Landscape

The SAP Cash Application is an SAP Business Technology Platform app. SAP Business Technology Platform apps are a type of app introduced with SAP S/4HANA and SAP S/4HANA Cloud.
When the SAP Cash Application app is in productive use, referred to as inference, incoming payments and open receivables are sent to the app for matching. The SAP Cash Application app will return the matches and proposals and, depending on the configured target auto-clearing accuracy, either automatically clear or propose a match. Automatic clearings and proposals are documented in logs.
When using the SAP Cash Application app, the SAP customer's data does not leave the SAP environment. The SAP customer's data is stored in a secure location in the SAP Cash Application referred to as a tenant. The tenant segregates the data from other data in the cloud app ensuring data security.
When an SAP customer implements the SAP Cash Application, they are given both a test and a production tenant. The test tenant receives historical data from the SAP customer's Quality Assurance (QA) system and is used in the training process, which builds the training model. Ideally, the QA system should be a system recently refreshed from production. The production tenant receives historical data from the production system and is used when the SAP customer is using the SAP Cash Application in a productive environment.
Customers are not given a login to the SAP Cash Application, as they do not require one.
Four Pillars

The SAP Cash Application solution contains four pillars for the cash application process:
SAP Cash Application app
Manage Payment Advices app
Reprocess Bank Statement Items app
Manage Bank Statement Reprocessing Rules app
Each of these pillars or functionality used in the cash application process are described in this course.

SAP is moving into machine learning in multiple areas and one key area is the SAP Cash Application. SAP Cash Application's intelligent receivables automation, which is powered by SAP Machine Learning, is a cloud solution that learns from historical transactions of applying customer payments to invoices for open accounts receivable items. Based on the SAP customer's preferred tolerance level, cash can be applied automatically, leaving finance teams free to deal with only the most complex exceptions.
In the training process, a model of the matching criteria based on historical clearing information is built. The historical clearing information is used during the training process to create a model that is used by SAP Cash Application when in a productive environment. SAP Cash Application automates the process of clearing incoming funds with corresponding receivables using this machine learning model. The model proposes a matching proposal and prediction results based on historical clearing information.
The objective of SAP Cash Application is to resolve cases of uncleared payments from customers and vendors using machine learning, especially when the payments do not contain the sufficient information needed by the Accounts Receivable (AR) accountants to do the clearing.
The term inference means an idea or conclusion that is drawn from evidence and reasoning. Inference is the term SAP uses to indicate the productive use of the SAP Cash Application process when the trained model is fed with production data to make predictions on the real-time unseen data for both line-item matching and customer identification. SAP Cash Application proposes open receivables that can be cleared against incoming payments based on specific criteria.

A payment advice is the remittance information from a customer (payer) indicating the invoice is paid with a payment. The payment advice may contain text, item numbers, and amount. The payment advice contains important information for accounting departments to match customer payments to open receivable invoices.
SAP provides the Manage Payment Advices app, which is used for the management of payment advices to be used in the cash application process. This app is used for the following purposes:
Report of payment advices (remittance advices) available to be used in the cash application process
Payment advices can be uploaded from file(s) or manually entered using the app
To automate the process, payment advices can be mass uploaded on a scheduled basis from an email server (IRPA is needed for this)
Confirmation of payment advices
Payment advice documents received from customers can be uploaded to the Manage Payment Advices SAP Fiori app for automatic processing. The payment advice extraction feature within SAP Cash Application will accept PDFs including unstructured scans, and use computer vision technology to read and extract information into SAP. Once these payment advice documents are converted into structured information, they are used to enhance payment clearing.
Currently, SAP supports payment advices as PDF formatted files and, depending on the release level, Microsoft Excel spreadsheets are also supported. When the files are imported into SAP, the payment advice will be read and saved. Payment advices can be imported from more file types using the SAP Roadmap. Use the SAP Roadmap to check when new and enhanced functionality will become available.

The Reprocess Bank Statement Items app is the SAP S/4HANA Cloud-specific bank statement processing app.
Bank statements can be entered into the system automatically (electronic bank statement) or manually. In both cases, rule-based processing assigns and clears the payments automatically. If the automatic processing is not successful, manual reprocessing is required. In this app, users can reprocess a bank statement item, mark it as reprocessed, and enter a reason for reprocessing. Users can also add attachments to bank statement items.
When using the Reprocess Bank Statement Items app with the SAP Cash Application functionality, users will find that the information from SAP Cash Application is directly integrated into the Reprocess Bank Statement Items app. Business users do not need to learn a new application to view the feedback from SAP Cash Application. Instead, the feedback from SAP Cash Application is included on the Log tab for each bank statement item.

The next pillar of the cash application process is template-based reprocessing rules that can be created by business users using the Manage Bank Statement Reprocessing Rules app.
The Manage Bank Statement Reprocessing Rules app allows business users to automatically clear open bank statement items based on conditions they have defined as rules. Users can create reprocessing rules based on templates proposed by the system. The system analyzes the past postings and clearings and uses the past data to generate templates for reprocessing rules that are tailored to the user's individual needs. In addition, the user-defined reprocessing rules can be automated to be run after the bank statement is imported.
The functionality in this app provides a way for users to create bank statement posting and clearing rules as master data, thus reducing the manual processing involved in the bank statement process. This is a quick and comprehensive way to get efficient reprocessing rules for higher automation.
To use the automation of reprocessing rules, you need the appropriate release level, authorization, and licensing.
The function of creating reprocessing rules based on templates and the automation of reprocessing rules is handled via the best practice scope item 4X8 - Advanced Bank Statement Processing. It is referenced here to give a holistic view of all the cash application processes.
Cash Application Process

The term cash application describes the accounting process of receiving cash and assigning the incoming cash to the appropriate party. Cash application is a part of the accounts receivable process that applies incoming payments to the correct customer accounts and accounts receivable invoices. To do this, the first step is to determine where to apply the cash. This is done by matching the payment to the associated invoices.
If, for some reason, an incoming payment cannot be correctly matched to its associated invoice(s), the payment may be applied to the customer at the customer account level. Once this is done, the payment can be applied to reduce the open accounts receivables for that customer.
There are two ways to apply cash: manually or on an automated basis. Although the process may sound simple, it can be very complicated when considering companies often have thousands of customer accounts and that payments are not typically made per invoice, but instead for multiple invoices. The complexity increases when considering exceptions such as short payments, discounts, mismatching amounts, and so on.
An efficient cash application process is key to a lower Days of Sales Outstanding (DSO). DSO is the primary KPI used to measure the effectiveness of an accounts receivable team. An efficient cash application process also provides more control over a company's cash flow and liquidity. Control over liquidity is key to all companies.

This figure shows the end-to-end process flow using the four pillars of the SAP cash application process:
SAP Cash Application app
Manage Payment Advices app
Manage Bank Statement Reprocessing Rules app
Reprocess Bank Statement Items app
From a sequence perspective, the following is a logical sequence to use, though SAP customers may use the sequence they prefer:
Extract payment advice
Import bank statement
Posting rules by configuration (triggered when the bank statement is imported)
New reprocessing rules created by the Manage Bank Statement Reprocessing Rules app
SAP Cash Application
Manual cash application using the Reprocess Bank Statement Items app