Automating the Cash Application Process: 10 Tips for Getting It Right

The cash application process is a vital part of the accounts receivable (AR) workflow in any organization. It guarantees that the accompanying payments are automatically matched with the invoices, thereby empowering the companies to maintain their cashflow positively. On the other hand, when cash application is done through manual processes, it ends up being more tedious, time-consuming and error-prone, not to mention resource-intensive. Through AI-driven automation, organizations can streamline the cash application process, eliminate inefficiencies and boost their overall financial operations.

In this blog, we’ll dive deep into topics including what the cash application process entails, its main stages, reasons for its automation, advantages and 10 successful automation strategies. Additionally, we will explain how to select the right solution partner for when you’re ready to take the leap.

What is cash application process automation?

Cash application process automation involves the implementation of AI, machine learning and robotic process automation (RPA) for the automatic matching of incoming payments to invoices. Through the extraction of data, predictive analytics and intelligent decision-making algorithms, it minimizes the need for human involvement — resulting in faster, more accurate cash allocation, improved overall AR efficiency, and better decision-making. 

What are the stages of the cash application process?

1. Payment receipt: The means by which companies get cash inflows, including checks, ACH, wire transfers or credit cards.
2. Remittance processing: Payment information, including remittance advice, must be obtained and associated with the correct customer.
3. Invoice matching: Fees are calculated concerning the invoices, and overpayments or deductions are taken into account.
4. Exception handling: Irregularities, such as payments that are missing or unmatched, need to be settled.
5. Posting to ERP system: Payments that are matched correctly are posted into the enterprise resource planning (ERP) or accounting system.
6. Reporting & reconciliation: Reports that are created to keep an eye on cashflow and reconcile differences between received and posted payments.

Why automate cash application?

Manual cash application can create bottlenecks and other process inefficiencies in financial operations, some of which can cause major delays in payment and increase in the likelihood of mistakes. Automation brings efficiency and visibility to the process by streamlining workflows, providing customizable dashboards, decreasing errors by minimizing human intervention, and saving valuable resources that can be put toward higher-value financial activities.

The core advantages of cash application automation are:

1. Faster payment processing: Automation drastically cuts down on the time needed for payment matching and invoice reconciliation, driving down turnaround times.
2. Reduced errors: Errors made by humans are minimized because AI solutions are utilized, which goes hand in hand with higher cash application accuracy.
3. Enhanced cashflow visibility: Automated cash application solutions monitor cashflow and the outstanding receivables in real-time.
4. Lower operational costs: By eliminating tedious, manual tasks, businesses can reduce labor costs and optimize resources.
5. Improved customer relationships: Quick payment posting results in more accurate account statements, helping to lessen disputes and boost customer satisfaction.

10 tips for automating cash application

1. Assess your current process: Pinpoint bottlenecks, pain points and inefficiencies in your cash application process in order to decide what parts of the process you need to automate.
2. Leverage AI & machine learning: Make use of AI for accurately and efficiently matching payments to invoices, even in conditions when information is incomplete or unstructured.
3. Integrate with your ERP system: Make sure your ERP or accounting system seamlessly integrates to enable automatic posting and reconciliation.
4. Implement Optical Character Recognition (OCR): With OCR technology, remittance data can be automatically extracted from emails, checks and PDFs, eliminating manual data entry altogether. 
5. Utilize bank feeds & payment portals: Direct integration with payment platforms and banks delivers real-time payment updates and cuts processing time.
6. Automate exception handling: Establish an AI-driven workflow for the identification and resolution of disagreements, for example unmatched and short-paid invoices, which minimize human intervention.
7. Enable auto-matching rules: Auto-matching of invoices based on invoice patterns, historical payment behavior and customer preference should be added first.
8. Monitor & analyze performance: Keep an eye on important performance metrics like match rates, exception rates and processing times to help optimize automation performance.
9. Ensure data safety & compliance: Apply solutions that will ensure consumer data protection and adhere to regulatory compliance, such as PCI-DSS and GDPR.
10. Choose a scalable solution: Get an automated tool that can grow along with your business as transaction volume and payment methods increase.

How to choose the right automation provider 

Choosing the right automation partner is not just an option, but rather the backbone of a successful cash application transformation. The below-mentioned factors should serve as priority checks while evaluating your options for solution providers:

Industry experience: Select a provider that has experience with AR and other financial automation.

AI & machine learning capabilities: Choose a solution that incorporates innovative AI to help your team handle complex payment scenarios while learning over time to improve overall accuracy.

Seamless ERP integration: Look for a solution that works effortlessly with your current ERP and banking systems.

Customization & flexibility: The tool should be able to adapt to meet your specific business requirements regarding supported payment methods and department workflows.

Customer support & training: A dependable automation provider is the one who offers continuous support, training and implementation assistance for a successful transition.

Security & compliance: The solution provider should adopt strict protocols and comply with industry regulations.

Cost & ROI considerations: Determine the pricing model first, then assess the return on investment (ROI) for the project in terms of efficiency gains and cost savings.

Esker can help automate your cash application process: Here’s how

Esker Cash Application is an AI-powered solution that reverses the time-consuming manual process of matching multiple payments from different sources to help AR teams focus their time on higher-value tasks and gain more control over cashflow in real time.

Speed up cash application & secure revenue: AI-powered automation drives cash allocation efficiency and quicker/simpler deductions, helping to speed up the process and improve accuracy along every step of the way.

Optimize credit & collections efficiency: Streamline the payment allocation process and let your team work more efficiently by having more cleared customer accounts and a smoother collections process.

Enhance visibility into cash inflows: With user-friendly dashboards and automated reporting, you can easily monitor cash inflows and make better, more informed financial decisions.

Simplify collaboration for every stakeholder: A more transparent and efficient cash allocation process helps improve customer communication, resolve disputes faster and increase team productivity.

Transform cash application with Esker today!

Transforming the cash application process through automation is a way for companies to reach new levels of efficiency, accuracy and cashflow management, all while improving the day-to-day lives of AR staff. Automation, powered by AI and machine learning, can help companies streamline AR functions, avoid errors and improve financial visibility. Get rid of the manual inefficiencies, make cash visible and streamline allocation with Esker’s world-class, AI-driven automation. Check out Esker Cash Application.