CashApplication

Cash application is the process in accounts receivable of applying incoming payments to the correct customer invoices and credits. The objective is to reflect accurate customer balances and enable timely cash flow reporting. It covers payment types such as checks, ACH, wires, credit cards, and digital payments, often relying on remittance data from banks, payment processors, or customers.

Typical steps include identifying a payment, matching it to invoices or credits, handling partial payments, applying overpayments to deposits or unapplied cash, posting to the general ledger, and reconciling with bank statements. When remittance data is incomplete, manual matching or exception handling is needed, and communications with customers or internal teams may be required.

Technology and automation: Many organizations use cash application modules within ERP systems (for example SAP, Oracle, or NetSuite) or standalone solutions. Automation uses rules-based matching, machine learning, and optical character recognition to extract data from remittance advices, invoices, or PDFs. Auto-match improves efficiency, speeds posting, reduces errors, and can lower days sales outstanding.

Challenges include incomplete remittance data, ambiguous payments, multiple invoices per payment, partial or overpayments, credits and debit memos, foreign currency considerations, and the need to reconcile with bank statements.

Metrics and outcomes commonly tracked are auto-match rate, exception rate, posting cycle time, unallocated cash, and days sales outstanding. A well-functioning cash application process improves cash flow visibility and reduces manual effort.

Best practices involve standardized remittance formats, clean master data, clear exception workflows, audit trails, and regular review of match queues and reconciliations.