Accounting Best Practices, Fifth Edition

7–25. Use Real-Time Cash Application Techniques

There are few things more annoying for the collections staff than to waste time contacting a customer about an “overdue” payment, only to find that they have not only already paid, but the company has already cashed the check! Here are three ways to ensure that incoming cash receipts are properly applied to accounts receivable as fast as possible, so the collections staff will not experience this problem:

• Review the unapplied cash account every day. When the cash application staff does not know how to apply a check, they usually drop it into an unapplied cash account, with the intent of researching it further when they have time. However, it may be a long time before they get around to the research work. To keep this delay from occurring, assign an experienced senior clerk to the job of clearing out the unapplied cash account every day, and have a manager inquire about the status of all items in the account on a regular basis. Also, do not evaluate the performance of the cash application staff based on how fast they can apply cash—this just drives them to dump more difficult items into the unapplied cash account.

• Review the bank account every day. Many customers now use ACH payments instead of checks, so review the bank account first thing each morning to see what has arrived. Don’t wait for the bank statement to arrive at month-end to conduct this review, since customer payments may have been languishing in the account for up to a ...