Accounts Receivable Automation: What It Is & How It Helps Businesses

Introduction

Managing accounts receivable has always been considered a tedious job. From generating invoices to tracking payments, managing deductions, and ensuring timely collections, the AR process demands significant attention to detail. The process becomes highly error-prone and time-consuming when done manually.

Thankfully, accounts receivable automation is making the lives of AR teams easier. It streamlines invoice generation, automates payment tracking, and simplifies cash flow management. But how does it all come together?

Here, we will break down everything the accounts receivable teams need to know about automation and how to use it to improve their order-to-cash process, empowering them to manage cash collection efficiently.

What Is Accounts Receivable Automation?

Accounts receivable automation refers to the process of automating AR operations by leveraging technology-driven software solutions. This automation helps to reduce the manual effort involved in tasks such as generating and sending invoices, tracking payments, and following up on late payments.

Simply put, AR automation aims to simplify the process of managing and tracking outstanding invoices that customers owe to a company. As a result, this reduces the workload for your company’s accountants and accelerates payment collection from customers by offering a variety of convenient payment methods for their selection.

Why Do You Need AR Automation?

Traditionally, managing the accounts receivable for the company involves numerous repetitive and time-consuming tasks such as manual data entry for invoicing, chasing overdue payments, reconciling payments with outstanding invoices, and generating reports. As the business grows, the volume of transactions and the complexity associated with accounts receivable management increases.

In such a scenario, AR automation is a game-changer for businesses, as it optimizes cash flow and minimizes the time and effort spent on routine financial tasks. With automation, businesses can focus on higher-value financial activities, and the likelihood of errors decreases significantly.

Here are some of the reasons why AR automation has become a necessity for businesses:

1. Significantly reduces the time and effort required for routine tasks.
2. Increases operational efficiency of the accounting teams.
3. Improves process accuracy by eliminating human errors in data entry.
4. Helps gain real-time visibility into the status of invoices and receivables.
5. Enhances customer satisfaction by maintaining consistent and transparent communication.

7 Benefits of Accounts Receivable Automation

Now that we know how AR automation is enabling businesses to effortlessly manage the accounts receivable process, reducing manual effort and improving cash flow. Here are the top seven benefits of switching to AI-driven automated account receivable solution:

1. Lower bad debts with proactive credit risk mitigation

Efficiently manage your credit risk by leveraging AI-based automation tools to fast-track reviews. Identify external bankruptcy alerts, negative payment trends, and credit utilization thresholds.

These insights empower your credit teams to control and improve bad debt by proactively managing upcoming orders.

2. Cost reduction in AR

Implementing end-to-end accounts receivable automation can result in substantial cost savings, exceeding 70% in invoicing expenses. Transitioning from paper to electronic invoices guarantees timely delivery, enhancing customer satisfaction.

Moreover, automated cash applications eliminate 100% of lockbox data capture fees, ultimately reducing operational expenses in AR.

3. Improved productivity due to automation of clerical tasks

AR automation liberates your AR analysts from manual, time-consuming tasks such as cash application, claims aggregation, and manual credit report aggregation and scoring.

This automation lets your team focus on more strategic work, improving overall efficiency.

4. Lower DSO with automated collections

Utilize AI capabilities, such as payment date prediction and dynamic customer segmentation, to proactively identify critical customers and recommend appropriate collection strategies.

Integration with self-service portals and multiple payment options encourages customers to pay faster, significantly improving your Days Sales Outstanding (DSO).

5. 360-Degree visibility into critical AR metrics

Advanced AR automation software, like HighRadius AR automation, provides an interactive user interface and real-time access to data across the order-to-cash process.

This comprehensive visibility allows senior AR leaders to assess process health and analyze analyst productivity metrics, facilitating course corrections and strategic decision-making.

6. No more silos in the accounts receivable process

AR automation ensures seamless end-to-end automation across the order-to-cash process, connecting all teams and enabling real-time data flow. For example, collections analysts receive instant updates about invalid deductions or blocked orders, allowing them to prioritize collections efficiently.

7. Improved customer experience with e-Payment adoption

Enhance the customer experience by offering digital collaboration options, including self-service portals, online payments, and integration into accounts payable portals.

Customers gain independence in managing their invoices, improving cash flow, and fostering strong customer-vendor relationships. Simplified online payments and dunning processes reduce the need for collections calls, making payments hassle-free and secure while saving paper and enhancing security through PCI compliance.

How Does AR Automation Work?

Automated accounts receivable processing uses technology to simplify and handle tasks like creating invoices, tracking payments, and managing collections. It sends payment reminders, updates payment statuses instantly, and ensures accounts are reconciled efficiently. 

