Cash application, as the final step in the order-to-cash (O2C) cycle, is a vital part of the accounts receivable process. Despite being integral to B2B finance operations, cash application is still widely completed through manual efforts.
Unfortunately, AR teams often have to work with incomplete, illegible, or missing remittance data, which makes the matching process even more inefficient and unnecessarily prolonged.
The good news is that this situation is rapidly being replaced by automated cash application software. These software solutions utilize advanced document scanning and pattern recognition techniques that can stitch together broken records and their corresponding invoices with ease.
Still, not all cash application software will be optimal, and business leaders need to find the right software to fit their business needs. What you need to know to effectively navigate this software landscape is laid out in this article, alongside the key factors to look for before choosing an automated cash application for your business.
What is Cash Application?
When a customer’s payment and remittance are collected, the process of cash application begins. The payment and remittance are matched with the corresponding invoice or invoices. Completed invoices are closed, making your revenue generated through this transaction realized, and crucially, auditable.
Traditionally, this process has been done manually by accounting departments matching payments and remittances with open invoices. The manual cash application process sounds simple in theory, but in practice, it drains business resources and contributes to large operating costs.
Why Should I Automate Cash Application?
So, why should you look for automated cash application software? What can it provide for your business?
Automated cash application software lifts redundant manhours off the shoulders of employees while driving efficient and accurate payment matching. This leads to more available working capital, less human error, and lower processing costs for your business.
Streamline Your Matching Process
Your cash application process likely relies on accounts receivable sifting through payments and remittances to match them to open invoices. Even if your system is digitized, this process can drain resources and time that is better spent elsewhere. With automated cash application, everything from invoice tracking, payment processing, and payment matching are all managed within one dashboard, and all without the need for continuous human intervention. This frees your team from repetitive manual tasks and allows them to focus on strategic tasks such as creating customer touchpoints and improving overall experience.
Scale Rapidly
With an automated cash application, your business will be able to grow its existing customer base without needing to grow an AR department alongside the increase in payment and remittance volume. This allows business operations to scale rapidly, without the associated costs of expansion.
Provide a Better Customer Experience
Automated cash application will allow your business to process a wider range of document types, leaving customers to choose which payment or remittance form works best for them. This will also make your business more resilient to shifting market conditions and payment trends, as any change in customer payment preferences can be handled without a change in your team’s process.
Free Up More Working Capital
The faster a payment can be processed, matched, and applied to an open invoice, the quicker that payment can be turned into actionable revenue. This means quicker access to new working capital for use in other business expenses and processes. Freeing more working capital also puts your company in a better position to grow and outperform your competition.
Be Accountable
With the right automated cash application, files will not be mismatched, misplaced, or lost. Certain cash application software make it exceptionally easy to store and find auditable references to transactions, should you require them. Every interaction with customers is recorded and documented along with the details associated with it, leaving a robust and easily accessible audit trail.
What Should I Look For?
Not all automated cash application software is created equally. Some focus solely on remittance collection without a complimentary system for payment processing, and some claim to be fully automated but require manual uploads of data batches from your end to function.
Each organization’s cash application needs vary, and your ideal solution has to be tailored to those needs. When looking for a fully automated cash application, however, there are some key features and functions that any business should be looking out for.
Integrations
There are two types of integrations required to make the most out of any automated cash application system.
- Back-end integration ties the cash application software into your ERP system, integrating it into your normal business process. ERP systems vary by type, whether it be an on-site system maintained by a dedicated IT staff or a cloud ERP service through a third party. They also function differently depending on the industry your company operates in, whether that be manufacturing, utility service, client service, or distribution. Your cash application automation software should integrate with the ERP functionalities key to your business.
- The second type of integration is front-end integration into your payment processing system. Payment processing integration not only simplifies the channels your incoming payments flow through, but it also provides a better customer experience. With more transparency into their payment status, and a mode of direct communication with your company’s accounts receivable department, customers will be kept in the loop regarding their obligations more effectively than with traditional methods.
With these integrations, your process will be tied end-to-end, allowing payments to flow through a payment portal and remittances through your ERP, where they collect into a cash application software and are assigned to matching invoices before finally being posted onto your ERP.
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Versatile Data Extraction
Payments and remittance come in from diverse channels and often in wildly different formats. Cash application software should be able to ingest just about anything, from a custom text file to PDFs, emails, CSV files, XML files, OFX, BAI1, or BAI2 and use it to match and close invoices.
This is crucial for automated cash applications, as without it, customer payments and remittances can be subject to delays and mistakes, increasing inefficiencies.
Exception Management
What happens when a software is given a remittance without sufficient identifying information to match it to a customer, payment, or invoice? Are there safeguards in place to catch these exceptions? Does the system match it to the wrong invoice? Is there a central location to manually sort the unmatched remittance?
These questions are exactly what you should consider when choosing cash application software, as exceptions can make headaches even when automating the rest of your cash application. The process in which automatic matches are made should be as transparent as possible, and exceptions which are found should be easily accessible. In addition to this, exceptions should be passed on automatically for manual review by analysts with indications of not only why the system was unable to match it, but also the system’s best guess at where it belongs.
Understanding how a software manages its way through these difficulties, and what measures are in place to catch and organize faulty or incomplete data, will help you to understand the safeguards in your system, as well as its vulnerabilities.
Customization
No two companies operate the same. Out-of-the-box software won’t address all your company’s needs and specific requirements regarding cash application. The cash application process varies due to company size, industry, volume of payments, and payment methods, making a tailored service more than a luxury but a necessity.
Software that can be molded to fit your needs is essential for your business process. Even more essential is its ability to be refitted once in place. With growth, expansion, and shifting focuses, having a platform that can adapt alongside you will make your AR and cash application processes resilient and flexible.
Automated Cash Application software can learn new efficiencies post implementation, as it recognizes patterns in payments, remittances, and especially in exception management where systems utilize machine learning to fine-tune their automated matching suggestions.
Seamless Parent Child
Allocating payments to customer invoices which exist within a parent child account is a complex task for automated cash application software to manage. The ability to automate this is not a common feature, but it can provide two enormous benefits for your process.
- Save time. With the ability to allocate payments within parent child accounts, your company can reduce these repetitive manual tasks and refocus your efforts on strategy. Automated payment allocation is especially useful for enterprise organizations who operate with complex customer relationships at a high volume.
- Improve customer experience. Customers will be treated with a full self-service system where they can choose which invoice they want to pay first or how they distribute a payment across multiple invoices. This makes the payment experience easier for customers and equips your business with an innovative cash application solution designed to solve enterprise level challenges.
These All Sound Good? Go with Bectran.
Bectran’s cash application module leads the industry, providing solutions tailored to your business needs. Streamline your cash application process with end-to-end integration into any ERP system and leading payment portal providers. Automate the matching process for both remittances and payments in any standard format and allow your customers to choose the distribution of a payment across their invoices and accounts.
With Bectran, save your AR team from unproductive work and give your customers the payment experience they want.
