Accounts receivable is a critical operation of any business. All incoming customer payments flow through this key department. And over the years, it’s become a somewhat complex beast, with many associated terms and processes - one of which is cash applications.
So what is cash applications? It’s definition is pretty straightforward: the process of applying incoming cash payments from customers to existing customer invoices. Kind of like the children’s card game “Memory” where you match two corresponding playing cards - but hopefully with a lot less guesswork.
Every day, businesses receive payments in varying forms. Mailed checks, wire transfers, ACH deposits, credit card payments, and remittances via online payment platforms are all in the mix. Those payments hit the appropriate business accounts, but the work isn’t done there. In order for the business to know a payment has been made, it has to be recorded on the customer’s invoice.
Timely cash applications offer a window into the health of the business.
If the money is in the bank, it might seem like nothing else matters. That couldn’t be further from the truth. Accounts receivable needs to know which customers have paid and which haven’t, so they can follow-up appropriately, measure collections performance, and improve processes over time.
And in order for accounts receivable staff to follow-up on late invoices in a timely manner or collect accurate performance metrics, cash applications must be done as soon as possible.
Think about it from the perspective of the employee handling cash applications: that means constantly checking for online payments, mailed checks, and sometimes even pulling payments down from remittance platforms. And then recording all those payments on appropriate invoices.
Sounds like fun, right? Wrong. Cash applications can be an incredibly manual process fraught with errors and headaches. However, automation can take care of the bulk of the work, leaving accounts receivable staff to deal with exceptions. Here’s how to boost your cash applications process with automation:
Use an accounting or invoicing platform that integrates with preferred payment methods.
Many accounting and invoicing platforms are integrated with a variety of electronic payment methods. When customers remit an electronic invoicing using on the platform’s approved payment methods, the payment is automatically matched up to the invoice as soon as it happens. That means no manual recording of payments, aside from mailed checks and others outside the platform’s payment formats.
When choosing an online account or invoicing platform, make sure to review all the payment methods available with that platform. Find one that best matches your customer payment preferences, and verify that payments are recorded automatically. And if you’re looking for a payment method that isn’t available, get in touch with the platform’s customer service team. They may be adding support for that platform in the future.
Incent customers to move to payment methods that play well with automation.
Let’s say you’ve chosen an accounting or invoicing platform that covers roughly 80% of cash applications for customer payments. That’s great news! Now that you’ve got that 80% covered, it’s time to address the other 20%.
Take a look at those other payment forms. Are the bulk of them mailed checks that could be converted to ACH payments? Maybe there’s a good chunk using a payment method that isn’t supported by your new platform. Think about what it’s worth to your business to migrate these customers to automated cash applications.
Brainstorm some ideas for incenting customers to change their payment method. Consider a discount on service for sustained period of time, a free product or service, or some other comparable incentive that might motivate your customer to switch.
Put together an email message asking customers to make the switch and explaining the incentive. Put a time limit on it to motivate them to do it quickly. And for those who don’t respond, consider following up with a phone call. Customers might be more responsive to a personal call, or they might explain the reason they just can’t make a change at this time.
Automation puts the cash application process on auto-pilot.
Cash applications doesn’t have to be the arduous manual process it once was. The processes provided by many accounting and invoicing platforms can almost completely automate cash applications. A little flexibility from customers in terms of payment methods can go a long way too. Combining these strategies will help your accounts receivable staff focus on the exceptions.
Want to know how Invoiced supports cash applications automation? Contact us to learn more.