Automatic Cash Application (#38)

In this podcast, we discuss the characteristics of an automatic cash application system, and the circumstances under which it works best. Key points made are:

  • There are four steps in the automatic cash application process, which are:

    • 1: Import data from the bank, or customers, or engage in manual data entry. Need to link up payment information from the bank with the invoice detail in the company’s accounting system.

    • 2: Make corrections for keying errors with rules engines; there may be an AI-based learning process incorporated into the system.

    • 3: Manually fix those issues that cannot be automatically corrected by the system; a good result is automatic application of 90% of all payments.

    • 4: Export the cleaned data to your ERP system.

  • Problems could be caused by underlying procedural issues.

  • The success rate usually begins quite low; use the Pareto principle to fix the 20% of problems causing 80% of the problems, which rapidly improves the situation.

  • Automatic cash application is a good solution when the transaction volume is high, or where cash receipts processing is prone to error, or when there are large spikes in cash receipts transaction volume, or when the system can be used to segregate cash receipt duties from other positions in the company.

Related Courses

Accounting Procedures Guidebook
Lean Accounting Guidebook