Let’s take a closer look at how AR automation helps in each of the steps:

1. Streamlining invoice generation and delivery

   
   

   With the help of automation, businesses can automate the process of generating and delivering invoices. The AR automation software pulls information from the company’s accounting or ERP system to create invoices automatically. The invoices are then delivered electronically to customers, whether through email, electronic data interchange (EDI), or customer portals, facilitating quicker delivery and reducing manual effort.

   
   

2. Facilitating seamless payment methods

   
   

   Making it easy for your customers to initiate the payment, AR automation solutions also integrate various payment gateways to offer various electronic payment options such as credit card payments, ACH transfers, and electronic funds transfers (EFTs). 

   
   

3. Automating payment reminders

   
   

   Manually sending payment reminders to customers is a tedious job as it requires customer prioritization and manually tracking due dates. AR automation solutions simplify this process by sending automated reminders and notifications for upcoming or overdue payments. These reminders are personalized and can be sent via email, SMS, or through customer portals, improving communication and reducing the likelihood of late payments.

   
   

4. Simplifying report generation

   
   

   Accounts receivable automation provides robust reporting and analytics capabilities. It generates reports on accounts receivable aging, cash flow forecasts, collection performance, and customer payment trends. These insights empower finance teams to make informed decisions and optimize receivables management strategies.

   
   

Example of AR automation in action:

Given below is an example of how accounts receivable automation can help businesses save time efforts and avoid potential cash flow problems. 

Imagine a scenario where a customer purchases goods from you on credit, and you need to send them an invoice for services rendered. Now, here’s how AR automation works:

• You can generate accurate invoices promptly, formatted to meet the customer’s accounts payable requirements.
• The moment the invoice is generated, it’s automatically sent to the customer’s email. This process eliminates delays and ensures prompt delivery.
• Upon receiving the invoice, the system tracks when it was viewed and paid. If the due date approaches and payment isn’t received, an automated reminder is sent, gently nudging the customer to settle their outstanding balance. The content of this reminder is tailored to the customer’s payment history and preferences, enhancing the chances of timely payment.
• As the due date passes, the system continues to follow up, automatically adjusting the tone and frequency of reminders based on the customer’s response or lack thereof.

How Automating AR Helps Eliminate Manual Aspects of AR?

To understand this, let’s take a look at the challenges that accounting teams encounter in manual accounts receivable processes and how automating AR eliminates these challenges.

Manual Accounts Receivable	Automated Accounts Receivable
Human error and inefficiency AR collections are error-prone due to data entry mistakes, leading to delayed payments and customer disputes.	Error-free and efficient Minimize human error by automating data entry and invoice generation, reducing delays in payments and disputes.
Limited visibility and data analysis Lack of real-time visibility into payment statuses and trends makes it challenging to identify issues promptly and miss valuable insights.	Better visibility and insights Provide real-time updates on payment statuses and trends, allowing businesses to identify issues and take proactive measures promptly.
Cash flow delays and scalability issues Slow collections and late payments impact cash flow, restricting the ability to invest in growth opportunities or meet financial obligations.	Improved cash flow and scalability Accelerates collections process through timely invoicing and automated reminders, improving cash flow and liquidity

Best Practices of AR Automation

Automating accounts receivable (AR) processes can significantly improve process efficiency by reducing manual errors. Here are some best practices that you must keep in mind for implementing AR automation:

• Automate the workflows

  
  

  To ensure your business leverages the best out-of-accounts automation software, streamline the workflows and approval processes to reduce delays and improve process efficiency. Automate tedious tasks involved in the process, such as pulling out invoices, following up with clients, credit approval process, etc.

  
  

• Ensure AR software integration with existing technology

  
  

  Ensuring that your AR automation solution can be easily integrated with the existing systems, such as your ERP, CRM, and other tools, is essential. This integration enhances data accuracy, improves visibility across departments, and supports more efficient decision-making.

  
  

• Switch to technological advancements 

  
  

  You must upgrade your AR processes by leveraging technological advancements such as automated e-billing, follow-up emails, automated deductions, etc. Implementing these innovations streamlines billing procedures and enhances efficiency in follow-up actions.

  
  

• Review the AR process regularly

  
  

  As your business grows, so does the complexity involved in managing accounts receivables. So, it is important for your organization to conduct regular audits and performance reviews of AR processes. This will help to Identify areas for improvement, streamline workflows, and adjust strategies based on data insights and feedback.

  
  

How to Automate Accounts Receivable?

Clearly, amidst the increasing process complexities, managing accounts receivable manually is no longer feasible for modern-day businesses. So, to get started with AR automation, ensure you follow the steps given below:

• Identify the goal for automation

  
  

  Setting goals for your AR automation is the primary step. You will need to figure out whether you need to automate a particular process like invoicing, cash application, collections, etc., or automate the end-to-end account receivable process.

  
  

  If any particular department is lagging, you can automate that single department. But, if the performance of your whole AR department is slowing down, automating completely would be a better idea.

