6 Signs Your Cash Application Process Could Be Better—And How To Improve It

How efficient is your organization’s cash application process If your answer is “It’s complicated,” we don’t blame you.

Payment trends have been going digital for years. The COVID-19 pandemic has only further accelerated widespread preference in B2B for payment technologies like ACH, EFT, wire, credit card, corporate trade exchange, and online portals.

This might make things easier from an accounts payable (AP) perspective, but it creates complications for accounts receivables (AR) professionals, especially when managing the cash application process.

As complex digital payment methods get mixed in with ye olde paper checks and other more traditional payments, some AR departments are finding that:

• The cash application process is significantly slower

• Getting accurate reporting is a challenge

• AR costs are higher, and

• Customer satisfaction may be compromised

How should you assess the efficiency of your current cash application process? And if you determine there’s room for improvement, how can you transform your current process into a well-oiled cash application machine?

Look no further. In this blog, we’ll break down 6 telltale signs that your cash application process could use improvement. Then, we’ll share some tips on how you can audit and improve your process. (Be prepared to boost cash flow and make your cash application team happier and more productive.)

‏‏‎ ‎

6 signs your cash application process could use some help

1. Reconciling remittance data is a huge hassle

Does your AR team feel like they’re doing more detective work than ever before? An increase in the acceptance of electronic payments means remittance data can be tough to track down, particularly when it’s transmitted separately. Often, corresponding remittance information must be accessed in disparate places like email, web portals, Excel files, image scans, lockboxes, etc. Things are further complicated when customers make partial payments and/or single payments for multiple invoices.

2. You value old-fashioned checks over digital payments

This is a sign that your organization may be overwhelmed by the prospect of managing digital payments. Transitioning from exclusively accepting paper checks to also receiving digital payments requires adapting the cash application process. If your AR team doesn’t have the tools or technology to reconcile remittances from a more diverse set of payment methods such as ACH, wire, credit card, or online portals, they’re not equipped to evolve along with the business’ customers.

3. You’re not using IT to boost the efficiency of your cash application process

In the absence of an automated cash application system, are your AR specialists toiling away with a highly manual process? Cash application specialists who must spend valuable time on activities like tracking down remittances from a variety of sources aren’t able to focus on more strategic initiatives within the business. This type of system—where spreadsheets are the height of your sophistication—is also ripe for human error to seep in.

4. You have several unapplied payments

When payments can’t be quickly matched with outstanding invoices, the entire cash application process is slowed. Team members must take the time to hunt for the right information, leaving a queue of unapplied payments hanging for days or even weeks. This has a negative effect on your cash flow and forecasts because the business won’t be able to factor in that income until everything is resolved.

5. Your reporting capabilities are compromised

Without a solution that helps compile and streamline your AR data, you likely have a hard time determining which payments still need to be applied. When this is the case you’re also unable to leverage data to analyze your process’ performance and can't easily look for ways to optimize it.

6. Your customers are experiencing payment issues

Are you receiving customer feedback that reveals weak spots in your cash application process? For example, a client might get in touch to report a missed discount or inquire about an outstanding invoice notice they received—even though they’d already paid.

‏‏‎ ‎

How you can measure the effectiveness of your cash application efforts

If you relate to some of the warning signs above, it may be time to take stock of your cash application process to see where things stand. Here are some useful benchmarks to consider:

1. How quickly are payments being applied after remittance data is received?

• You’re on point: The same day

• You’re working on it: Within a few days

• You may have a problem: A week or more

When it comes to the cash application process, speed is important. The faster your company’s incoming payments are applied, the better your cash flow and the more accurate your financial forecasts are.

2. How much missing remittance data do you have to manage?

• You’re on point: Less than 10%

• You’re working on it: 20%

• You may have a problem: 25%+

If a considerable portion of your payments are coming in without remittance advice, your cash application specialist has to go searching for that information, slowing the entire application process and introducing more possibilities for error.

3. How much time and manual effort is being spent performing cash application activities?

• You’re on point: <10% of AR team’s time

• You’re working on it: ~15% of AR team’s time

• You may have a problem: >25% of AR team’s time

AR professionals who must do things like manually download remittance information and match them to corresponding payments, cross-check invoices with remittance details, and search for discrepancies due to partial payments or payment exceptions are not operating at their full strategic potential.

4. How often do delays in your cash application process impact other AR activities?

• You’re on point: Handful of times per quarter

• You’re working on it: Handful of times per month

• You may have a problem: Several times per week

If your cash application system isn’t efficient, the entire AR process may suffer. For example, the collections process may be triggered when it’s not warranted because of a delay in applying a payment.

‏‏‎ ‎

Why manual cash application processes aren’t good for your business

The effects of an inefficient cash application process include:

• Accounts receivable specialists toiling away at tedious tasks instead of spending time on higher-value, more strategic activities

• Payment delays that lead to compromised cash flow and higher days sales outstanding

• An influx of human errors due to manual matching and reconciliation

• No line of sight to big-picture data reporting

• Higher accounts receivable processing costs

• Poor customer service

There’s a better way to manage cash application

One way to address the complexities of accepting digital payments and manage an unwieldy cash application process is to use technology to automate it.

Artificial intelligence (AI)-powered software like Versapay’s Advanced Cash Application Automation uses machine learning to accomplish tasks like retrieving and aggregating remittances from various sources and putting them all into one central repository. These sources include emails, web portals, and lockboxes. We use optical character recognition (OCR) technology to automatically and accurately extract remittance data from checks.

These smart technologies can also match invoices, automatically identify and validate deductions and discounts, and map customer reason codes back to enterprise resource planning (ERP) systems. And the nature of AI means that the longer and more often you use the system, the smarter it gets over time.

With Versapay’s cash application automation tools, you can:

• Reduce the total time spent on cash application by up to 75%

• Reduce AR costs by up to 50%

• Centralize 100% of your invoice-to-cash process

• Maintain existing AR staff levels while gaining 3X the business growth

With a faster, smarter cash application process, your organization can be more flexible in your payment acceptance policies without needing to increase your AR budget or staff. With a real-time view of AR data across all customers, geographies, and currencies—in sync with your ERP—you’re able to provide accurate, meaningful reporting to your CFO.

With automation, the next time someone asks you how efficient your organization’s cash application process is, you’ll be able to reply, “Better than ever.”