How to Ensure Your AR Function Is GDPR Compliant

Introduction

While planning for GDPR compliance, the accounts receivables (AR) function might not be an immediate focus. However, ensuring its alignment with GDPR is crucial. Why?

Since its enforcement in May 2018, GDPR has mandated robust personal data protection for all organizations. Considering that your AR function deals with sensitive customer data—comprising personal and financial details—ensuring its secure capture, processing, and storage is vital.

Compliance with data protection and privacy regulations is essential for organizations handling customer information. Non-compliance can result in severe consequences, including significant data breaches and hefty penalties.

This blog will cover – what GDPR is, its impact on the AR department, and the importance of GDPR compliance for the AR function.

What is General Data Protection Regulation (GDPR)?

It is a data protection law that became effective on May 25, 2018, regulating the data of EU citizens. Unlike the previous regulation (Data Protection Act 1998), GDPR applies to any global company with clients or customers in the EU, not solely those located within the EU. This new data protection law aims to standardize data protection practices across Europe. 

Organizations may fall under the GDPR if:

• The organization is established in the EU.
• The organization, though not based in the EU, engages in data processing activities involving EU individuals. These activities might relate to offering goods and services to them or monitoring their behavior and trends

At its core, GDPR is built upon seven core principles outlined in Article 5. These principles serve as guiding standards for managing people’s data. Rather than strict rules, they offer a broad framework defining GDPR’s purposes. Most principles align with those from previous data protection laws.

The seven GDPR principles include lawfulness, fairness, transparency, purpose limitation, data minimization, accuracy, storage limitation, integrity, confidentiality (security), and accountability. Accountability is the only new principle, while the others are similar to the 1998 Data Protection Act in the UK.

GDPR’s Key Requirements

To ensure your AR function is GDPR compliant, it is crucial to understand the key requirements set forth by the GDPR regulations. These requirements aim to protect the privacy and personal data of individuals, while also promoting transparency and accountability in data processing practices. By adhering to these requirements, you can build trust with your customers and avoid potential legal consequences. Let’s delve into the essential aspects of GDPR compliance:

1. Lawful Basis for Processing: Under GDPR, you must have a lawful basis for processing personal data. This means you need a legitimate reason, such as fulfilling a contract or obtaining consent, to collect and use individuals’ information. It is important to clearly communicate this lawful basis to your customers.
2. Transparency and Fairness: Transparency is key when it comes to data processing. You must provide individuals with clear and concise information about how their data will be used, who will have access to it, and for how long it will be retained. This information should be easily accessible and written in plain language.
3. Data Minimization: Collecting only the necessary personal data is a fundamental principle of GDPR. Ensure that you only gather information that is directly relevant to your AR function and avoid excessive data collection. Additionally, regularly review and delete any unnecessary data to minimize the risk of unauthorized access or misuse.
4. Purpose Limitation: Personal data should only be processed for the specific purposes that have been communicated to individuals. Any further processing beyond these purposes requires obtaining additional consent or ensuring compatibility with the original purpose.
5. Data Accuracy: It is essential to keep personal data accurate and up-to-date. Implement measures to verify the accuracy of the information you collect and promptly rectify any inaccuracies brought to your attention. Regularly review and update customer profiles to maintain data accuracy.
6. Data Security: Protecting personal data from unauthorized access, loss, or destruction is a fundamental obligation. Implement appropriate technical and organizational measures, such as encryption and access controls, to safeguard the data you collect. Regularly assess and update your security measures to address emerging threats.
7. Data Subject Rights: GDPR grants individuals certain rights regarding their personal data. These include the right to access, rectify, erase, restrict processing, and object to the processing of their data. Establish processes to handle these requests promptly and ensure individuals can easily exercise their rights.
8. Data Breach Notification: In the event of a data breach that poses a risk to individuals’ rights and freedoms, you must notify the relevant supervisory authority within 72 hours of becoming aware of the breach. Additionally, if the breach is likely to result in high risks to individuals’ rights, you must also inform the affected individuals without undue delay.
9. Accountability: GDPR emphasizes the importance of accountability in data processing activities. Maintain detailed records of your data processing activities, including the lawful basis for processing, data retention periods, and security measures implemented. Conduct regular audits to ensure compliance with GDPR requirements.
10. International Data Transfers: If you transfer personal data outside the European Economic Area (EEA), ensure that appropriate safeguards are in place to protect the data. This may include using standard contractual clauses or relying on an adequacy decision from the European Commission.

