Cash application is essential to accounts receivable success. Without a superior cash application process, you risk longer days sales outstanding (DSO) and inaccurate reporting of cash flow.

What is Cash Application?

Simply put, cash application is the matching of customer payments to their corresponding invoice, then processing the payment so it moves into your available cash on hand.

Traditionally, cash application has been completed by finance teams meticulously with care, by hand. This would ensure that each payment was matched against an invoice for the payee (customer) and the dollar amount of the payment. From here, the finance team post it to the outstanding accounts receivable invoice in their company’s ERP to ensure an accurate account of available cash and to close out outstanding invoices, accordingly. While this sounds easy enough, reviewing check, ACH, credit card and other payment types to open invoices can get complicated quickly. Why?

With more businesses leveraging electronic payments like ACH, credit cards and wire transfers, remittances may come from disparate sources like via mail, email, web portals, or other sources. While there are many ways to manage cash application today, the process includes several key milestones regardless of your processes.

Cash Application Milestones

  • New customer account set-up.
  • Sending invoices / amount due to customers.
  • Payment provided by customers
  • Services and/or products provided to customer
  • Payment details entered into ERP/ accounting software.
  • Reconciliation complete.
  • Reviewing and reporting payment discrepancies.

Automating Cash Application

As companies scale in size and complexity, manually reviewing and matching invoices with payments becomes increasingly tedious and inefficient. While teams work as thoroughly as possible, by their nature, manual processes leave opportunity for data or keystroke errors, creating inaccuracies in the system, increasing DSO as a result.

Automating cash application employs the same milestones in the process, eliminating potential errors and increasing the speed at which remittance can occur. Cash application automation allows companies to eliminate routine tasks in the process, matching payments to invoices, moving specifics to the ERP, automating the remittance process as well. Automation not only reduces DSO significantly, but improves team workflow, freeing up bandwidth to focus on more value-add activities. As a result, staff burnout is greatly reduced and cash flow is greatly increased.

Fast-track cash application by automatically aggregating remittance across multiple sources and linking them to the right customers and invoices, putting cash in your accounts faster. With award-winning Lockstep®, connect customer remittance to the right invoice automatically, making real-time payments a reality.

Award-winning Lockstep® connects the world’s accounting teams to help them work better together. The pioneer in Connected Accounting, Lockstep develops tools and platforms for fintech developers and accounting teams to automate workflows between the accounting systems that are at the heart of all businesses.