Cash Posting: What Is It, Steps, Process, Challenges, and More

Introduction

Mastering cash posting is fundamental for businesses of all sizes, from startups to well-established companies. Unfortunately, this crucial task is often overlooked, sometimes due to procrastination or the fear of making errors.However, it’s important to recognize that neglecting cash posting can lead to confusion and missed opportunities.

A business that maintains a swift and effective cash posting and application process can operate smoothly, without interruptions, and can experience accelerated growth.

In this article, we’ll delve into the world of cash posting, exploring what it is, the steps involved in the cash posting process, common challenges, and how automation can help streamline this essential financial task.

What Is Cash Posting?

Cash posting involves moving transaction data from various sub-ledgers or journals to the company’s general ledger. It’s done when a business collects many transaction records, like expenses, sales, accounts receivable (AR), and accounts payable (AP).

Recommended Reading: Accounts Receivable vs Accounts Payable: What’s the Difference and How They Help Streamline Cash Flow?

For companies with multiple subsidiaries, the ledgers of child companies are often treated as subledgers and consolidated into the parent company’s general ledgers. Cash posting is a more traditional method of managing accounts, with many businesses already storing transactions directly under accounts in general ledgers.

In essence, cash posting involves reconciling cash transactions in an organization’s financial system to ensure accurate accounting and proper placement, likened to solving a giant puzzle where all the pieces must fit together.

Now, you might wonder, “Isn’t that what accounting software is for?” Well, yes and no. While accounting software can automate parts of the cash posting process, there’s still some manual work involved. This is where a cash application solution like HighRadius can assist, achieving up to 98% straight-through cash posting.

In summary, cash posting is the process of recording received payments in the company’s accounting system and linking them to the correct customer accounts and invoices.”

Why Is Cash Posting Important?

Cash posting is of utmost importance as it ensures businesses maintain precise financial records, which are critical for effective cash flow management and financial reporting. Moreover, it plays a pivotal role in preventing the adverse effects of delayed payments, including financial instability, missed growth opportunities, and operational inefficiencies.

Late or unpaid invoices can tie up resources and strain client relationships. Therefore, an expedient cash posting system aids in effective cash flow management, reducing the risk of payment delays, and ensuring a seamless supply chain.

Recommended Reading: Outstanding Invoices: What Is It and 5 Key Strategies to Effectively Collect Them.

In conclusion, cash posting is a vital process that helps businesses maintain financial accuracy, recording all cash transactions in their accounting system, and facilitating the efficient utilization of funds.

What Are the Steps Involved in the Cash Posting Process?

The cash posting process is an important part of the accounts receivable function for businesses. Here are the steps involved in the cash posting process:

1. Receive payment from the customer: The first step is to collect payment from the customer, which can be in various forms, such as cash, check, credit card, or other methods.
2. Identify the payment: Once received, the payment must be identified and matched to the appropriate customer account, often by reconciling it with outstanding invoices or balances.
3. Record payment details: Payment information, including the amount, date, payment method, and other relevant data, is recorded in the accounting system.
4. Allocate payment to customer account: The payment is then allocated to the correct customer account, updating the accounts receivable ledger to reflect the received payment and the remaining balance.
5. Reconcile accounts: The accounts receivable ledger is reconciled to ensure accurate posting of all payments and to identify any discrepancies between recorded amounts and actual payments.
6. Follow up on outstanding balances: In case of remaining outstanding balances, businesses should contact the customer to facilitate the receipt and correct allocation of the payment.

By following these steps, businesses can maintain an accurate and efficient cash posting process, minimizing errors and enhancing financial health while nurturing positive customer relationships through timely and accurate payment handling.

Challenges of Manual Cash Posting Process

Manual cash posting process involves matching payments with the invoices and the customer data and adding them to the ERP. It takes a lot of time and reduces the overall productivity of your employees. There is a higher probability of error when manually matching the records. Let’s look at some of the other major challenges that come with manual cash posting.

1) Lack of payment information

Companies spend a lot of time and effort matching invoices when a customer makes a payment and provides the remittance data separately. There are also cases where the remittance information is not even provided, which makes it even more difficult for the AR staff to post cash and slows down the entire process.

2) Multiple remittance file formats

Businesses that handle cash posting manually often face the difficulty of handling multiple remittance file formats. Sometimes the information is provided in emails, pdfs, web portals, and other formats, which makes it difficult to aggregate data individually for every client.

3) Handling disputes

Managing deductions, short payments, overpayments, and multiple invoices being paid together makes it complex for AR staff to handle cash posting. The lack of clarity and information on disputes lead to their delayed resolution and additional efforts on the part of the employees.

Benefits of Automating the Cash Posting Process

The key to making the cash posting process efficient is to automate it with a cash application solution. Here are some benefits of automating your cash application process:

Recommended Reading: Cash Application Guide: Everything You Need to Know.

1) Increases speed

Automation enables faster invoice matching and cash posting. It gives companies more visibility into the cash available at hand for business activities and also instantly releases credit for customers who have paid their dues, giving them a better experience.

2) Reduces errors

There is always a chance for errors in manual processes because of oversight, employee fatigue, etc. However, an automated system reduces errors to a significant extent. This ensures data quality and improves efficiency.

3) Improves customer experience

A considerable delay between a customer making a payment, invoice matching, cash reconciliation, and credit replenishment will lead to a negative customer experience. But with automation, cash can be applied instantly without errors, thus elevating the customer experience.

4) Boosts scalability

As a business’s transaction volume increases, it becomes difficult to implement the cash posting process manually. There is also the challenge of accommodating multiple payment methods based on customer requirements.

An automated cash application solution makes adding new payment methods easier and processing large volumes of transactions practically effortless.

Recommended Reading: Top 10 Proven Tips For Automating Your Cash Application Process.

How Can Highradius Help Improve Your Cash Posting Process?

HighRadius’AI-powered cash application solution helps your business reduce manual dependency for the cash posting process by:

• Achieving up to 98% straight through cash posting
• Automatically matching open invoices with payment receipts even at line item level
• Leveraging AI to match remittance even incase of missing invoice numbers
• Automatically mapping customer reason codes into your ERP reason codes without manual intervention 
• Automating remittance aggregation from various sources such as check stubs, emails, and web portals.

FAQs

1) What is the difference between cash posting and payment posting?

Cash posting refers to the process of recording cash transactions in the accounting system, while payment posting is a broader term that includes all types of payments. Cash posting specifically deals with cash or check payments, while payment posting encompasses all payment methods.

2) Why is payment posting important?

Payment posting is important because it is the process of recording all payments received by a business in the accounting system. This helps to ensure that customer accounts are accurate and up-to-date and that the business has an accurate record of its financial transactions, which is essential for managing cash flow and financial reporting.

3) What is the role of cash posting?

The role of cash posting is to ensure that all cash transactions are accurately recorded in the accounting system. This involves identifying payments received, allocating them to the appropriate customer account, and updating the accounts receivable ledger.

4). Who Is Responsible for Cash Posting?

 In most organizations, the responsibility for cash posting typically falls under the finance or accounting department. Specifically, individuals within the Accounts Receivable (AR) team or a similar financial role are often assigned the task of handling cash posting. Their responsibilities include recording and reconciling cash transactions in the company’s accounting system, ensuring accuracy, and updating customer accounts accordingly.