vice president, product management, AvantGard, SunGard's corporate liquidity business

Cash Application – Why Is It Important to Speed Up This Process?

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In many companies, credit and collection teams are pushed very hard to meet their cash targets so that the days sales outstanding (DSO)/Debtor targets are met. Often there is a focus on ‘just getting the money in’. Teams are typically focused on applying the cash in the last couple of days of the month, which are considered dead collection days, leaving only a day or two before the A/R ledger closes for month end processing.

The quicker cash is applied; however, the better visibility managers have to the past-due status of an account/portfolio. Where real-time dashboards are used, the past-due numbers are skewed even if they show progress against targets if the cash is not applied in a timely manner. Many companies will immediately age the cash in a similar way to credits, but I have seen it the other way, where the cash remains in the current column thus amplifying the past dues. This serves as a great incentive to apply the cash as quickly as possible. The only danger is if the cash is applied just to keep the ledger looking good and is not based on customer instructions. This will lead to reconciliation issues further down the line.

A well maintained account that is sent to a customer in the form of a statement or list of outstanding items will encourage the customer to deal with your account first as they will view your company as easier to deal with. Customers who have less reconciliation issues and do not have to spend time telling collectors ‘paid on a particular date, etc.), can spend more time getting invoices approved. Everything that is done in the Order-to-Cash process must compel the customer to pay and a clean, a reconciled account is no exception.

One challenge that a credit and collections manager will have, in addition to making sure their team has the payment detail in order to apply the cash, is having the appropriate SLAs in place with the treasury or accounting teams that are, more often than not, responsible for applying the cash.

Technology however can play a key role in helping a company quickly apply cash and updating the collector’s calling queue freeing up their time to focus on actual past-dues. The solution should auto-apply as much as possible and suggest intelligent matches based on promises and disputes (for short pays). The less manual intervention, the quicker cash can be applied, giving the cash application person or team more time to investigate unidentified payments or to assist with reconciliations where appropriate.

Are you able to quickly apply cash? I’d like to hear from you.

One Response to “Cash Application – Why Is It Important to Speed Up This Process?”

  1. Paula Fisher

    Good afternoon Mr. Hernandez, my name is Paula Fisher and I work for RMS, an iQor company in the Specialty division. RMS is an outsourcing provider in BPO, my department’s niche is cash application and account reconciliation. We provide services, both domestically and internationally, to customer’s with specific pain points in this exact area.

    Cash application seems to be an underlying lion in the A/R arena because, as you mentioned above, ‘getting the cash in’ will do no good unless the client’s funds actually make it directly to the receivable they are intended to pay. How can a collector collect appropriately if they are working from out dated information. In most cases, the end client will become even more frustrated if they have already paid the invoice which will now start to affect a comany’s relationship with good paying clients.

    Through our expertise, training and dedication to the customers we serve the exception process can be improved significantly within the first year of the relationship. Our secret is taking all the knowledge we have from past relationships as well as current relationships and expanding it to ‘think outside the box’ so to speak, applying the processes across the board. In many cases this will help us, help our customers break through the exception wall to a newer, level playing field allowing their collectors to collect on true past dues and the DSO to be minimized. Lockbox cash should have a 24 hour turn aroundfrom the time it hits your ERP system. We customize our relationship with each company to ensure an amazing outsourcing experience, every time.

    I enjoyed reading your post, thank you.
    Paula Fisher