For any company that offers goods or services on credit, payment collection is crucial for maintaining financial health. Collecting these payments after sales is vital to a company’s success, as failure to collect puts the business at risk.
The Accounts Receivable (AR) team typically manages this by sending invoices, processing payments, and reconciling accounts. Manually, this process is time intensive, especially when repeated customer follow-ups are needed. AR automation software can handle these tasks, freeing your team to focus on analysing the company’s overall financial health and potentially boosting profitability.
WHAT IS ACCOUNTS RECEIVABLE AUTOMATION
Accounts Receivable automation streamlines repetitive tasks, helping collect payments owed by customers more efficiently. This software replaces the manual aspects of AR by automating invoicing and tracking, speeding up the credit-to-cash cycle—from the point a customer buys on credit to when the payment is received.
Key Takeaways
- AR automation eliminates manual invoicing and payment tasks, saving time and reducing costs.
- Studies show companies switching to AR automation see improved Days Sales Outstanding (DSO), enhancing cash flow and profitability.
- Automation ensures accurate data, improves customer interactions through autogenerated invoices, automated payment reminders, and offering multiple payment options.
ACCOUNTS RECEIVABLE AUTOMATION EXPLAINED
Historically, AR has always been managed manually, involving many detailed processes and steps. Automation minimizes these tasks, allowing employees to focus on value-added tasks and increasing the likelihood of on-time payments.
Automated AR systems reduce billing errors, enable faster invoicing, and simplify payment reconciliation.
HOW DOES AR AUTOMATION WORK
While processes may vary, AR automation typically includes generating invoices, collecting payments, and reconciling them for accuracy. Automation simplifies invoice generation, entering key data only once at purchase and ensuring it carries through each transaction. For example, if billing occurs on the 10th of each month, invoices are automatically generated and sent on that date.
Automation can also handle different payment types, match invoices to sales orders, track collections, flag expired payment methods, offer early payment discounts, and assess late fees. It provides real-time updates on invoices and payments, and enables automated communications with customers.
AR AUTOMATION BENEFITS
AR automation reduces manual tasks and provides the following benefits:
- Streamlined Workflow:
Automation reduces paperwork, speeding up processing and enabling the AR team to focus on strategic tasks.
- Improved Cash Flow:
Faster invoicing leads to quicker payments, improving cash flow and reducing DSO.
- Cost Reduction:
E-invoicing reduces paper use, frees up storage, cuts postage costs, and lowers labour expenses by reducing unpaid invoice write-offs.
- Increased Accuracy:
Automation minimizes human error, reduces duplicate invoices, and resolves billing disputes, leading to higher customer satisfaction.
- Enhanced Reporting:
Automated dashboards provide real-time insights into customer payments and AR aging, enabling timely action to increase the likelihood of on time payments.
- Better Customer Relations:
Fewer billing issues lead to greater customer satisfaction and trust.
- Easier Compliance:
Automation helps manage regional tax requirements and regulatory complexities.
While it’s clear that AR automation improves efficiency, some concerns do exist:
AR AUTOMATION CONCERNS:
- Ease of Use:
Adjusting to new software may take time, but once integrated, it lightens the team’s workload.
- Control Concerns:
Automation increases control by allowing companies to customize processes, such as automated payment reminders and follow-ups.
- Implementation Cost:
While software and training costs exist, savings from increased productivity typically offset these expenses.
AUTOMATING THE AR PROCESSES
AR tasks can be simplified by automating:
- Customer Outreach: Set up automated reminders for upcoming or overdue payments, tailored to each customer.
- Invoicing: Automate invoice generation and delivery, ensuring accuracy and applying correct tax rates.
- Digital Payment Processing: Allow digital payment options, including auto recurring payments, ACH, or peer to peer options. Automation can also send payment receipt notices.
Automating AR tasks improves efficiency, accuracy, and customer satisfaction, ultimately enhancing a company’s financial stability and growth.
TOP FEATURES OF AN AR AUTOMATION SOFTWARE
Business managers aim for an accounts receivable (AR) system that is accurate, efficient, and customer friendly. AR automation software includes essential features that support these goals by improving invoicing, payment convenience, and data insights.
- Invoice Generation and Distribution
Automated invoicing is a fundamental AR function, with software generating and distributing invoices quickly and accurately. Timely invoicing accelerates payments, improving the company’s cash flow.
- Automated Email Reminders
This feature allows businesses to set triggers for email notifications, such as reminders a few days before a payment is due and follow-ups if a payment becomes overdue. This "set it and forget it" approach simplifies payment tracking.
- Transaction Matching
AR software can match incoming payments to the correct invoices, reducing manual cash application and Days Sales Outstanding (DSO). This minimizes errors and ensures each payment is applied to the right account.
- Multiple Payment Options
Offering various payment methods such as ACH, credit cards, wire transfers, and digital payment platforms makes it easy for customers to pay, reducing payment delays and improving customer satisfaction.
- Credit Risk and Management
AR automation helps businesses assess credit risk by identifying customers with a history of late or missed payments. This tracking allows businesses to manage and mitigate potential payment risks on both individual and aggregate levels.
- Disputes and Deductions
When customers dispute a charge, AR software simplifies managing deductions by allowing the charge to be quickly removed from the invoice. This speeds up issue resolution and shortens the time needed to secure the correct payment.
- Data Reporting and Analysis
Realtime data reporting enables businesses to monitor payment trends, assess credit risk, and track DSO. Additionally, AR automation provides insights into team productivity, like the number of invoices processed or collection calls made per staff member.
These features collectively help businesses optimize AR operations, streamline workflows, and enhance cash flow management.
HOW TO IMPLEMENT AR AUTOMATION
Transitioning to automated Accounts Receivable (AR) requires a comprehensive approach to digitizing payment processes. Here are six essential steps to a successful AR automation implementation:
Step 1: Consult with Stakeholders
Engage everyone involved in the current AR process to understand existing workflows and ease the transition to automation. Meet with the AR team, IT, management, and frequent clients to gather input, ensuring the software aligns with business needs. Regular checkins with stakeholders postimplementation can help monitor the software’s effectiveness and identify areas for adjustment.
Step 2: Define and Communicate the Goals
To minimize concerns around automation, clearly articulate the purpose behind the shift. Whether it’s expanding the customer base, improving cash flow, or transitioning employees to strategic tasks, openly sharing these goals will build trust and enthusiasm around the new system.
Step 3: Integrate with Existing Accounting Software
Once an AR automation solution is selected, integrate it with current accounting software. This synchronization ensures continuity by aligning current data with the new system, reducing potential disruptions.
Step 4: Set Up Automated Payment Reminders
Automated reminders are central to AR automation. Establish reminders for overdue payments and decide on the timing and frequency. This feature reduces the AR team’s workload while ensuring timely collections.
Step 5: Configure Payment Options
Today’s payment landscape offers many methods, from ACH to digital wallets. Choose the payment methods that best suit the business and integrate them within the AR software, enhancing convenience for customers.
Step 6: Reconcile and Review Reports
Regular reconciliation of accounts ensures accuracy and prevents unnecessary reminders to clients who’ve already paid. Use reconciliation reports to assess the automation process’s effectiveness, making necessary adjustments to improve efficiency.
Following these steps, businesses can streamline AR processes, reduce DSO, and create a more efficient payment workflow.
While this blog attempts to highlight every important aspect of AR Automation, seeing it in action is a completely different ball game. Inebura is one such AR Automation Software – to see it in action, book a demo, write to sandeep@inebura.com