Managing accounts receivable (AR) is often considered a monotonous job. The whole process requires attention to detail because it involves generating invoices, tracking payments and ensuring timely collections. When done manually, it can be time-consuming and highly error-prone.
The finance teams face an increased pressure to optimise their operations and reduce errors. Accounts receivable automation is the solution that facilitates the work of these teams. This process involves using technology to digitalise and streamline the entire AR cycle, reducing manual intervention and improving accuracy.
But how exactly does this work and what should you look for when selecting AR automation software? Let’s explore these questions in detail.
What is Accounts Receivable Automation?
Automation in accounts receivable refers to using technology to digitise and streamline the entire AR process. At its core, this process replaces manual, paper-based tasks with digital workflows. Businesses choose to reduce the manual effort involved in generating and sending invoices and tracking all payments.
The goal of AR is to simplify managing and tracking outstanding invoices to reduce the accountants’ workload and speed up the payment collection.
How Does AR Automation Work?
The first step is mapping out your current AR workflow because, while the process is the same, the workload will differ between companies. Identify how this is done currently and document the time spent on each task. Highlight bottlenecks and error-prone areas. This step provides a baseline for improvement and leads toward an efficient close. At the same time, it helps you identify specific pain points that automation should address.
Once you understand your existing process, define what you wish to achieve with the automation. The goals can include anything from improving cash flow and reducing invoice processing time to minimising human error and enhancing compliance, which may be improved with a tool or cloud solution.
Once you select the AR automation tool, it's time to integrate it with your accounting software. This ensures data flows smoothly between systems to reduce the need for manual entry.
It's now time to configure the settings to match your business rules and customer preferences.
Automate Invoicing
When a customer completes their sale, the accounts receivable automation software automatically generates an invoice. This is done by using the templates you configured previously. The invoice is then sent to the customer via their preferred delivery channel (email or customer portal). Delays are eliminated and consistency in billing is ensured.
Automated Payment Collection
Online portals and integrated gateways are some of the multiple electronic payment options the system offers customers. Automated reminders of upcoming or overdue payments ensure timely settlement and improve collection rates. In such cases, there is no need for manual follow-up.
Automate Cash Application and Reconciliation
The software automatically matches received payments to corresponding invoices, updating the AR ledger in real time. This way, financial records remain accurate while the manual work and possible errors are reduced.
Generate Reports and Monitor Performance
The AR automation system creates real-time dashboards and detailed reports on invoice statuses, outstanding balances and customer payment behaviour. Businesses should monitor these metrics to assess the effectiveness of automation and identify the areas for further improvement.
Train the Team and Optimise
Businesses must provide training and support to ensure their team can use the new system effectively. Run a pilot program before a full rollout to gather feedback and make necessary adjustments. Maximising the benefits of AR automation means continuously monitoring performance and refining the processes.
How To Choose the Best Accounts Receivable Automation Software
When selecting the software, businesses will want to find the one with the best features. However, they often don't know what they should look for in accounts receivable automation software. The decision will affect their business's financial health, so starting with software that integrates with the existing accounting and ERP systems is best.
Other features include, but are not limited to, the following:
- The software should automate invoice delivery across multiple channels and support custom templates.
- Look for platforms that offer secure, business-grade payment options and allow customers to pay conveniently online.
- Find a solution that promotes effective collections management based on customer behaviour by using AI to predict late payments and optimise follow-ups.
- The software tools should track disputes and facilitate quick resolutions to prevent revenue leakage and improve customer relationships.
- The platform should meet the security and compliance requirements, especially for businesses in regulated industries. It should also meet your data protection standards and maintain audit trails.
- Strong training, onboarding and ongoing assistance ensure a smooth transition and maximise the software’s value.
How AR Automation Supports Financial Close?
Accounts receivable automation is not directly part of the financial close process, but it closely supports and impacts it. How?
- Faster Reconciliations: Automated cash application speeds up the matching of payments to invoices, reducing manual effort during close.
- Improved Accuracy: Reduces errors in revenue and cash reporting, leading to cleaner books.
- Real-Time Data: Ensures up-to-date receivables balances that feed into the close.
While AR automation is a supporting process that improves the speed and accuracy of the financial close, it's not typically classified as a core part of the closing cycle itself.
Benefits of Account Receivable Automation
Some businesses may hesitate to implement automation in accounts receivable because the introduction of new tools and time to learn it may be challenging for the teams. Resistance to new technology is common, just like accepting the fact that tools ease the whole process that results in correct and consistent financial close.
Here are some of the accounts receivable automation benefits businesses should keep in mind:
- Track, manage and resolve disputes and deductions efficiently
- Real-time insights into AR performance and customer payment behaviour by accessing dashboards and reports
- Streamline the workflow and reduce time on processing paperwork
- Reduction in costs on paper, ink, postage and delivery fees, as well as lowering labour costs and the number of write-offs on unpaid invoices
- Greater accuracy means fewer problems with customer billing and payment reconciliation, which means happy customers and fewer customer complaints
Final Words
The financial close activities are surely the most important ones within a company of any size. By digitising the AR cycle, from invoicing to reconciliation, enterprises reduce manual errors, accelerate collections and gain real-time visibility into their receivables. While not a direct component of the financial close, AR automation plays a crucial supporting role by ensuring clean, timely and accurate data.
Are you interested to learn more about how Aico helps you handle the close from the first entry to the period-end?
FAQs
1. What are some signs that indicate the need for AR automation?
The signs include an increase in overdue invoices, frequent billing errors, delays in payment processing, difficulty tracking receivables and excessive time spent on manual AR tasks. If your teams are overwhelmed by routine work or cash flow is suffering due to slow collections, it's time to consider accounts receivable automation.
2. What processes can be automated in finance?
Finance teams can automate invoicing, payment collection, reconciliation, reporting, payment reminders, credit checks and cash application. Automation can also streamline expense management, approvals and financial data entry, freeing staff for higher-value activities.
3. How does accounts receivable automation work with ERP systems?
AR automation integrates with ERP systems to synchronise data in real time. This is done to reduce errors, eliminate manual data entry and provide instant visibility into receivables. On the other hand, it streamlines invoice processing, payment matching and reporting. It also helps businesses manage cash flow more efficiently.
4. What is the importance of accounts receivable management?
Having proper AR management means healthy cash flow, lower bad debts and improved operational efficiency. It is an excellent tool for financial planning, strengthening customer relationships and getting insights for better business decisions.