Cash Application Process

What Is the Cash Application Process?

Accountants complete cash applications by matching all income received with the corresponding accounts or invoices. While the name implies this happens only for cash payments, it covers all income methods, including ACH, wire, checks, and credit cards.

There are basic steps to follow, but each company’s cash application process flowchart looks different. These are the main tasks involved:

  1. Create accounts for customers.
  2. Receive incoming payments for invoices submitted.
  3. Enter payment information in holding accounts via manual methods or a database.
  4. Match payments to the correct invoices.
  5. Transfer payments to the right accounts.
  6. Reconcile accounts and investigate disputes or inaccuracies you might find.

What Are the Pros and Cons of Manual Cash Applications?

Manual cash applications allow accounting teams to start the process immediately without investing in software. From an upfront investment point of view, this is more cost-effective than purchasing software. However, the cost of extra labor spent on manual processes increases in the long run. Manual entries can also lead to costly mistakes.

What Are the Pros and Cons of Cash Application Automation?

There are two main downsides to automating the cash payment process. The first is the upfront cost of the software involved. However, there are incredibly affordable options, and they can pay for themselves quickly in savings from labor costs. The second downside is that workers often need some software training, but one could argue that training is also necessary for completing complex manual alternatives.

Here are the pros of automation:

  • Automation is easier to scale. Companies can avoid making big adjustments to respond to market changes. These changes often make some payment methods more common than others. For example, some customers might be more likely to pay with credit cards when interest rates are low.
  • Automated systems are more accurate and precise. Bots do not get tired or distracted. They repeat programmable steps time and time again with unmatched accuracy. Consequently, companies can feel confident in the accuracy of their records.
  • Automated systems are faster. The human brain processes information quickly but much slower than bots do. Instead of spending countless hours on complex calculations and monotonous tasks, workers can focus on job functions that require human intelligence and creativity.
  • Companies can process payments 24/7. Processing payments around the clock allow for greater flexibility in cash flow management. It also introduces a new layer of convenience for customers, contributing to reduced friction and better ratings.

What Are Some Best Practices for Automating Cash Application Process Steps?

The software provider you choose will determine how many of these best practices you can follow. Ideally, you select a system that includes most or all of these capabilities:

  • Leverage AI and machine learning. These technologies allow A/R software to learn and adapt over time. With machine learning, the system can improve its accuracy as it processes more data. It can accomplish this by learning to understand context clues and use them accordingly.
  • Configure workflows according to your needs. The A/R team can customize workflows based on company requirements and preferences. For example, the company might have separate steps for large or small invoices, domestic or international, paid with checks or credit cards, and so on.
  • Integrate with other business systems. Automated cash application is just one part of an overall accounts receivable process, including payment management and collections. An integrated system allows you to centralize and automate all of these processes.
  • Utilize APIs. APIs are software code that allows different parts of your system to communicate with one another. Select a system built on an open API platform, and you can integrate it with other business programs easily without needing costly custom development work.
  • Ensure robust security features. To keep your data and transactions secure, look for systems that include advanced security protocols such as SSL encryption, two-factor authentication, and intrusion detection. Keeping customer payment information safe reduces the risks of data leakage and builds long-term trust.

How Can Gaviti Help With the Accounts Receivable Cash Application Process?

Gaviti is a leading provider of A/R software that can help your organization automate its cash payment process from start to finish. We accomplish this by integrating well with other platforms your business uses for payment processing and accounting. Book your demo to get started.

 

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