How to Solve Common Cash Application Challenges with Automation

The constraints COVID-19 has created have accelerated an already trending movement away from checks for businesses. AFP’s 2020 Payments Survey found the percentage of B2B payments made by check was at 42% in 2019, nearly half of what it had been in 2004.

With increased digital transformation comes more opportunity for efficiency. But, for cash application, the emergence of electronic payments has actually made the process more difficult. With information coming from more channels (ACH and online, in addition to lockboxes), this means more work for your accounts receivable team.

We’ll break down three common cash application challenges AR teams face and how you can solve them with automation. 

  1. Working with Various File Types
    While many organizations look to lockbox services to increase efficiency by leaving the processing of checks with the bank, they can spend a fortune on key-in fees and other associated costs. The bank lockbox files themselves introduce an additional challenge as they can be formatted several ways. Some are image-based files while others are keyed data files.

    When electronic payments come in, they may or may not come with the remittance information you need. Supplementary files are often needed, which can come via a variety of formats and channels—everything from Excel and EDI files to images and web portals. Pulling out the necessary data from all these sources can be very time-consuming if you haven’t found a way to automate this process.

    A tool built to automatically extract and aggregate data from a wide array of remittance file types makes working with all these data sources much easier.
  1. Digitizing Remittance Information
    Once you have the remittance data, formatting issues like blurred images, multiple columns and pages, and missing characters present a challenge for cash application. When automating the process of matching remittance information with invoices, it’s important not to over-match and potentially make false matches.

    Accommodating for these issues goes beyond simple Optical Character Recognition (OCR). To best match the remittance data to invoices, you’ll need a tool that makes decisions based on logic informed by extensive knowledge of the field.
  1. Matching Payment Flexibility
    Customers don’t all pay in the same way. Some organizations have customers that might be paying on invoice, and some might pay on purchase order, sales order, or item. Short payments and deductions—and the rules accompanying them—also make for an added level of complexity in matching remittances to invoices.

    A cash application tool that provides flexibility around how customers pay you and considers the various rules around deductions your business needs is the best way to automate the matching process.

Is it Possible to Automate 100% of the Cash Application Process? 

Because payments made online (through a dedicated portal or payer networks—which are emerging increasingly) enable remittance information to be captured at the time of payment, it’s possible to automate 100% of the cash application process.

With around half of B2B payments still being made offline, there’s still the question of how to automate those traditional payments. You effectively solve this issue when you have a solution that can aggregate and auto-match the remittance data for checks, ACH, and lockboxes while also enabling more of your customers to pay you online.

To achieve complete cash application automation, you should maximize your acceptance of online payments, alongside automating your matching of traditional payments.

Unlocking Savings and Cash Flow 

Minimizing the tedium of cash application means freeing up your AR team to focus on other, more high-value activities like collections, contributing to DSO reduction as a result.

In giving your customers flexible payment options—by being equipped to easily handle cash application for all of their preferred payment methods—you make it easier for them to pay you which in turn motivates them to pay faster, accelerating cash conversion.

The disruption of manual and paper-based payment processes was well under way before COVID-19 happened and will definitely endure after. Making the shift towards online payments is not only great for future-proofing your business, but also for simplifying cash application.

To learn more about how you can simplify the cash application process for your AR team, watch our webinar “Solving the 3 Key Cash Application Problems” hosted with Cashbook, now available on demand.

Nicole Bennett

Nicole is a Content Writer at Versapay and a recent English grad from the University of Waterloo. She is passionate about generating value for customers and businesses through authentic and compelling storytelling. Before joining Versapay, she completed several internships in SaaS, financial services, and higher ed.