system, focusing on identifying and quantifying the benefits of the solutions provided by various vendors
To choose the right vendor, here are the questions you should ask before buying or implementing the solution:
Implementing an automatic cash application solution can require significant internal IT effort. With HighRadius’ Cash Application Software, you can minimize that effort. The solution is designed to work seamlessly with your existing ERP, eliminating the need for additional IT efforts. HighRadius’ cloud-based solution also ensures that you don’t have to re-code RPA systems every time there’s a new payment or remittance format.
It is essential to consider the cost of the solution while choosing any vendor. HighRadius’ automation tool offers a budget-friendly annual payment scheme for organizations of all sizes. Additionally, the ROI from HighRadius’ other implementations with customers has been significant, improving financial health and cash application processes.
Customization is crucial when it comes to automating your cash application process. HighRadius’ cash application tool is highly customizable, and the vendor can custom-build features based on your business requirements. This makes the solution purpose-built for your specific needs, ensuring maximum benefits.
An automated cash application solution should not only follow a set of rules but should also assist in decision-making. HighRadius’ AI and ML-based proactive exception-handling features enable the solution to self-learn from the exceptions and analyst behavior in the past. This allows for better decision-making and proactive handling of exceptions.
When evaluating vendors, it’s essential to consider these factors to ensure that the selected solution meets your business needs and provides maximum benefits. By choosing HighRadius as your vendor for automating cash posting, you can benefit from key features such as 100% automated remittance aggregation, automated invoice matching, and faster exception resolution. HighRadius’ solution is purpose-built, and customizable, and assists in decision-making, providing maximum benefits for your business.
HighRadius offers a comprehensive, cloud-based solution to automate and streamline the Order to Cash (O2C) process for businesses. Our solution aims to boost the efficiency of your team with our end-to-end solution, including Collections Management, Cash Application, Deductions Management, Electronic Invoicing, Payment Gateway, Surcharge Management, Interchange Fee Optimizer, Credit Cloud, & dotOne Analytics.
Trusted by 1000+ companies to deliver speed-to-value, including P&G, Ferrero, Johnson & Johnson, and Danone, HighRadius has been a Gartner Magic Quadrant Leader 3 years in a row, placed highest in the ability to execute and furthest in the completeness of vision.
FreedaGPT, a Gen AI assistant integrated with LiveCube, a spreadsheet-like tool, helps manage data, analyze information, and generate insightful reports—all using simple, plain English commands.
With AI-driven data capture and matching algorithms, HighRadius achieves 90% automation in same-day cash application, eliminating bank key-in fees entirely and boosting team productivity by 30%.
The Cash Application process in O2C can be automated, and across industries, the A/R teams have achieved more than 95% straight-through cash posting. While the cash posting rates differ with industries because of their unique business problems, organizations should always focus on improving their cash application process and analyst productivity.
Automated cash application provides numerous benefits such as improved efficiency, reduced errors, faster exception resolution, and enhanced cash flow visibility. It also frees up time for your finance team to focus on more strategic tasks, making your organization more productive and profitable.
The most effective cash application method is automated cash application software. It quickly matches payments to invoices using AI and machine learning, improving accuracy, speed, and efficiency. By eliminating manual data entry, it reduces errors, speeds up processing, and enhances cash flow—making it ideal for businesses managing high transaction volumes.
Positioned highest for Ability to Execute and furthest for Completeness of Vision for the third year in a row. Gartner says, “Leaders execute well against their current vision and are well positioned for tomorrow”
Explore why HighRadius has been a Digital World Class Vendor for order-to-cash automation software – two years in a row.
For the second consecutive year, HighRadius stands out as an IDC MarketScape Leader for AR Automation Software, serving both large and midsized businesses. The IDC report highlights HighRadius’ integration of machine learning across its AR products, enhancing payment matching, credit management, and cash forecasting capabilities.
In the AR Invoice Automation Landscape Report, Q1 2023, Forrester acknowledges HighRadius’ significant contribution to the industry, particularly for large enterprises in North America and EMEA, reinforcing its position as the sole vendor that comprehensively meets the complex needs of this segment.
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Colleen Zdrojewski
Trusted By 800+ Global Businesses
HighRadius Corporation
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