Should You Adopt Cash Application Automation?

by J.B. Maverick

2 min read

Cash application, the process of applying payments received to outstanding accounts receivables (AR) invoices and customer accounts, is a critical part your small business’s financial operations. This is especially true if your company sells business-to-business (B2B) because the payments for B2B sales rarely occur at the point of sale (POS), but at a later date, following invoicing. Because of the lag time between goods or services sold and receiving money, maintaining a healthy cash flow and working capital position for your company requires efficient handling and quick application of payments to your books. Cash application automation can help you handle payments more easily and efficiently.

Problems with Cash Application

Cash application is basically a simple process, but it can become complicated and overly time-consuming. In today’s world, receiving cash or check payments that directly matching single outstanding invoices proves rare. The adoption of electronic and online payment systems, such as wire transfers, credit or debit card payments, and payment processors, means your business may receive payments in a variety of forms and through a variety of avenues, including email and online web portals. Customers who send a single payment to cover multiple invoices can also complicate cash application because the received payment doesn’t match a specific invoice. This usually means extra work since you have to match the payment with the customer account while adding together totals and checking off the invoices it covers. Manually performing all the necessary steps of payment collection from different sources and then matching them up can become a very laborious process that negatively impacts your company’s cash flow. This can especially cause issues if your small business doesn’t have much excess cash and depends upon prompt payment credits to your business bank account that let you handle your company’s own financial obligations.

The Solution of Cash Application Automation

Automating cash application can reduce your processing costs by using a single workflow channel to collect and apply payments, improve your company’s cash flow, and make it easier to manage your working capital. It also reduces the number of days-sales-outstanding (DSO) and gives you better insight into your accounts receivables by offering real-time reports and payment tracking. Cash application automation software cuts down the time required to process accounts receivables payments. Automation programs such as InvoiceSherpa can retrieve payments from multiple sources, including payment information from emails. It can also collect all payments in a single file or account and automatically match payments to the proper invoices or customer accounts. Automation can improve your accounting efficiency by reducing errors. These apps typically let you set up automatic billing and follow up with invoice reminders when payments hit overdue status. These software options integrate easily with popular accounting software, including QuickBooks Online. Cash flow is the lifeblood of your small business. You can save time, reduce labor expenses, and improve your company’s cash flow by implementing the use of cash application automation.

References & Resources

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