In any business, cash flow can be defined as its lifeblood. And as a business owner, the best practice to maintain a stable cash flow is getting timely payments. Any delays in the accounts receivable (AR) process can easily affect your business’s bottom line. Moreover, in today’s fast-paced life, Account Receivable is not considered a suitable option. Account receivable automation is the process of streamlining and automating the accounts receivable process in a business. Accounts receivable are direct to the money owed to a business by its customers for products or services sold on credit. It is one of the most critical components of a business’s cash flow management system. Proper accounts receivable management can significantly improve a company’s financial position, cash flow, and profitability.
Traditionally, managing accounts receivable involves manual processes that can be time-consuming and prone to errors. These processes include sending invoices, tracking payments, and following up on overdue accounts. The introduction of Account receivable automation has revolutionized how businesses manage their accounts receivable processes. It has brought several benefits, including improved efficiency, accuracy, and cost-effectiveness. Let’s understand a complete guide about Accounts Receivable Automation Software.
What is Account Receivable Automation?
In its simple form, account receivable automation works just like it sounds; it automates repetitive tasks to help collect money that customers owe to the company. The process replaces the time-consuming manual tasks of the account receivable process, streamlining an organization’s financial transactions with its customers and speeding up the credit-to-cash cycle- all the steps that need to be taken between a customer buying a product or service on credit and the company receiving payment for the order.
Accounts receivable automation solution replaces the manual tasks involved with invoicing customers and collecting payments, saving a company both time and money. It is also studied that companies that switch to automation also see an improvement in their day’s sales outstanding, or the average number of days it takes to collect a payment, which can improve cash flow and profitability. AR automation also offers a business more accurate data, allowing it to improve its customer outreach by automatically generating invoices, emailing payment reminders and offering multiple payment options.
How Does AR Automation Work?
The primary aim of AR automation is to streamline invoice and payment processing. The process starts with integrating the company’s financial, accounting, and payment systems. This aids the AR team in generating and distributing invoices to customers electronically.
Just after the purchase, the invoice information, payment terms, and the customer’s unique personal details follow the customer’s Account throughout the payment process. For example, if a customer is supposed to be billed on the 20th of January, the invoice will be generated automatically and delivered to them on the same date.
Moreover, AR automation best practices can track all payment methods, match purchase orders to relevant invoices and screen all elements of collections. In addition, the technology can also be used to develop late payment fees and incentives for early payments.
Some critical technologies for AR automation:
Mentioned below are some of the key technology innovations that have made AR automation a success-
Artificial intelligence (AI)-
AI-powered reconciliation tools are valuable for automatically processing AR documents like receipts, pay slips, bank statements and invoices. They save the time needed to check for time and date differences and verify records in the system. With AI, the organization can access quicker and more accurate financials like statements, profit and loss, and trial balances.
Machine Learning (ML)-
Machine learning analyzes the data to train its models and optimize the final results. You can use forecasting machine learning to identify a customer’s payment behaviour and likelihood to default. They can also be used to predict the organization’s cash flow based on historical data available.
Optical character recognition (OCR)-
This technology scans and converts human-written documents like invoices, receipts, and bank statements. This simplifies the work for the AR team means they cannot have to spend hours entering the data manually into the computer.
Robotic Process Automation (RPA)-
This software records how a user interacts with the GUI (Graphical User Interface) elements to accomplish a specific task and then replicates these actions to automate the AR management process. Moreover, the RPA bots can automate the time-consuming process of 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 and drawbacks of the AR automation process?
By simply limiting the tedious manual tasks, automation makes the job for the AR team easier, and it can offer numerous benefits to the business that are mentioned below-
Accounts Receivable Automation Benefits:
- Improved efficiency: AR automation can help reduce manual tasks such as data entry, billing, and collections. This can lead to faster processing times and more accurate data, resulting in increased productivity and reduced costs.
- Better cash flow: Automating the AR process can lead to faster payments, improving cash flow and reducing the need for borrowing.
- Enhanced accuracy: With AR automation, there is less room for human error, which can improve the accuracy of financial data.
- Improved customer experience: Automated payment reminders and follow-ups can improve the customer experience by ensuring timely and consistent communication.
- Better insights: AR automation can provide real-time data and analytics, allowing businesses to gain valuable insights into their cash flow and financial performance.
Drawbacks of AR automation:
- Cost: The initial investment in AR automation software and tools can be expensive.
- Dependence on technology: AR automation relies heavily on technology, sometimes failing or requiring maintenance, leading to delays or disruptions.
- Limited personalization: Automated communication can sometimes need more personal touch of human interaction, potentially reducing customer satisfaction.
- Complexity: Implementing AR automation can be complex, requiring significant planning and expertise.
- Resistance to change: Some employees may need more support for adopting AR automation, which can lead to a slow adoption process and potential morale issues.
Final Thoughts:
In conclusion, account receivable automation is critical to any business’s financial management system. It improves efficiency, accuracy, and cost-effectiveness while providing businesses with better cash flow management. Automating account receivable processes allows businesses to streamline their operations, freeing resources to focus on other critical business functions. The benefits of account receivable automation are clear, and businesses that embrace this technology are well-positioned to succeed in today’s fast-paced business environment.