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Why You Should Automate Your Accounts Receivables?

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There are many reasons why you should automate your accounts receivable collections. Automation can help you save time and improve efficiency. It can also help you reduce errors, improve customer satisfaction, and increase cash flow.

When a customer buys a product or service on credit from a supplier, the supplier considers it a sale. However, because the cash has not been received yet, it is accounted as accounts receivable. This is an important distinction because it allows businesses to track how much money they are owed by customers.

The accounts receivable automation process means automating the production, sending, and collection of invoices. This can help businesses save time and money by reducing the need for manual invoice processing. AR automation can also help improve customer satisfaction by providing a faster and more efficient way to receive customer payments.

AR automation involves using software to streamline the accounts receivable process. This can include using artificial intelligence and machine learning technology to make the process more efficient. By automating the AR process, businesses can improve their cash flow and reduce the amount of time and resources needed to manage accounts receivable.

AR automation is a part of the order-to-cash process which involves automating various tasks in the process, such as:

  1. Order Management
  2. Credit Management
  3. Order Fulfillment
  4. Order Shipping
  5. Customer Invoicing
  6. Accounts Receivable
  7. Payment Collection
  8. Reporting and Data Management 

AR automation can automate processes from customer invoicing to reporting and data management. This means that businesses can save time and money by automating these tasks, which would otherwise need to be done manually. In addition, automating these processes can help to improve accuracy and efficiency, as well as reduce the likelihood of human error.

The Challenges in the Accounts Receivables Collections Process

High Transaction Volumes

The main challenge with accounts receivable collections management is the high transaction volume. This can make it difficult to keep track of all the invoices and payments, and can also lead to delayed or missed payments. To overcome this challenge, it is important to have a good system in place for tracking invoices and payments and to follow up on late or missing payments promptly.

If a company is doing well, there will be hundreds, if not thousands, of transactions that need to be handled by the accounts receivable department. Each one of these transactions must be properly documented and recorded so that the company can keep track of its money. This can be a very time-consuming and complicated process, but it is essential for the health of the business.

If all the tasks are handled manually, then the turnaround time (TAT) would be incredibly slow. This is because each task would have to be carried out one by one, and there would be no way to speed up the process. This would lead to a lot of wasted time and resources, and it would ultimately impact the quality of the work.

This can make it difficult to keep track of all the invoices and payments, and can also lead to errors. To help overcome this challenge, it is important to have a good system in place for tracking invoices and payments and reconciling customer accounts on a regular basis. This will ensure that all invoices are accounted for and that payments are up to date, helping to avoid any potential issues with late or missed payments.

Inefficient Collection Process

There are a number of key challenges in the AR collections process that can lead to inefficiencies and issues with timely collections. One challenge is that many businesses do not have a dedicated AR team or staff, and instead rely on other departments such as customer service or accounting to handle collections. This can lead to poor communication and coordination between departments, and can also result in customers falling through the cracks.

Another challenge is that businesses often do not have clear policies and procedures in place for collections, which can lead to confusion and inconsistency. This can be especially problematic if different employees are handling collections, as each may have their own way of doing things.

Finally, many businesses do not make use of technology to help with the collections process, relying instead on manual methods such as phone calls and emails. This can be time-consuming and inefficient, and can also make it difficult to track progress and performance.

Manually processing accounts receivable also occupies resources with the mundane activity of generating and emailing invoices. Because reps will have insufficient time to cater to each and every query, the collections rate will suffer and bad debt will accrue. If there are no pre-generated collections processes set for collection activity, each collector will do their own thing leading to variability and human error.

Inconsistent Credit Assessments

If the credit assessment process is manual, then there is a risk that it may be subjective. This could mean that customers who are less qualified may be given higher credit limits than those who are more qualified. This could have negative consequences for both the customer and the company. 

Alternatively, companies sometimes lose track of who has which credit limits because of disorganization in the account records. This increases the risk of bad debt. In order to avoid this, companies need to be more organized with their account records and keep track of who has which credit limits.

Reporting Errors

In the manual AR collections process, reporting errors may happen when the employees are working in different systems e.g. tracking customer data using excel, following up using outlook, and issuing invoices using ERP. Due to the manual nature of the process and working across the three different systems, it might happen that the employee might miss some data for reporting, which may lead to serious reporting errors.

Almost all the above problems can be solved by AR automation as it follows a single process, is fast and precise, and all the data can be found in one place.

Key Benefits of Accounts Receivables Automation

The main benefit of AR automation is that it can help save time and money. By automating the process, businesses can avoid the need to manually enter data into their accounting software. The following are 5 benefits of accounts receivable automation:

Frees Up Employees To Do High-Value Work

The manual accounts receivable management process is too cumbersome and very costly, as it requires dedicated employees to work full time in trivial tasks of producing and sending or uploading the invoices. AR automation can help to free up employees from mundane tasks and allow them to be allocated to more important tasks. This can help to improve efficiency and productivity within a company.

Environmentally Friendly

AR automation can reduce the cost of manual printing and stationery. This is because AR can provide an efficient and accurate way to print documents and labels, as well as reduce the need for paper. It can auto-generate invoices and the system can email invoices to customers and hence save a lot of costs.

AR automation can also help businesses keep track of their inventory levels and automate the ordering process, which can save time and money. By automating the ordering process, businesses can streamline their operations and reduce the amount of time spent on tasks like inventory management.

Additionally, AR automation can help businesses keep track of their inventory levels in real time, which can allow them to make better decisions about stocking levels and reordering.

Reduces Human Error

AR automation removes humans from the equation, eliminating human error, improving data consistency with real-time responsiveness. This results in increased efficiency and productivity for businesses that implement AR automation into their workflows.

Also, AR automation can help improve accuracy and reduce the likelihood of a customer dispute. By automating certain tasks, businesses can improve their accuracy and efficiency, while also reducing the chance for human error. This can help create a smoother customer experience and reduce the number of disputes that may arise.

Credit Tracking 

Automating accounts receivable can help manage credit assessments and track outstanding credit limits, helping keep money in the company. The automation can help keep track of payments and invoices, as well as customers’ creditworthiness. In addition, automating accounts receivable can help identify potential fraud and reduce accounting and administrative costs.

This can save time and money by automating tasks that would otherwise need to be done manually. Additionally, it can help improve accuracy and consistency in credit decisions. By automating these tasks, businesses can focus on more important tasks and improve their overall efficiency.

Centralized Workspace For All AR

AR automation can be extremely helpful in reducing the chances of errors in reports. This is because every document and data can be found in a single place. This can help to ensure that all information is accurate and up-to-date.

This makes it easier for businesses to keep track of their inventory and sales, and to make accurate reports. By using accounts receivable automation software to track inventory and sales, businesses can save time and money while ensuring that their data is accurate. This can help businesses run more efficiently and improve their bottom line.

Who Accounts Receivables Automation Benefits

AR automation benefits almost all the industries, however, there are some industries where the implementation is higher.  For example, the banking and financial services space see a huge transaction volume. Similarly, industries with high transactions would see huge benefit in automation.

Below examples of industries where the AR automation would be a gamechanger:

  • Banking, Financial Services, and Insurance
  • Telecom and  Information Technology (IT)
  • Manufacturing
  • Wholesale Distribution and Logistics
  • Food and Beverage
  • Retail

AR automation, if implemented smartly, will help immensely in cutting the cost, and streamlining the process, and companies have better working capital cycles, stable cash flows, and can have fewer bad debts. As the process has recently been widely accepted by the industry, it is imperative for a company to implement AR automation for its success.

Want to learn how Peakflo tackles AR automation?