Cash application is a crucial component of the order-to-cash process. Any funds that are not formally recorded can be considered nonexistent and in today’s market — where every cent counts — this activity becomes even more essential. In the past, manual cash application was a simple, albeit time consuming activity, but the move to digital payments has added complications.
Consider this scenario:
Your customer finally submitted payment, and now the money must be formally recorded and applied to the relevant invoice. They paid multiple invoices at once, some of which had discounts applied. And, adding another layer of complexity, the invoice numbers sent with the payment do not match your format.
That means that your accounts receivable (AR) team must manually match the payment to the relevant invoice and contact the sales team to verify the discounts. It’s a slow, tedious process that can push your days sales outstanding (DSO) up, while leading to unnecessary communication with your customer that causes frustration.
Quadient AR Advanced Cash Application is designed to improve efficiency and customer experience, while reducing the risk of errors.
A streamlined process
There are multiple steps involved in cash application. While they may vary depending on the customer, they typically follow the same pattern:
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Setting up new accounts
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Receiving a payment
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Entering the payment data in the appropriate software
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Bank reconciliation
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Investigating discrepancies
For organizations that rely on a manual process, each payment and remittance must be matched with the correct invoice and applied to the organization’s ERP. In addition to being time-consuming, it’s prone to human error and this can prolong the process even further.
With Advanced Cash Application, manual tasks like applying incoming payments to customers and invoices and re-keying payments received from the bank are eliminated. You can auto-allocate based on remittance data by electronically extracting data from customer remittance and matching the customer and invoice data (invoice number, VAT or tax ID, name, and bank account etc.) in real time. The software will reconcile the payments with the open items and automatically apply the cash back to your ERP.
In instances where a payment has been received but the customer has not been identified, the software’s machine learning engine will consider data such as the type of payment, the amount, and any remittance data to provide a suggested customer – which cash collectors can review for easy and trustworthy cash matching.
The software also keeps the process flowing when customers have not supplied all the relevant data. If the AR team receives a payment where the customer is identified but no or limited remittance data have been included, they can manually select invoices, credits and approve. Any remaining balances can have reviews set up and be pushed to the ERP.
Minimized errors and cost
Manual work is prone to errors, even for the most attentive of AR representatives. A simple mistake will not only cause cash flow disruptions; it will also lead to a negative customer experience. If errors become a continual theme, it may even jeopardize the relationship you have built with customers, leading them to believe that your work cannot be trusted.
Did you know?
96% of customers say they will switch companies if they do not receive the quality service they expect.
The automation provided by Advanced Cash Application eliminates this concern by removing the chance of user error. The result? Happier customers and stronger cash flow.
However, the benefits do not end with a reduction in errors. Advanced Cash Application also helps your organization save money. Lockbox fees are expensive. The longer you are forced to leave money in lockboxes, the more impact it will have on your bottom line. By automatically applying cash as soon as it comes in, funds spend less time in lockboxes, which in turn helps you avoid fees charged by banks.
Better employee engagement
Manual work decreases employee engagement. It saddles team members with repetitive, mind-numbing tasks and crowds out the ability of team members to take part in higher-value activities.
The impact is tangible:
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Organizations with high employee engagement experience 24% less employee turnover
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Highly engaged employees are 41% less likely to be absent from work.
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Employees who are engaged are 17% more productive than those who are not
By eliminating manual tasks, your AR team are freed up to strategically approach collection activities that make a measurable difference on matters like cash flow. There’s no more time wasted keying data into your ERP, searching for invoices or coupling remittance advice.
Improved customer experience
In addition to creating happier employees, automating the cash application process also creates more satisfied customers. Using manual methods, a lack of automation in remittance capture can lead to poor communication and inefficient workflows. This can result in unwarranted collection communication being sent out to customers which compromises customer relationships.
With configurable customer communication workflows, you can define your own parameters for inclusion. Customers who have paid or who have submitted a promise-to-pay, even if the payment itself has not yet been applied, can be considered to have paid. This ensures they are automatically removed from payment reminder cadences to avoid overcommunication.
Because an automated process is scalable, your company can also be more flexible in payment acceptance methods. A company that typically pays by wire transfer or ACH can easily switch to credit card payments, if necessary, without undue burden to accounts receivable or the customer.
Taken together, these benefits create a more customer-centric experience, increasing satisfaction and maximizing the long-term value of the account.
Start enjoying the benefits
Whether your organization is suffering cash application delays due to missing remittance advice, or due to the sheer volume of incoming payments that need to be matched, automating your cash application process can help. Advanced Cash Application minimizes overdue AR, increases payment match rate, and reduces unapplied cash. Using our technology, you can achieve these goals, while ensuring a more productive accounts receivable team, as well as happier customers.
To learn more about how Quadient AR can improve your cash application process, visit: https://www.quadient.com/en/ar-automation/cash-application