  
  

• Build a clear As-Is and to-Be State of automation

  
  

  As you are aware of the nitty gritty of your accounts receivable process and have clarity on what problems you want to solve through automation, it is recommended that you define the current state of your AR and the future state post-automation for the vendor.

  
  

  The more clarity you provide, the easier it becomes for the vendor to lay down the transformation plan.

  
  

• Evaluate and select a vendor for automation

  
  

  The next step is to evaluate the best solution available in the market for accounts receivable automation. Based on your business requirements, you can review various receivables solutions and understand whether the vendor is capable enough to deliver your expected results.

  
  

  Reviewing a vendor’s past results also becomes crucial during the vendor selection process. Choose the accounts receivable software that suits your business requirements to ensure the best possible ROI.

  
  

• Continuously track the progress of the transformation

  
  

  It is important to define checkpoints in your AR automation project. This way, you will be able to understand whether the transformation is moving in the right direction or not.

  
  

  In case of any conflicts with the expected results, you should immediately inform your AR automation vendor to discuss possible course corrections.

  
  

How HighRadius Can Help In Accounts Receivable Management?

HighRadius is revolutionizing accounts receivable management by automating critical processes such as credit management, electronic invoicing, payment processing, cash applications, deductions, and collections. Its AI-powered solutions improve cost savings, reduce DSO (Days Sales Outstanding) by 20%, and boost productivity by 30%, enhancing overall efficiency.

By integrating seamlessly with existing systems, the accounts receivable automation software provides real-time visibility into receivables, enabling businesses to manage their AR processes more effectively.

Unique Features that HighRadius’ AR Solutions Offer

What makes our clients love our solutions is these valuable features that our new-gen accounts receivable automation software offers:

• Prioritized worklists: Our AI-based worklist prioritization feature helps you segment and identify high-risk customers.
• Straight-through cash posting: Automated payment and remittance linkages, invoice matching, cash application to your ERP, and AI-based exception handling reduce reconciliation errors.
• Self-service customer portal: Customer portals to help clients manage invoices, payments, and disputes quickly and easily.
• Automated periodic credit reviews: Automated credit risk evaluation supported by out-of-the-box integrations with leading credit risk agencies to fast-track credit approvals.
• AI-based predictions: Predict customer payment dates leveraging AI-based features.

So, if you haven’t started leveraging AR automation yet, it’s high time you do. It’s the key to streamlined financial processes and sustainable business growth.

FAQs

1). Why is automation needed in finance?

Automation in finance is needed to reduce manual intervention and streamline processes such as accounting, financial planning & analysis, and reporting. It reduces manual work, saves time, minimizes errors, and optimizes processes using technologies like RPA, AI, and predictive analytics.

2). What processes can be automated in finance?

Accounts receivable automation works with ERP systems by connecting through APIs or direct integrations. This integration ensures smooth data synchronization between platforms, automates the creation of invoices, updates payment statuses instantly, and consolidates financial information.

3). What are some signs that indicate the need for AR automation?

Signs indicating the need for AR automation include a rise in past-due invoices beyond 90 days, delays due to incorrect invoicing, challenges in achieving same-day cash posting, challenges in maintaining accurate financial records across systems, and increased operational costs.

4). What are the ways to optimize the order-to-cash process?

There are several ways to optimize the order-to-cash process, including adopting digital transformation, automating invoicing and payment tracking, implementing clear payment terms and policies, standardizing processes, centralizing data repositories, and automating customer onboarding.

5). What are the benefits of revamping your order-to-cash process?

Revamping your order-to-cash process offers improved cash flow, enhanced customer experience, increased efficiency, reduced errors, better compliance, and boosted employee productivity. It also ensures competitiveness by adopting the latest technologies in today’s dynamic business landscape.

6). Why is it crucial to automate your AR process?

Automating your AR process eliminates duplication, enhances operational efficiency, ensures compliance with financial regulations, reduces errors, and saves your finance and AR professionals valuable time. It also helps businesses reduce collection costs and improve efficiency.

7). How do accounts receivable automation work with ERP systems?

Accounts receivable automation works with ERP systems by connecting through APIs or direct integrations. This integration ensures smooth data synchronization between platforms, automates the creation of invoices, updates payment statuses instantly, and consolidates financial information.

8). What is the AR process workflow?

The AR process workflow includes invoice generation, sending invoices to customers, tracking payments, applying cash receipts, managing collections, and reconciling accounts. Each step ensures timely billing and payment, effective credit management, and proactive follow-up on overdue accounts.

9). How to automate AR collection?

You can automate AR collection by implementing software that schedules payment reminders, identifies delinquent accounts, and initiates follow-ups through predefined workflows. Integrate the software with ERP and CRM systems for real-time updates and automated communication.