Accounts Receivable Automation: 5 Reasons why you should start using it

You are probably well familiar with the saying: "Work smarter, not harder."

But when it comes to day-to-day operations of CFOs and finance teams, sometimes it feels, that we are lacking practical examples that go beyond streamlining Excel operations.

That's why in this article we want to explicitly focus on these application hacks which offer a solution to minimizing manual, tedious processes.

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Day in a Life of an Accountant

The finance team of a company is usually divided into several sub-categories like financial planning, spend management, and accounts payable and accounts receivable. The latter group is the one we want to focus on as this is the team that handles incoming payments.

The usual responsibilities include a variety of tasks like creating invoices, reminding people to make payments, balancing incoming payments, matching them to the respective invoice, creating financial reports and much more.

For a high level overview of the daily operations of an Accounts Receivable team, we aggregated the most important functions into the following table:

• Invoicing: Generate invoices and send them out to the customer
• Payment Tracking: Status check of which invoices are open, overdue, paid
• Reminders: Sent out payment reminders in case of overdue invoices
• Reconciliation: Match incoming payments to the respective invoices
• ‍Credit Management: Manage late payments and credit worthiness of customers
• Reporting and Analytics: Deep dive on financial KPIs and cash flow metrics

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One can quickly see, that these processes create substantial complexity in a business. That is the reason why companies employ extensive financial departments involving several FTEs and solutions to perform these tasks. Especially if these companies are big and handle a lot of invoice traffic.

Because a lot of invoices also mean a lot of tracking and susceptibility to errors. Buyers can forget to pay or pay wrongly by using the false amount or reference.

And these mistakes happen more than one may think, because at the end of the day, the transfers/payments are mostly done manually and by humans.

At this point, one can ask himself, why isn't this part automated or covered by software? 

Excellent question, which we asked ourselves.

The quick answer: It is, but (a) most people are not aware of these solutions and (b) the real value-add of these solutions came as more tech-powered solutions for these issues emerged.

The long answer is probably worth its own blog entry, which we will cover in near future. For now, we want to focus on the benefits of such technologies and raise the awareness of how AR Automation can actually help a business to save costs.

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Introducing AR Automation

Automation of accounts receivable involves leveraging technology to automate the countless manual processes related to collecting outstanding invoices and payments.

And by automating we mean fully automated. Because historically, there have been solutions which have tackled this field with semi-automations which more or less feel like workarounds.

So let's take a look at how such automations in the accounts receivable team may look like - and most importantly, why it makes sense to use them.

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Reason #1: Raise your efficiency (and drastically reduce costs) 

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Automation per definition streamlines processes and reduces manual intervention.

So by automating AR, companies can cut down on redundant tasks, minimize mistakes, and give their teams more time to focus on more important tasks. As businesses transition to digital processes, automation also lowers the expenses associated with collecting payments and enhances collection efficiency at a lower cost. Lets take a look at certain functions:

• Automated Invoicing: Use software to auto-generate invoices and distribute them automatically via different (omni-) channels
• Automated Payment Tracking: Real time status updates of payment due to banking connectivity and/or modern pay-in accounts infrastructure
• Automated Reminders: Prompt customers automatically with preferred channels and specified time intervals
• Automated Reconciliation: Match incoming payment automatically to an invoice without the need to download bank statements, upload or even check manually the bank account.
• Automated Credit Management: Automate collection according to specific buyer behaviors and monitor customer credit risk with
• Automated Reporting: Cut data to your needs and use automation for analyzing data

We quickly see, with the introduction of automation to all these tasks, companies can cut on FTE involvement, reduce manual labor and help to transform the team's productivity and efficiency.
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Reason #2: Power omni-channel sales experiences

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Good AR Automation solutions provide customers with a fully integrated payment environment.

That means, that businesses don't need to solely rely on bank transfers to receive their money, but also have the ability to offer multiple payment methods.

And while bank transfer is and will be the most-used payment channel, for some businesses it is the perfect opportunity to broaden their offering without integration risk.

This flexibility allows businesses to streamline their payment collection process, making it more convenient for its customers by enabling them to pay at any given time and from any channel they prefer.

Because a fully integrated payment environment also enables payment transactions to occur seamlessly, whether it's through online portals, mobile applications, or other electronic payment methods, eliminating the constraints of manual processes with traditional payment methods.

This development is further facilitated with technologies which de-couple pay-in accounts from "traditional" banking accounts. Just imagine a scenario where you could offer specific deposit accounts per customer or per customer group. This would not only improve transparency, but also increase the companies ability to drill down into a deep cash flow analysis.

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Reason #3: Reduce days sales outstanding (DSO)

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Companies always want to get paid fast. This comes from the fact that cash flow is one of the most important KPIs in running a business.

The problem here is, that buyers want to pay as late as possible, because they are also thinking of optimizing their cash flow (just from a different angle).

And while you can't force a business buyer to pay instantly, by using AR Automation you can significantly speed up payment and thus reduce your days sales outstanding.

The magic word in this context is tools.

Software allows us to eliminate manual tasks such as sending payment reminders. For example, companies can set up specific time intervals for reminders (even for specific customers who for example are prone to miss their payments) and ensure that the invoice stays at the top of the mind of their buyers. Additionally, buyer portals often allow buyers to get a glance at all their open invoice in a digital format which makes it easier to track status. And after all, using automation minimizes billing errors (eg. false amount or reference) which often result in costly manual processes.

One can see, that in case of speeding up payments, it's all about communication and experience. Which brings us to the next point.

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Reason #4: Improve communication

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As mentioned, good AR Automation platforms can include features like self-service payment portals and automated reminders, which provide convenience to customers.

This not only improves customer satisfaction but also strengthens relationships due to an improved offering compared to others. And since you are using automation, it actually frees up your team to provide a better customer experience for the most important customers which may deserve a more careful and hands-on approach.

In the end, no matter which solution you go for, AR Automation allows you to handle communication faster and more efficiently.

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Reason #5: Better reporting

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Automated AR systems come with detailed reporting and analysis capabilities, allowing your business to make data-driven decisions and further optimize your AR processes. In the following list, we featured some of the reporting functions:

Track key performance indicators (KPIs) related to accounts receivable, such as days sales outstanding (DSO), collection efficiency and cash conversion cycle, allowing companies to evaluate their performance and identify areas for improvement.

• Track trends in customer payment behavior, such as the frequency of on-time versus late payments.
• Provide information on customer preferences, payment methods and creditworthiness
• Different customer segments and analyze their customers' payment data. 
• Track days sales outstanding (DSO), collection efficiency and cash conversion cycle
• Capability to filter AR reporting by customer, even down to company division level, facilitating insight into payment behavior patterns.
• Cash flow forecasting by providing up-to-date information on invoicing, payment statuses, and outstanding balances.

The most important part, businesses can leverage AR automation to effortlessly export data and easily integrate with their corporate reporting or ERP systems.

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From Optional to Must-Have

We hope that with this article we have shed some light on operational hacks in the world of finance and accounts receivables.

With the rise of AI and sophisticated technologies, this topic has become quite trendy. Especially with solutions who have implemented a newer emerging tech stack thereby erasing the need of workarounds and semi-automated solutions.

In this essence, work smart, not hard.