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Cash Application Automation

When a business gets numerous customer payments each day, it might be challenging for the cashier to promptly apply the proceeds to open accounts receivable. In that case, deposits can be delayed. By using automatic cash application, the cash application procedure can be greatly sped up.

Cash Application Is Complicated

One of the most crucial things to realize regarding cash applications is that no two businesses operate in the same way. The process of applying for cash can be influenced by a number of variables, including the number of clients, the volume of invoices, the delivery methods used to distribute invoices, the means of payment, and more. But generally speaking, the procedure entails passing through a number of steps before being finished.

These can include (among others):

  • Opening accounts for new clients.
  • Getting paid for goods and/or services provided.
  • Putting payment data into the proper database or software.
  • Reconciling financial records.
  • Examining any discovered payment inconsistencies.

Manual vs. Automated Cash Application

The cash application process can be carried out manually or automatically, giving rise to essentially two options. A cash application specialist or an (link: https://fincent.com/blog/what-is-accounts-receivable-definition-importance-and-examples text: accounts receivable) (AR) employee manually matches each payment and remittance to the corresponding invoice by reviewing the customer name and number on the (link: https://fincent.com/glossary/invoice text: invoice). After then, the company's ERP receives this information, which is then replicated for the following client.

The manual method requires a lot of work, takes a long time, and is difficult to scale. Additionally, human mistake is possible.

Automation of cash application processes is becoming more widespread. Automation of cash application processes can significantly reduce the likelihood of human error while also assisting in speeding up the process. The requirement for automation will become more urgent as an organization's cash application process becomes more complicated.

Advantages

Automated cash applications are ‘Faster’.

  • The quicker funds are allocated to business expenses, the faster payments are matched to invoices.
  • When an invoice is recorded as paid, the customer's credit is restored and they are able to make new purchases.

Automated cash applications are ‘Smarter’.

  • Errors in manually applying cash might affect cash flow and provide a bad customer experience. Error is significantly reduced by automated cash application.
  • Automated cash apps can make it easier for a business to accept more payment methods and accommodate the needs of its clients.

Automated cash applications are ‘Scalable’.

  • Automated cash applications give businesses the freedom to be flexible with their payment acceptance rules. A company with automated cash applications can simply accommodate their consumers if, for instance, market conditions are driving them to wish to pay with credit cards.
  • Businesses that have automated cash applications can serve their expanding customer base while limiting the cost structure of their accounts receivable (AR).

How Automatic Cash Application Works

The Magnetic Ink Character Recognition (MICR) data from each check received at the lockbox, along with the total payment amount, must be forwarded to the business by the lockbox operator using a data feed in order for automatic cash application to take place. To determine how to apply these payments to open accounts receivable, the cash application program consults a decision table.

The automated decision process generally follows these steps:

  • Match the correct client to the bank account number on each check's MICR information. By doing so, you can access the right customer's open accounts receivable record.
  • Only match payments to invoices when the payment and invoice amounts are precisely the same.
  • Only match the remaining payments to the invoices if the cash sum exactly matches a number of bills that have just become due for payment.
  • Set aside all outstanding payments for manual review.
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