The cash application process matches incoming payments to outstanding invoices and is a critical part of running any business to ensure strong cash management. But how exactly does cash application work?
The application of cash covers a wide range of steps in the cash management cycle. This process can be difficult to put into practice, which is why Integrated Cash Logistics is here to help you streamline automated cash application processes.
Discover how CashSimple® meets your unique needs to streamline operations and keep accounting ledgers accurate.
What Is Cash Application in Accounting?
In accounting, cash application refers to the process of applying incoming payments to unpaid invoices and other bills. This matching process allows businesses to monitor the flow of cash, keep books accurately, and streamline invoices to cash management.
Businesses can improve their overall financial health and operational efficiency by using cash applications, as long as it’s done correctly and with the proper oversight. When a business is going to receive cash from customers on an account, it’s imperative to verify:
- The identity and account of each customer
- The correct payments with the correct customer
- The invoice being paid matches the money needed
The Importance of Cash Application
Cash application helps businesses understand their cash flow, free up their cash for other spending needs, and provides clarity about who their customers are. The more a business understands the process of cash application, the more it is able to use capital gains efficiently, accurately, and quickly. These benefits can be broken down into two key stages:
Accurate Financial Reporting and Records
Cash and accounts receivable help businesses keep accurate financial records and reports. Businesses can quickly and correctly examine customer payments, bills, invoices to be paid, and other necessary outstanding balances, allowing them to reliably allocate current cash for their business needs.
Cash Flow Management
Accurate cash application processes improve cash flow monitoring. With proper management, cash application specialists can empower businesses to make decisions that maintain financial stability.
When a business inaccurately reports its cash application it can drastically increase the amount of time employees have to spend remedying this issue, further decreasing the amount of cash and money a business has. This can include issues such as not being able to keep track of sale amounts, cash on hand, invoice processing, and other inaccuracies throughout the process.
Learn the benefits of cash management technology and how it can transform the way you do business.
The Cash Application Process
The cash application process is fairly common, as it occurs whenever you receive an invoice or payment. Working with cash application software ensures that your books stay accurate and up-to-date. The cash application process has three key steps to ensure financial reporting accuracy.
Payments and Remittances Aggregation
The first step is to accurately compile all received payments or remittances from customers. Payments refer to anything received for a good or service, while remittances are not necessarily tied to a specific purchase or loan. Instead, remittances will include a note on what this payment is for, similar to the memo line of a check.
The aggregation of these payments can be through different payment methods including:
- Cash
- Checks
- Credit or debit card transactions
- Electronic money transfers
- Buyer initiated payments
Invoice Matching and Deduction Coding
After money is received, payments will be matched with the correct invoice. However not every payment includes a remittance that accurately describes where to allocate the money. It’s important to research and review all invoices and remittances for accuracy.
Furthermore, the payable cash for one purchase may come in various payments or cover various invoices. This can complicate the process even more, especially if there are many open invoices or accounts to be managed. Cash application can streamline this process to minimize human error and quickly coordinate payments to accounts receivable.
Cash Posting to the Enterprise Resource Planning Software (ERP)
Lastly, it’s important to post these transactions into an accounting system or Enterprise Resource Planning (ERP) system. Depending on the size and complexity of an organization, the accounting and ERP systems can vary greatly depending on business needs. Without one of these systems, businesses rely on spreadsheets and manual uploading which can lead to costly errors. Instead, these automated cash application software programs smooth cash operations that support key business areas.
- Cash management
- Human resources
- Supply chain needs
- Procurement and accounts receivable
Specifically, ERP for cash application means having a dedicated system that keeps track of these transactions, payments, and invoices. The CashSimple® solution from ICL is not considered a cash application process. ICL’s software streamlines all of your cash, coin, and money operations through real-time reporting within the smart safe operating system, simplifying your cash application process.
Learn how ICL’s software-first CashSimple® solution streamlines everything from change orders to tracking deposits.
