Cash application process: steps for a distributor's AR desk

The cash application process is the daily routine of taking each customer payment and applying it to the open invoices it pays. The steps are receive the remittance, read it, match each line to an open invoice, apply, and resolve what did not match.

This page walks through each step for a distributor whose customers pay one check or ACH against many invoices, and marks which steps Remit Reader does.

What are the steps?

1. Receive the payment and the remittance advice.
2. Read the remittance: payer, reference, date, total and each paid line.
3. Match each line to an open invoice.
4. Apply the payment in your ledger.
5. Resolve short-pays, overpays and lines that matched nothing.

Remit Reader does steps 2 and 3 and prepares the file for step 4. Steps 1, 4 and 5 stay with you.

How do you read a remittance quickly?

Read the header first, then check that the lines add up to the printed total. Remit Reader flags a remittance whose lines differ from the total by more than $1.

It reads text PDFs, Excel and CSV remittances automatically, and each extracted line sits beside the PDF with a confidence flag so you check the doubtful ones.

How do you match lines to open invoices?

Compare invoice numbers after cleaning them up. Customers add prefixes ("INV-104511"), drop leading zeros or add spaces, so strip those first. Remit Reader normalizes numbers this way, then accepts an exact match, a one-edit match when only one open invoice is that close and the payer agrees, or, for a line with no number, a unique open invoice for that payer at the same amount.

You load the open-invoice list by uploading your ERP's export as CSV or Excel. The column mapping is confirmed once and remembered.

How do you apply the payment?

Remit Reader writes one CSV per approved batch with one row per applied line: customer, payment reference, payment date, invoice number, amount applied, any short-pay amount, deduction reason and status. You import it or key from it. It does not post to your accounting system.

How do you handle exceptions?

Lines that are not applied cleanly go to a second file: invoice not found, already paid or not open, and ambiguous. Short-pays and overpays are in the application file with their status so they stay visible; see how to treat a short-pay.

Where does automation help and where does it not?

It helps with the reading and matching, which is the repetitive part. It does not help with scanned remittances (those go to manual entry) or with the decisions on disputes.

If you are weighing tools, read cash application software compared and cash application automation.

What does a worked example look like?

The free run's sample is a 14-line remittance from a fictional restaurant group paying 12 open invoices to a food distributor. Walk through it:

• The reader extracts the payer, the ACH reference, the date and 14 lines.
• Most lines match an invoice by number once the "INV-" prefix is removed.
• One number has two digits swapped; it matches because only one open invoice is one edit away and the payer agrees.
• One line is a short-pay, with the difference and its reason ("Damaged on delivery").
• One line names an invoice the export does not list, so it appears in the exceptions file.
• A credit memo taken against the payment appears as a line you review.

Everything above is example data, and you can run it yourself before using your own files.

How often should you run the process?

Every day a remittance arrives, before the day's cash is reported. The longer a payment sits unapplied, the more the open-invoice list lies to the collections team about who owes what. A batch per day also keeps the number of exceptions small enough to clear the same afternoon.

Who should check the result?

Someone who knows the customers. The reader and the matcher produce a proposal; the person approving it knows that a given customer always short-pays freight, or that two accounts share a parent. Give that person the review screen, with the PDF beside the extracted lines, and ask them to look first at lines marked low confidence and at any remittance flagged for not adding up.

A second check is cheap: compare the dollars applied in the batch summary with the deposit. If they differ, the difference is the lines that need a person.

FAQ

How do you apply one payment to multiple invoices?

List each invoice with its amount paid, as the remittance does, and apply that amount to each. The free run shows a 14-line remittance paying 12 invoices matched this way.

What is an unapplied cash report?

It is a list of payments received but not yet matched to invoices. In Remit Reader, the second file lists the lines a person still has to resolve.

How long should this take?

By hand, a multi-invoice remittance takes about 30 minutes in our product notes. Run one in the free run and compare against your own time.