By understanding and implementing these key requirements of GDPR, you can ensure that your AR function operates in compliance with the regulations. Prioritize transparency, data protection, and accountability to build trust with your customers and demonstrate your commitment to safeguarding their personal information. Remember, GDPR compliance is an ongoing process that requires continuous monitoring and adaptation to evolving privacy standards.

GDPR Security Requirements for Accounts Receivable Department

Compliance with GDPR regulations in AR is paramount for safeguarding sensitive customer data and upholding trust. Before delving into the requirements, it’s crucial to understand the types of data typically processed by accounting software. AR software handles two primary categories of personal data:

1. ‘Client data’ encompasses personal information acquired from clients regarding professional engagements.
2. ‘Firm data’ includes personal details maintained by a firm concerning its management, employees, and general affairs, encompassing marketing databases.

Under GDPR, the scope remains consistent regardless of whether the software operates tasks like organizing, modifying, disclosing, or erasing data from its original record.

One of the most crucial tasks that an accounting team has to deal with is invoice data capture. With businesses increasingly adopting automation and data capture tools, invoice data capture solutions take over the entire process and finally store the data. According to GDPR regulations, before processing data, the AR team must ensure they have a lawful basis for doing so. Here are several key security requirements to consider before collecting and processing any customer data:

1. Data Minimization: Restrict the collection and storage of personal data solely to what’s necessary for AR processes. Avoid retaining extraneous information that could pose risks if exposed to a breach.
2. Consent Management: Obtain explicit consent from individuals before processing their personal data. Establish an effective consent management system enabling easy provision, withdrawal, or modification of consent preferences by customers.
3. Data Access Controls: Enforce stringent access controls, permitting only authorized personnel to access and process personal data. Regularly review and update user permissions to prevent unauthorized access.
4. Data Encryption: Safeguard personal data both in transit and at rest through robust encryption. Utilize strong encryption algorithms to shield sensitive information from unauthorized access.
5. Data Breach Response Plan: Develop a comprehensive strategy to promptly respond to and report any data breaches. This includes timely notification to affected individuals and relevant authorities as stipulated in GDPR regulations.
6. Vendor Management: Ensure third-party vendors or service providers involved in AR processes comply with GDPR. Establish firm contractual agreements defining their data protection responsibilities.
7. Data Retention Policies: Establish clear policies for retaining personal data in AR systems. Routinely review and remove outdated or unnecessary data to minimize breach risks.

Adhering to these GDPR security requirements while managing AR demonstrates your dedication to safeguarding customer data and ensuring compliance with regulations. Remember, maintaining GDPR compliance requires continuous monitoring, updates, and employee training to address evolving security threats effectively.

Recommended Reading: AR Automation: What, Why, & Top Benefits of Automating Your AR Process.

How HighRadius Can Help Your AR Department Stay GDPR Compliant?

When it comes to effective AR management, many businesses are embracing automation. HighRadius offers GDPR-compliant solutions, ensuring highly secure automation for your AR processes, thus aiding your AR function in maintaining GDPR compliance.

• Right to be forgotten: Buyer-facing solutions enable features for personal data deletion and retention. Solutions also support self-service opt-out, so customers can unsubscribe whenever they wish to. In any case, general customer data deletion is performed upon contract termination.
• Right to rectification: The solution allows users to edit or correct their personal data in user profiles within the system at any time.
• Right to transparency: HighRadius solutions provide visibility to a user’s personal data and preferences.

FAQs

1). What are the 7 main principles of GDPR?

The 7 key principles of GDPR include lawfulness, fairness, transparency, purpose limitation, data minimization, accuracy, and accountability, guiding the handling of personal data.

2). What is an example of GDPR compliance?

GDPR compliance involves obtaining explicit consent before processing personal data, ensuring secure data handling, and promptly reporting data breaches as mandated by the regulation.

3). Does GDPR apply in the USA?

GDPR applies to businesses in the USA if they handle the personal data of EU residents while offering goods or services to them or monitoring their behavior.

4). Does GDPR apply to accountants?

Yes, accountants dealing with the personal data of EU residents or offering services to them must comply with GDPR regulations regarding data protection and privacy.