Automatic application using the algorithm method
The algorithm method uses these processes to apply cash:
- One-to-one matching
- Invoice combination
The algorithm method does not apply to partially applied invoices and does not process debit and credit memos. Discounts are not applicable. You can only use this method for open item customers.
Processing conditions
For a one-to-one match, the difference between the payment amount and the invoice amount must be within the variance amount that is specified in the Variance field in Automatic Cash Application Audit. If the difference between the payment and invoice amounts is less than or equal to the variance, then automatic application occurs. The variance only applies to one-to-one matching. Because the process compares transaction amounts during the algorithm method, variances are applicable and adjustment records are created along with an applied record.
An adjustment record is created by the system for over or short adjustment amount. If no one-to-one match exists, then the process combines up to five oldest invoices if the sum is equivalent the payment amount. The maximum combination of invoices cannot exceed the maximum number of invoices that are specified in Automatic Cash Application Audit. The variance is not applicable during invoice combination. Combined invoices must exactly match the payment amount and therefore, no adjustment records are created.
Open item customer
This example shows how Automatic Cash Application Audit processes open records for an open item customer. Assume the customer has these processing options:
| Processing options | Value |
|---|---|
| Variance | 10.00 |
| Maximum invoices | 3 |
| Combination | 2 |
Invoice and debit memos are sorted by Global Ledger dates:
| Transaction number | GL date | Open amount |
|---|---|---|
| P 101 | 10/17/2016 | 200.00 |
| P 105 | 10/21/2016 | 250.00 |
| P 102 | 10/30/2016 | 100.00 |
| C 201 | 10/27/2016 | 70.00 |
| C 202 | 11/05/2016 | 140.00 |
| I 301 | 10/10/2016 | 150.00 |
| I 302 | 10/14/2016 | 90.00 |
| D 401 | 10/22/2016 | 40.00 |
| I 303 | 10/29/2016 | 100.00 |
| D 402 | 11/03/2016 | 100.00 |
| I 304 | 11/07/2016 | 200.00 |
The algorithm method applies the oldest open payment to the oldest open item or combination of open items. The oldest open payment, payment 101 (200.00), is compared with the combination of maximum invoices in oldest invoice order:
- invoice 301 (150.00)
- invoice 302 (90.00)
- invoice 303 (100.00)
No one-to-one match occurs because the payment and individual invoice amounts differ by more than the variance (10.00). Even though the fourth invoice, invoice 304 (200.00), is the same amount as payment 101 (200.00), it is not applied because the customer defines the maximum number of invoices as three.
- The same three invoice amounts are compared with the payment amount in combinations of two. Because no combination matches payment 101 (200.00), the payment is bypassed.
- The next oldest open payment, payment 105 (250.00), is compared with the oldest open invoices, invoice 301 (150.00), invoice 302 (90.00), and invoice 303 (100.00).
No one-to-one match occurs because the payment and individual invoice amounts differ by more than the variance (10.00). The same three invoice amounts are compared with the payment amount in combinations of two.
Even though the combination of invoice 301 (150.00) and invoice 302 (90.00) is within the variance (10.00) and is compared with payment 105 (250.00), no application occurs because the variance does not apply during invoice combination. Invoice 301 (150.00) and invoice 303 (100.00) combine to exactly match payment 105 (250.00), creating two applied records (150.00 and 100.00) for the fully applied invoices 301 (150.00) and 303 (100.00).
The next oldest open payment, payment 102 (100.00), is compared with the two remaining invoices, invoice 302 (90.00) and invoice 304 (200.00). Because the difference between payment 102 (100.00) and invoice 302 (90.00) is within the variance (10.00), the application occurs. An applied record (90.00), including the 10.00 adjustment, and an adjustment record (10.00) are created for the fully applied invoice 302 (90.00).