For a small or large business, cash is oxygen. That’s why businesses consider liquid assets crucial for their survival and growth. While businesses can gain by moving cash and allocating funds around, it is only possible if you have collected cash owed to you. Even if the notification of payment received pops up, it will take time to convert into cash, so you can use it.
These disruptions makes the cash application process time-consuming, where accounts receivable (AR) teams may take hours to apply payments to invoices, and this number can exceed if the number of invoices is multiplied. Such a workload level will be very complex for the AR team to manage. In this spirit, this blog will discuss the cash application and its importance and discuss strategies to make it efficient to free up cash and increase the productivity of the AR teams.
Cash Application and Its Importance
The cash application is a part of the AR process that involves matching incoming payments to the correct invoices and making this cash available to support day-to-day business operations. For businesses using physical ledgers and paper-based checks systems, the cash application comprises a desk with piles of checks, a book with receipts and a ledger of account balances. The accountant would observe who dispatched a check, allocate that sum to their outstanding balance, and furnish a receipt if none had been issued previously.
This traditional process necessitates manpower, slows down the process, and uses legacy systems to record the financial data, which takes time to retrieve and match to complete the process. Relying on traditional systems also lengthens your cash conversion cycle, impeding your cash flow and working capital. This means your routine operations can be disrupted. Unless you have implemented AR automation solution to manage the system, your bottom line may take a hit. This is why cash applications are important because once you have received payment, you will update your ledger, balance sheet, and other financial statements to record the transaction.
Without an automation solution, you must browse Excel spreadsheets or paper piles to track receipts. Missed invoices or receipts can further complicate the situation, making tracking invoice and payment tracking difficult. In addition, it also requires computing the key performance indicators (KPI) that companies can track to forecast their cash flow, potential disruptions and the overall performance of the company’s financial health.
Though you can make your cash application efficient without an automation solution, it will lack scalability and will always be prone to human error. However, with an automation solution, you can leverage technology to streamline various aspects of the cash application while also gaining more visibility into the system.
When to Consider Improving Your Cash Application System
Now that you know what makes the traditional cash application system slow, this section focuses on things to consider: how you can improve your cash application system. Before that, let’s highlight when the right time to optimize your cash application system is.
- When there is a lot of cash or checks received, and it hasn’t applied to any account or invoice.
- There are a lot of payments waiting to be filed and reconciled.
- No one can develop high-level insights and reports from the cash application efforts.
- The overall customer service of the existing system is not helpful or unavailable.
- Customers’ requests for receipts are piling up.
All the above reasons indicate your cash application’s inefficiency, which is enough to compel you to embrace an invoice-to-cash automation solution that streamlines all aspects of the AR process. However, choosing the right solution is another hurdle for the company since you want a solution that meets your needs and can be customized for your specific needs.
Factors to Look for in the AR Automation Software
There are many software solutions that offer similar services but are built to optimize your AR processes. The following are the points to look for in a solution to automate your AR collection process.
1. Efficient White Label Solution
A robust, efficient system that matches your specific needs and comes into your business logo, theme and branding colors to give a feel that it is designed for you. This software must address the limitations of your system. For instance, if you want to improve customer service, this software must have features to offer flexibility to customers and make it convenient for them to pay their invoices.
2. A Scalable and Adaptive Solution
Some software systems are driven by AI that can adapt by learning the customer’s payment trends and other information. This can help by matching the customer interaction and notifying you in case of an issue. Such systems can improve over time and be scaled to meet the growing needs of the business.
3. Multiple Payment Options to Facilitate Customers
When opting for a cash application system, you also need to consider customer focus. Offering multiple payment options to customers allows them to use their preferred payment method, which can expedite your payments. Platforms that accept ACH payments, credit cards, and other payment options facilitate customer payments and enable businesses to accelerate collections.
4. A System with Dashboard Insights and Reporting
Data insights and accurate financial reporting are the need of the hour. This information is leveraged for accurate and informed business decisions, forecasting cash flow and identifying potential cash flow bottlenecks. A system that offers insights and performance metrics on the dashboard is one to consider, as it can give you reports on ageing AR, days sales outstanding (DSO), and other metrics.
5. Robust Security and Data Safety
An automation system will be of no use if they don’t offer robust security measures. A system with security measures will prevent unauthorized access, keep logs of access, and ensure the safety of customer information and financial transaction data.
6. User Friendliness and Ability to Integrate
The new system should be easy to use for tech-savvy as well as non-tech-savvy individuals. If the system is complex and the user interface makes it challenging, your AR teams cannot utilize it to its full potential. In addition, if the system cannot be integrated with your existing ERP or accounting software, you cannot use it.
The Bottom Line
Cash application is an essential element of the AR process, and using the traditional system to manage this can impede your cash flow. Implementing AR automation software can help you navigate the complexities of a traditional system and improve the efficiency of your invoice-to-cash process. When considering to choose a cash application, consider multiple payment options, user-friendliness, and security of the system. The blog also highlights how to optimize your cash application and provides guidelines for choosing the best AR software for your business.
