If you’re one of the many businesses that operate on credit, allowing your customers to pay for your goods or services later, then accounts receivable (AR) is a crucial focus for your financial staff. Accounts receivable is the process of managing and collecting those debts. Still, unfortunately, AR operations can quickly eat up time and labor resources — mainly if you rely on manual efforts to complete everyday, repetitive tasks like sending invoices, chasing payments, or reconciling financial and accounting records.
Conversely, with an automated AR process, you can accelerate these efforts, getting you paid faster and seamlessly. In this article, we’ll further explore AR automation, including how it works, how it improves accounts receivable, the components of AR automation, the advantages of AR automation, and what a practical solution looks like.
What accounts receivable automation is, and how it works
Automation in accounts receivable involves transferring the tasks of collecting money owed to your business from your employees to specialized software. This software handles these tasks independently, with minimal human intervention, so your staff can focus on more strategic tasks.
Automating AR processes allows you to consolidate and centralize workflows, simplifying management and standardizing invoicing and collection efforts. It also eliminates human errors, preventing disruptions or delays, which can enhance customer relationships. Additionally, automation provides precise, accurate financial data for better planning and budgeting.
How AR automation improves accounts receivable
Traditionally, accounts receivable and accounting have been hands-on, with professionals meticulously recording and transcribing business transactions on physical ledgers. Human involvement remained high as processes migrated to software-based management, from data entry to account balancing to reporting.
In the past decade, however, accounting automation has risen in prominence, offloading much of the repetitive work to technology and improving AR while requiring less time, attention, and energy from your staff. Automated software now captures and records details from invoices, delivery records, transactions, and expense reports. It schedules customer communications and updates financial statements and reports with the right calculations.
Data supports the benefits of automation. In 2021, PYMNTS and American Express found that 87% of 460 small to large-sized businesses surveyed had automated their AR processes, with 87% reporting faster processing and 75% noting improved customer experiences. Nearly half (49%) saw improved collections.
Conversely, Esker’s 2021 State of Finance Report revealed that 64% of around 1,000 executive and financial leaders cited a lack of process automation as detrimental to their organizations. Additionally, 78% reported that manual processes resulted in increased accounting errors, causing downstream challenges ranging from compliance breaches to missing files to decreased employee productivity.
Components of accounts receivable automation
The actual processes that you automate will depend on the platform(s) that you choose to work with, but some of the more common components of AR automation include:
- Generating and sending invoices: The efficient creation and tracking of invoices is likely the most critical process for accounts receivable management, and automation ensures these processes can be completed with limited oversight without compromising accuracy.
- Automated email correspondence: Once an invoice has been sent, chasing the payment can prove time-consuming, but through automation, these follow-up touches are handled without direct human involvement.
- Multiple payment options: Providing various payment options to customers can enhance convenience and speed up the payment process. Automation can facilitate the seamless acceptance and processing of numerous payment methods.
- Matching transactions automatically: As payments are collected, it’s critical to apply them to the proper accounts and invoices. Automating this ensures the accurate and efficient matching of transactions to the corresponding invoices.
- Cash flow and AR reporting: Metrics such as days sales outstanding (DSO) and collections effectiveness index (CEI) are critical for monitoring and managing the performance of your AR operations. Most platforms allow you to seamlessly generate up-to-date reports on these key performance indicators (KPIs).
- Managing invoice disputes: When a customer disputes a charge on an invoice, quickly deducting the disputed amount and re-issuing a corrected invoice helps resolve the issue faster, reducing the wait time for accurate payment.
- Managing credit balances: An automated AR system allows customers to maintain and use credit balances for outstanding invoices, tracks these balances over time, and prevents overspending, thus simplifying credit management and ensuring accurate account handling.
Advantages of accounts receivable automation
Now that you understand how AR automation works, including its various components, it’s easy to see how it can greatly benefit businesses. Here are a few more advantages to be aware of:
- Faster payments: Automated workflows eliminate delays, ensuring invoices are sent quickly and consistently, leading to prompt payments.
- Error reduction: Automation minimizes human errors, reducing the risk of transcription mistakes or lost files and preventing collection disruptions.
- Increased employee engagement: Shifting employees to strategic, customer-facing roles increases job satisfaction and engagement.
- Enhanced security: Built-in validation processes make it harder for fraudsters to send fake invoices or orders.
- Better customer relationships: Accurate, consistent invoicing and streamlined communication improve customer satisfaction and retention.
- Improved cash flow: Reliable invoicing and collection processes create more predictable cash flow, aiding future planning and adaptability.
- Efficient reporting: Real-time financial data gives stakeholders the information to make informed decisions.
- Easier auditing: Leveraging automated reporting and validation simplifies compliance with evolving regulations.
How to choose the right AR automation software for your business
As already noted, not all platforms are created equally, so the relative success of your automation efforts will vary greatly depending on which platform you choose. To make the right choice, you should first conduct a thorough review of the specific needs of your organization — the AR needs of a small business will be quite different from those of a multinational corporation.
It’s also recommended that you consult the employees who currently perform these tasks and review the available features of multiple platforms with them. They likely can offer you the greatest insight into which capabilities will deliver the fastest return on investment (ROI) or capture the interest of your customer base.
Here’s what you should look for in any AR automation software:
Open platform
You’ll want a solution offering broad integration capabilities, allowing you to leverage your enterprise resource planning (ERP) investments. In addition, look for platforms like Invoiced that offer direct application programming interface (API) access to make integration more seamless, allowing you to shift control of automation functions to your in-house systems.
Payment options
You don’t want to restrict your potential customer base artificially, so choose an automation platform that can support as many digital payment channels as feasible, such as automated clearing house (ACH) transactions, wire transfers, credit cards, etc. If you let your customers buy with their preferred method, they’ll be much more likely to return.
Intuitive design
Deploying automation software aims to increase efficiency with less labor. Therefore, a user-friendly platform is essential, even for less tech-savvy employees. Look for customization options and robust support features. Invoiced accounts receivable automation software, recognized by G2 in 2024 for the easiest setup, administration, and business interaction, is an excellent example.
Anti-fraud measures
Don’t overlook the importance of security features when considering available platforms. Ideally, whatever platform you use will help you limit access to critical billing functions while offering increased availability for relevant records to general accounting staff. At the same time, document-matching and validation tools, like those provided by our automated accounts receivable software, can help ensure that the correct delivery totals and pricing information are recorded on every outgoing invoice.
Invoiced: Accounts receivable automation software that gets you paid faster
Whatever functions or features you’re looking for, we’re confident you’ll find everything you need in our Accounts Receivable Automation software. Our invoicing workflows can accommodate the most complex payment plans. Whether you support tiered subscription models, complex discounts, or auto-payments—we’ve got you covered. Once the payment request has been sent, our Smart Chasing feature will handle any relevant follow-up with the customer through scheduled, multi-channel communications.
Our self-service payment portal will empower customers to control how and when they pay off their invoices. When funds come in, our CashMatch AI algorithm can help ensure they’re credited to the correct account. So, if you’re looking for an AR automation solution that can make life easier for your employees, customers, and your business, take the first step and schedule a demo of our software today.
