Have you been asking yourself, “What exactly is cash application?” Cash application is the process of applying payments received to outstanding accounts receivables, invoices, and customer accounts, and it’s a critical part of your small business’s financial operations. This is especially true if your company sells business-to-business (B2B) products and services, as the payments for B2B sales rarely occur at the point of sale but at a later date following invoicing. Because of the lag time between goods or services sold and receiving money, maintaining a healthy cash flow and working capital position for your company requires efficient handling and quick application of payments to your books. Cash-application automation can help you handle payments more easily and efficiently.
Problems With Cash Application
Cash application is basically a simple process, but it has some challenges that you should know how to deal with. In today’s world, receiving cash or check payments that directly match single, outstanding invoices proves rare. The adoption of electronic and online payment systems, such as wire transfers, credit or debit card payments, electronic cheques, and payment processors, means your business may receive payments in a variety of forms and through a variety of avenues, including email and online web portals.
Customers who send a single payment to cover multiple invoices, for example, can complicate cash application, because the received payment doesn’t match a specific invoice in your records. This usually means you need to match the payment with the customer account while adding together totals and checking off the invoices it covers. Manually performing all the necessary steps of payment collection from different sources and then matching them up can take up time that you could spend building your company.
It’s a good idea to find another means of dealing with payment collection. This is especially helpful if your small business doesn’t have a lot of excess cash and depends upon prompt payment credits to your business bank account so you can handle your company’s financial obligations.
The Solution of Cash Application Automation
Automating cash application can reduce your processing costs by using a single workflow channel to collect and apply payments and improve your company’s cash flow, and makes it easier to manage your working capital. It also reduces the number of days sales outstanding (DSO) and gives you better insight into your accounts receivable by offering real-time reports and payment tracking.
Cash-application automation software cuts down the time required to process accounts receivable payments. An automation application, such as InvoiceSherpa, can retrieve payments from multiple sources – including payment information from emails. It can also collect all payments in a single file or account and automatically match payments to the proper invoices or customer accounts. Automation can improve your accounting efficiency greatly by reducing errors. These apps typically let you set up automatic billing and follow up with invoice reminders when payments hit overdue status. As an added bonus, these software options easily integrate with popular accounting software, including QuickBooks Online.
Cash flow is the lifeblood of your small business. You can save time, reduce labour expenses, and improve your company’s cash flow by implementing cash application automation. Improve your cash flow with invoices, payments, and expense tracking. See how much cash you have on hand with QuickBooks.