Cash Application Challenges
While the above cash application process explanation may seem easy enough to grasp, execution can be challenging. There are still some issues that may arise during the cash application process:
- Unapplied Payments: These payments occur when they cannot be matched to a customer account or invoice. This often occurs due to a lack of information or a company’s inability to accurately report or keep track of payment accounts. This can quickly create issues with cash flow and operational needs.
- Discrepancies and Manual Errors: There may also be discrepancies between the amount paid, what the customer owes, and how many invoices have been taken care of. Human errors can cause more issues with this, further necessitating cash application automation software.
- High Volume of Transactions: A higher frequency of transactions can create more chances for issues to arise, such as delays or backlogs in payment needs.
The Role of Automation in Cash Application
Most often, businesses install or download software to automatically manage cash application. A cash application automation program works behind the scenes to coordinate and match documentation, streamlining work that otherwise requires extensive time and effort from team members. The system accurately keeps track of payment processing while reducing manual workload and potential problems that may occur. This includes monitoring who payments are from, how often they occur, and which invoice the payment should be applied.
For example, if a business receives an influx of invoices from a single customer and they’re not quite sure where to apply the payment, an automated system can quickly and more reliantly help resolve this issue compared to the process being done manually.
Save on your bottom line by avoiding unexpected and hidden fees from other cash handling services.
Benefits of CashSimple® and Cash Application in Retail Businesses
CashSimple® by Integrated Cash Logistics’ is the alternative solution to simplifying and streamlining cash application in business. Our solution does not use traditional cash application methods to manage payment and accounts receivable cash flow. Instead, our software ensures accurate real-time reporting and instantly buys cash that enters the safe to eliminate the risks associated with traditional cash application processes. The CashSimple® has numerous benefits for any business including:
Seamless Integration with Cash Handling Systems
Our smart safes and cash capture technology easily integrate with existing cash handling systems. This way, you have a seamless workflow that mitigates the amount of potential discrepancies and reduces errors.
CashSimple® automates the tasks and potential challenges of cash management meaning you can spend more time running your business interacting with customers and employees. Our single point of contact makes it easy to keep track of everything you need.
Reduction in Manual Work and Errors
Additionally, CashSimple® reduces manual work hours and errors with our real-time reporting software. We also eliminated the need for provisional credit by purchasing cash as soon as it enters your smart safe so funds are available within 24 hours. You no longer depend on your bank to confirm payments are up to date or accurate because ICL assumes all risks once cash is purchased.
This streamlines the reconciliation process, freeing up time to spend on other tasks that are vital to your business.
Improved Cash Flow Management
Poor monetary management and accounting can lead to problems with cash flow and communication between multiple locations, parties, or employees. With CashSimple® improved visibility and data reporting, you can feel empowered to make stronger and more strategic business decisions. Feel confident to grow your business or address issues as soon as they arise with less worry as financial reporting is up-to-date.
Enhanced Security and Audit Trail
Our consolidated reporting, service billing, and daily payments are all in a configurable portal to eliminate cash reconciliation and deposit discrepancies. The individual access codes for employees and lowered risk for on-hand cash all contribute to a more accurate financial oversight as well. CashSimple® makes auditing smoother and faster while ensuring funds and data are secure to reduce potentially mishandling, losing, or inaccurately reporting your cash flow.
Single Point of Contact Support
If you do encounter any challenges, contact your CashSimple® rep directly for support. One single point of contact for everything with 24/7 phone support serves all your business needs. This minimizes business expenses as there is less need for multiple vendors, and confidence improves as there is no more confusion on who to call for support.
Schedule a Demo and Explore the Benefits of CashSimple® for Effective Cash Application
Are you looking to streamline and enhance your cash application process? Look no further than Integrated Cash Logistics and our CashSimple® solution. We’re here to shorten your distance to cash to help your business grow and succeed.
Contact us today to learn more about how our proprietary software can change how your business operates and manages cash. Eliminate confusion and prolonged delays to reporting with CashSimple®, designed to streamline all your cash handling needs into one place. Spend more time running your business instead of worrying about mismanaged or inaccurate cash application processes.
