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Stop Painful Cash Application With AR Automation

  • 3 min read

The pain of cash application does not need to be felt any longer with AR automation platforms on the market. Check off your CFOs objective to improve cash application and forecasting by leveraging AR automation to achieve near-perfect invoice hit rates, cost savings and accurate cash reporting.

Cash application is the bane of existence for finance teams, especially those in the accounts receivable department who face this manual, error-prone, and time-consuming process firsthand.

Cash application has always been a challenge, but it’s even more complex today as businesses are receiving a range of payment methods, including ACH/EFT, wire transfers credit cards and of course checks, which can be settled into number of accounts and lockboxes.

To add to this challenge, remittance details are sent in a variety of formats (paper, EDI, email attachments, scanned images, etc). This inconsistency of payment types and remittance advice formats from customers poses a huge challenge to extract and aggregate correct and clean data.

Inherently, cash application process is manual, costly and error prone due to the inefficiency of the entire process. What’s the impact? The Credit Research Foundation (CRF) Benchmarking report has some interesting efficiency metrics associated with cash application costs for all industries. Where do you stand?

Performance Measure Best Median Worst
Cash application cost per check processed $1.47 $3.30 $7.07
Cash application cost as a % Annual Credit Sales 0.007% 0.019% 0.043%
Cash application cost per cash application personnel** $34,326 $40,289 $51,803

Many organizations admit they are not doing cash application well – it is difficult and laborious. Looking at the CRF benchmark, cost per 1,000 checks is $7,070 for manual process versus $1,470 for automated, that is a $5,600 savings! This is why cash application is top of mind for finance executives. Their objective is to improve cash application, reduce cost, improve forecasting to remain competitive and protect the bottom-line.

So, how can businesses improve cash application and forecasting?

This process can be improved by leveraging AR automation platforms to help you accurately capture, aggregate and apply remittance details to open AR balances. Using an AR platform, you can power intelligence to automatically apply over 90% of cash receipts from a variety of sources including lockbox, ACH, EDI, cash and online payments. This enables accurate cash application and improves efficiency – goodbye manual matching of remittance details.

So how automated is the process? AR automation platforms deliver straight through end to end process, utilizing a powerful rules engine to match and cleanse data from remittance advice (customer portals, emails, EDI, lockboxes) and payment information (EFT / ACH, wires, checks). This eliminates the manual matching and keying in of information by your team that is costly, error-prone and takes time away from higher value work.

Remittance advice data is captured from the array of formats (paper, email, PDF, images, etc.) using a breadth of technologies:

  • Optical Character Recognition (OCR):enables conversion of different types of documents including PDF invoices and images into editable and searchable data
  • Web aggregation: collects information from websites including customer portals
  • Email Parsing:searches automatically through emails and their attachments to extract and process remittance information
  • EDI (Electronic Data Interchange): exchange documents electronically between businesses

After data is captured, it’s aggregated into the AR platform where the real magic happens - business rules are applied, including invoice exception handling and deduction rules to intelligently reconcile open AR and automate matching. This allows you to post a high percentage of customer cash receipts to your AR without manual intervention. According to a CRF report, “Dollars and Sense – Evaluating Remittance Processing Software”, a 90% hit rate from an auto-remit solution can achieve a 90% decrease in labor.

To achieve an invoice hit rate this high with your enterprise resource planning (ERP) system, it would require substantial investment and heavy customization with advanced rules. On the flipside, the cloud-based architecture of an AR platform requires minimal IT involvement, integrates easily with your ERP and allows you to scale your cash application quickly as your needs and business grows.

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