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What Is the Cash Application Process?

Most people who live and breathe accounts receivable (A/R) are all too familiar with the cash application process. It’s a daily part of handling the books for organizations of all shapes and sizes, and one that requires a fair amount of experience in order to get right. From setting up new customer accounts to reconciling and researching payment discrepancies, accounts receivable processing requires focus and precision. On top of that, the cash application process can sometimes seem a bit convoluted, but it is completely necessary.

But what is the cash application process, and how does it work? To put it simply, the cash application process involves matching incoming payments to their corresponding invoices and accounts. Cash, wire payments, bank reconciliations, and every other type of transaction that can be used to pay an invoice are reviewed, then signed off and filed by the designated financial controller.

Let’s take a closer look at how the cash app process works, as well as how streamlining it can be beneficial for your business.

Cash Application: How it Works

One of the most important things to understand about cash application is that no two companies follow the exact same process. A variety of factors can play into the cash application process, such as number of customers, the quantity of invoices, the delivery methods used to send invoices, payment methods, and more. As a general rule, however, the process involves going through a handful of steps before coming to completion.

These can include (among others):

  • Setting up accounts for new clients and customers.
  • Receiving payments for products and/or services rendered.
  • Entering payment information into the appropriate software or database.
  • Reconciling bank accounts.
  • Investigating any payment discrepancies that are discovered.

There are essentially two ways in which the cash application process can be performed—manually or automatically. With a manual process, a cash application specialist (or A/R staffer) goes through each payment and remittance, matching them with their associated invoices typically by looking at the customer name and number printed on the invoice. This information is then posted to the company’s ERP and repeated for the next customer. Clearly, there’s a fair amount of room for human error with this approach.

The alternative is to consider automating your cash application process. Cash application automation not only helps to cut down drastically on the amount of time the process takes, but it can also greatly reduce the chances of human error. The more complex the cash application process becomes for an organization, the more pressing the need for automation will be.

The Bottom Line: Automate Your Cash Application Process

For accounts receivable professionals, the cash application process is often associated with headaches, frustration and dead ends. Much of this comes down to the fact that many companies still handle cash application manually, which is now an antiquated methodology. Billtrust offers accounts receivable solutions that can be scaled to fit your business perfectly, including cash application automation and more.

Don’t go it alone in the cash application process—contact us today to learn more about how we can help you.

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