At its core, cash application is the lifeblood of your AR operations—the process that transforms sales into usable cash. It’s more than just bookkeeping; it’s about keeping your business moving forward by ensuring customer payments are accurately and quickly matched to outstanding invoices. It sounds straightforward, but as I’m sure you know, the process can be anything but simple.
Improving your cash application process doesn’t happen overnight, but with the right steps, you can unlock its full potential. Here are eight tips to help you get started.
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Whether you’re looking to increase efficiency, reduce costs, or improve customer experience, these eight actionable tips will help you turn cash application into a true competitive advantage.
1. Improve Remittance Data Quality
Working with customers to provide detailed remittance advice for every payment
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Standardizing remittance formats to make data easier to process =
Reduced errors and valuable time savings for your team and your customers!
2. Encourage Digital Payments
Help customers transition to digital payments, which often include standardized remittance data. Your match rates will improve, plus your customers will benefit from faster, more reliable payment processing.
Deloitte predicts that real-time payments will replace between $18.9 to $37 trillion in ACH and check-based B2B payments in the United States in the next three years (source).
3. Optimize Customer Onboarding
Prevent future headaches by setting your customers - and your AR team - up for success from day one. During onboarding, clearly communicate your payment and remittance requirements, preferred payment methods, and tips to avoid common errors.
75% of firms with automated AR functions reported a significant boost in customer satisfaction (source).
4. Analyze and Address Exceptions
Regularly review exceptions to spot trends or recurring issues, whether they stem from internal processes or customer behavior. Every unmatched payment is an opportunity to refine your matching rules and remittance guidelines.
5. Emphasize Collaboration Across Departments
Align your AR, sales, and customer service teams to ensure consistent communication with customers about payment processes. You'll resolve disputes faster and prevent mismatches before they happen.
6. Automate, Automate, Automate
Invest in technologies that leverage technology like optical character recognition (OCR), intelligent exception handling, and AI-driven automation to handle remittance matching with speed and precision.
91% of mid-sized firms with fully automated AR systems report increased savings, cash flow, and growth (source).
7. Leverage Data Analytics
Track match rate performance by customer, payment method, or time period to identify trends and gaps. For instance, if a customer consistently has lower match rates, create targeted outreach to address their issue and improve results.
8. Establish a Feedback Loop
Regularly revisit your payment workflows, remittance requirements, and matching rules to keep pace with changing customer behaviors and technological advancements. Focusing on continuous improvement ensures your processes won't fall behind.
Looking for more ways to leverage cash application to maximize financial efficiency and cash flow? Check out our eBook, The Cash Application Advantage.
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FAQ
Cash application is the process of matching incoming payments to the appropriate customer invoices. It’s a vital step in the accounts receivable (AR) process because accurate cash application ensures that payments are applied correctly, reducing errors, saving time, and improving customer relationships.
High-quality remittance data reduces errors and speeds up the matching process. Encourage customers to provide detailed remittance advice and standardize remittance formats. This ensures your AR team saves time while delivering a smoother payment experience for your customers.
Transitioning customers to digital payment methods boosts efficiency and match rates. Digital payments often include standardized remittance data, enabling faster, more reliable processing. According to Deloitte, real-time payments could replace up to $37 trillion in check-based B2B payments in the U.S. within three years.
Automation eliminates manual tasks, reduces errors, and accelerates payment matching. By using tools with AI and optical character recognition (OCR), businesses can handle remittance data quickly and accurately. Research shows that 91% of mid-sized firms with fully automated AR systems report increased savings and improved cash flow.
Absolutely. By tracking match rates across customers, payment methods, or time periods, you can identify bottlenecks and recurring issues. Analytics-driven insights empower finance leaders to refine their matching rules and improve overall performance, transforming AR into a strategic advantage.