Cash application
Also known as payment matching, payment allocation, automatic matching
Cash application is the work of matching an incoming payment to the right invoice and closing it — automatically, when the reference is in order.
- Matches
- Payment against invoice
- Fails on
- A missing or wrong reference
- Effect
- Fewer reminders on paid invoices
In practice
An amount arrives in the account. The question is which invoice it belongs to. Given an unambiguous reference, the match can happen automatically and the invoice closes the same day. Without one, the item ends up in a pile for somebody to work through by hand.
That pile is more expensive than it looks. For as long as a paid invoice sits open, it counts towards the outstanding balance, it pushes DSO up, and in the worst case the reminder run sends a letter to a customer who has already paid.
This is why the payment reference is not a formality. It decides whether a payment costs zero minutes or ten.
Where it commonly goes wrong
- Part payments matched to the wrong invoice. When a customer pays a little off several bills, the overview disappears and the balance no longer agrees with the underlying documents.
- Unidentified payments left sitting. An item nobody has dealt with is an open invoice and an unreconciled bank entry at the same time.