The adage ‘Cash is king’ remains a timeless truth for any business, big or small. 

Without cash, a business can’t pay its bills or operate smoothly. The accounts receivable cycle focuses on collecting this cash from sales. Therefore, managing accounts receivable well, from invoicing to collections to reconciling payments, is crucial for any business. Yet, these tasks can be time-consuming and challenging, for businesses of all sizes.

Finance leaders must assess whether hiring people and training them to manage accounts receivable makes more sense or adopting accounts receivable automation. 

Here, we’ll explore the ins and outs of accounts receivable automation to help you decide whether it’s a good option for your organization.  

But first — what is AR automation? Let’s clarify the term before delving deeper. 

What is AR Automation?  

In its simplest terms, AR automation is exactly what it sounds like. It’s a way of automating repetitive, tedious tasks in the accounts receivable process that will help finance teams collect money faster from the customers who owe it to the company and to apply cash instantly once it is received so that buyer limits are released for future orders. AR automation requires little to no human interference and employs AI-based models to speed up the invoice-to-payment cycle.   

AR automation streamlines the following tasks:  

• Invoicing – Automatically creates and delivers timely invoices and provides real-time visibility over invoice status.  
• Collections Management – Sends automated follow-ups and prioritizes high-risk accounts for the collectors.  
• Payments – Provides a self-service payment portal for customers that accepts multiple modes of payment, such as ACH, wire transfers, and more.  
• Cash Reconciliation – Automatically extracts remittance details, reconciles the payments, and posts it directly to ERP.  
• Deductions Management – Auto-identifies deductions and categorizes them along with the reason codes. 

Accounts Receivable Management: Key Challenges in Manual AR Operations  

Accounts receivable management is challenging, especially for businesses relying on outdated manual operations. In the absence of the right tools and technology to support this process, finance teams encounter several challenges:

1. Time-consuming processes:   

Finance professionals spend nearly 80% of their time every year on repetitive AR tasks that aren’t productive. Take manual cash application, for instance. It entails downloading remittance data from various sources, extracting details, inputting data into spreadsheets, and manually matching payments—an extremely time-consuming process. Similarly, tasks like invoicing, collections management, and deductions management demand significant time and resources. 

2. Error-prone nature of AR operations:   

Manual AR operations increase the likelihood of errors, leading to invoicing, payment processing, and financial reporting inaccuracies.  

For instance, finance teams often make data entry mistakes while capturing invoice information. It’s one of the most common mistakes made in accounts receivable. With AR teams frequently dispatching multiple invoices daily, the likelihood of inputting incorrect invoice numbers, erroneous amounts, or overlooking cash discounts amplifies due to oversight errors. Consequently, erroneous invoices lead to payment delays as addressing customer inquiries for clarification consumes time. Only upon rectifying and reissuing the invoice can payment be expected from the customer. 

3. Inconsistent customer communication:  

Managing high-risk accounts requires several follow-ups, and failing to do so can lead to non-payments and extended DSOs, severely impacting cash inflow. However, the manual approach to collections management often results in AR teams neglecting regular follow-ups on overdue invoices, primarily due to the vast volume of accounts. Communication with customers regarding overdue payments gets inconsistent and delayed without automated systems. 

4. Limited visibility across AR functions:   

Many businesses still rely on the traditional approach of creating reports manually from Excel to analyze AR insights. This report fails to offer real-time insights and complete visibility into AR health, hindering proactive decision-making for financial management. This makes gaining insights into cash flow trends, customer payment behavior, and collection performance difficult, and the AR data often remains underutilized. 

Benefits of Accounts Receivable Automation  

Accounts receivable automation drives transformational outcomes for businesses. Here is a list of the top four benefits that AR automation provides: 

1. Improves team productivity 

“With AR automation, finance teams can process functions 87% faster.”    

AR automation frees your finance teams from manual, time-consuming tasks such as cash reconciliation, invoicing, etc. It creates a more efficient workflow and lets your team focus on strategic work to help the business excel. AR automation completes the entire process of generating and delivering invoices within seconds. For cash reconciliation, an automated solution quickly matches payments to invoices, enabling straight-through processing and enhances the overall efficiency. It empowers lean finance teams to manage AR operations efficiently without work overload.  

2. Eliminates manual errors 

AR Automation eliminates human errors from AR management, such as oversight errors in cash reconciliation or invoicing errors. It ensures there are no duplicate invoices or billing disputes.   

