How Do You Automate Accounts Receivable?

By S G Rickman On Jan 21, 2023

A business’ cash flow is its lifeblood. As a business owner, the best way to maintain a stable cash flow is by getting paid on time. Any delays that may occur in your accounts receivable (AR) process due to a manual process can easily affect this and your business’s bottom line. A manual AR process is not sustainable, especially in today’s fast-paced business environment.

Automating AR helps streamline the entire process of customer invoices for greater efficiency and timely payments. Upflow reports that AR automation can reduce the time spent on cash collection by approximately 80%. While an AI model does all the heavy lifting, the accounting team can focus their time on completing impactful tasks that will help the business grow.

Here is everything you need to know about automating your AR.

How Does AR Automation Work?

The main aim of AR automation is to streamline invoicing and payment processing. The process starts by integrating your company’s financial systems with the accounting and payment systems. This helps your AR team generate invoices and distribute them to customers electronically.

As soon as a purchase is made, the invoice information, payment terms, and the customer’s unique personal details follow the customer’s account throughout the payment process. For instance, if a certain customer is supposed to be billed on the 20th of January, the invoices will be automatically generated and delivered to them on that same day.

AR automation can track all payment methods, match purchase orders to relevant invoices and screen all aspects of collections. Additionally, your company can use AR automation software to establish late payment fees and incentives for early payments.

AR Automation Best Practices

Map Out Your End-to-End AR Process

Before automating your AR process, it’s important to understand how it works. This will help you identify areas where automation is needed and where it won’t be effective. Otherwise, you may end up implementing uninformed solutions that will not fix the problems at hand or streamline the AR process.

To ensure you get everything right, consider leveraging data analytics. Doing this will help you identify trends and specific areas of improvement in your current AR management process.

Involve Your AR Team in the Decision-Making Process

Consider asking your AR team to describe what their ideal AR management process would look like. They may tell you the challenges they face with the current process and provide valuable insights into how it can be enhanced.

While what they envision may not be entirely feasible, it will give you great ideas for choosing the ideal AR automation tool.

Set Clear Goals and Expectations

After mapping out and reviewing your current AR process with your AR team, the next step is to set the goals you want to achieve with an automated system. Doing this will bring everybody on board as the company implements the new automated AR process and verifies its effectiveness. Setting clear goals will also help you narrow down the list of AR automation tools to only a few great options.

Evaluate Available AR Automation Software Options

Now that you’ve determined what you need to accomplish with AR automation, it’s time to evaluate the available AR software options. You want to ensure that the AR automation software you choose meets your requirements in terms of functionality and pricing.

You can start by searching best-of lists online and checking the online reviews or consulting other players in the industry about the AR automation software they use in the companies. Once you’ve created a shortlist of AR automation software options that suit your needs, request a demo and ask questions to help you make a more informed decision.

Confirm Buy-In from All Stakeholders

If you’re not the sole decision-maker in the business, it’s important to get buy-in from all stakeholders and decision-makers. You want to ensure that everyone involved understands how the AR automation software will transform the entire AR process and why it’s a worthwhile investment. This will help get all key decision-makers on board before eventually rolling out the AR automation system.

Key Technologies for AR Automation

Here are the various technological innovations that have made AR automation a success:

Artificial Intelligence (AI)

AI-powered reconciliation tools are valuable for automatically processing AR documents such as receipts, pay slips, bank statements and invoices. They save the time needed to check for date or time inconsistencies and match records in the system. With AI, your AR team can access quicker and more accurate financials like income statements, profit or loss statements, and trial balances.

Machine Learning (ML)

As a branch of AI, ML analyzes incoming data to train its models and optimize the final results. For instance, you can use forecasting ML models to identify a customer’s payment behavior and their likelihood to dispute or default. They can also be used to make predictions regarding the company’s cash flow based on historical data available.

Optical Character Recognition (OCR)

This technology digitally scans and converts human-written financial documents such as receipts, invoices, and bank statements. The AR team no longer needs to spend hours entering numbers manually into the computer.

Robotic Process Automation (RPA)

RPA software records how a user interacts with Graphical User Interface (GUI) elements to complete a particular task and then replicates these actions to automate the AR management process. RPA bots can automate the time-consuming process of processing and approving invoices. They can receive invoices, sign them off and forward them to the right person in the AR management process.

What Are the Benefits of AR Automation?

The following are some benefits you get by automating AR collections in your company:

Increased visibility in the payment process
Increased accuracy
Streamlined workflow
Less paperwork and human intervention required
Easier compliance with legal requirements
Better customer relations
Reduced administration costs
Faster payments and improved cash flow
Reduced Days Sales Outstanding (DSO)

Conclusion

AR automation enhances your business’s financial performance, creates reliable cash flow stability, and reduces the risk of payment defaults. Additionally, it will save you time so that everyone in the company can focus on what really matters.

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