Cash Application

Cash Application is the process of matching incoming customer payments, such as ACH, wire transfers, checks, card payments, or lockbox deposits, to the correct open invoices in accounts receivable. Once the system identifies and applies a payment, it posts it directly to the accounting or ERP system. This reduces outstanding AR balances and ensures financial records remain accurate and up to date.

Cashbook’s Cash Application solution improves traditional automation by centralizing and streamlining the accounts receivable process with ERP and bank integrations. It automatically imports customer master data, AR invoices, exchange rates, and bank statements. The system also reads electronic remittances from emails and multiple file formats, including Excel, PDF, and EDI. Using flexible, configurable matching algorithms, Cashbook auto-matches up to 95% of incoming payments to open invoices and bank records. It automates coding and posting directly in the ERP system. Exceptions, such as short payments, deductions, or unmatched remittances, are flagged for efficient review. Full audit trails and real-time cash visibility improve financial control and reduce Days Sales Outstanding.

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Cash application is a key part of accounts receivable. It accurately assigns incoming payments to customer accounts and invoices. However, companies cannot use the funds until they apply them. By applying cash quickly, businesses can pay employees and suppliers, process purchase orders, invest in growth, and distribute dividends. Today, with digital payments on the rise, customers have many payment options, which creates new complexities that organizations must manage efficiently.

Effective cash application improves cash flow visibility, accelerates account reconciliation, and reduces manual effort and posting errors. By applying payments promptly, finance teams gain a clearer view of available cash and receivables, supporting better decision-making and stronger financial control.

Common challenges include high payment volumes, multiple payment channels, unclear or missing remittance information, partial payments, short pays, and deductions. These issues can lead to unapplied or misapplied cash, delayed revenue recognition, and more follow-up with customers.

Well-managed cash application lowers Days Sales Outstanding (DSO), maintains accurate accounts receivable, and supports timely collections. It also strengthens customer relationships by correctly applying payments and quickly identifying disputes, giving finance teams a reliable, real-time view of receivables.