With AR automation, data entry is fully automated, which means information from invoices is extracted and populated into the system, eliminating the potential for typos or transposed numbers. Furthermore, AR automation solutions seamlessly matches payments with corresponding remittances, ensuring accuracy and mitigating errors in payment matching. It also ensures correct cash discounts are applied to the orders. By eliminating these manual errors, AR automation software significantly facilitates faster payment processing and accelerates cash flow. 

3. Enhances customer experience 

AR Automation enhances customer satisfaction for business by providing a hassle-free payment experience with advanced functionalities, such as self-service payment portals, multiple payment options, and more.   

Automated payment alerts and notifications promptly flag discrepancies and high-risk accounts, preventing overdue payments from slipping through unnoticed. AR automation solutions send timely payment reminders to customers about overdue payments and available cash discounts, encouraging them to pay sooner. Automated communications and reminders allow businesses to engage with customers and encourage payment without making a single collection call. 

4. Provides complete visibility    

AR automation provides businesses with better and faster reporting with rich AR insights by extracting information from ERP and creating reports out of it. It eliminates data silos by providing real-time access to data across the order-to-cash process. This 360-degree visibility allows finance leaders to assess AR health and analyze team productivity metrics.  

For example, Finance teams can access the aging reports, which helps them identify slow-paying customers and optimize their collections efforts accordingly.   

AR automation also improves the accuracy of cash flow forecasting by providing real-time information on invoice statuses and outstanding balances. Finance leaders can leverage this data to make informed decisions to improve financial planning. 

Accounts Receivable Automation Software: How to Select the Ideal Solution  

Choosing the right AR automation software is a critical decision for your business. Getting it right the first time can save you time and money and prevent the need to switch to new software.  

To ensure you select the ideal solution, here is a step-by-step guide:  

Must-have Features in your Automated Accounts Receivable Process  

We’ve identified the must-have features in an automated Accounts Receivable process to help your business optimize working capital.   

1. Invoicing & Payments  

• Automated generation and delivery of invoices to customers via emails or directly to customers’ AP systems.    
• Self-service portal for customers that enables them to make payments in their preferred format and track their invoices.   
  

2. Collections Management  

• Automated prioritization of outstanding accounts based on the amount and days overdue.  
• Automated payment reminders to customers based on due dates and preferred frequency.   
  

3. Cash Application   

• Automated interpretation of remittance of any format, such as PDF, email, Excel, etc.   
• Automated matching of incoming payments with corresponding invoices using AI-driven matching algorithms.   
  

4. Deductions Management   

• Automated identification and categorization of deductions in different deduction types along with their reason codes.  
• Automated routing of deductions to the appropriate department or personnel for approval.  
  

5. User-Friendly Interface   

• Intuitive and easy-to-navigate layout   
• Interactive tutorials or tooltips for guidance on using features  
  

6. Integration Capabilities   

• Seamless integration with the existing systems, like ERP and accounting software.   
• Automated data sync with the existing systems.  
  

7. Reporting and Analytics   

• Automated generation of comprehensive and customizable reports on AR health.  
• Real-time AR analytics for making data-driven decisions. 
  

Accounts Receivable Automation FAQs 

• Why is Accounts Receivable Automation Important?   

Manual accounts receivable management is a tedious and error-prone process that slows cash inflow. Accounts receivable automation streamlines the generation, delivery, and tracking of invoices, minimizes errors, ensures accuracy in the O2C processes, cuts costs, and accelerates payment cycles. It is essential for maintaining a healthy cash flow and sustaining business operations. 

• How can Accounts Receivable Automation Improve Cash Flow?   

AR Automation improves cash flow by expediting invoice delivery, reducing payment processing time, and facilitating quicker collections. Automated payment reminders and personalized follow-ups ensure timely payments, minimizing outstanding AR. AR automation supports healthy cash flow management by eliminating manual errors that can lead to delayed payments. It provides real-time updates on cash flow to help CFOs in their financial planning.    

• Can Accounts Receivable Automation Solutions Integrate with ERPs?   

Yes, the ideal AR automation solutions are ERP agnostic and can seamlessly integrate with your existing ERP. The solutions contain pre-built connectors for ERPs like Acumatica, Sage Intacct, etc.    

• How Much Time does it Take to Implement AR Automation Solutions?  

The implementation time varies depending on the solution provider. Global PayEX‘s AR automation solutions can integrate with your ERP within 4-6 weeks with minimal involvement from your technical teams.   

• What Size of Business can Benefit from AR Automation?   

AR automation benefits businesses of all sizes. It saves small and mid-sized businesses time and resources by reducing manual tasks while enabling larger businesses to manage complex AR processes efficiently.