Complete Guide to Accounts Receivable Automation

Setting up accounting processes for a brand new business, or switching to new accounting software for an existing company? You’ll want to know about automation tools that could save your company time and money, as well as improving efficiency.

In this guide, we’ll be focusing on accounts receivable (AR) automation tools and how they work. We’ll walk you through the main benefits and best practices, with tips on how to implement AR automation within your own accounting processes.

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What is accounts receivable automation?

Accounts receivable automation, or AR automation, uses software to automate tasks related to collecting funds owed to the business. It’s usually used to replace repetitive manual tasks, which can be time-consuming.

The aim is to streamline AR processes and speed up the credit-to-cash cycle. This should mean the business gets paid more quickly, while also improving the experience for the client. It also frees up your accounting team’s time for other tasks.

To give you an idea of how it works, let’s look at a few quick examples of AR automation in action:

• Generation and delivery of invoices when due, including identifying applicable tax rates
• Sending payment receipts to customers
• Sending payment reminders at intervals set by the business
• Matching payments to invoices as they come in, for effective reconciliation
• Generation of custom reports at set intervals (i.e. at the end of each week, month or tax year).

Once set up, all of the above tasks can be carried out automatically - with little or no intervention from an accounting or finance professional.

How does accounts receivable automation work?

Innovative technology is the key to automation, where solutions such as cloud computing, machine-learning algorithms, artificial intelligence (AI) and data analytics are combined to produce automation tools.

These can be set up and adjusted within your accounting software, or within a specialist AR automation solution that integrates with it. You’ll just need to make sure everything is set up and connected together, including payment gateways, bank accounts and accounting tools.

Accounts receivable automation best practices

To get the most from AR automation, here are some tips on best practice to bear in mind as you implement your new solution:

Make sure to consult with stakeholders first

This includes your clients, customers and most importantly, your staff. It’s common for people to worry about losing their jobs to automation and AI, so they’ll need reassurance. You can explain the benefits, the goals for implementation, and highlight that automation can actually free up staff time for more interesting, fulfilling and value-adding tasks.

Choose your software carefully

You need to make sure it works as you expect and need it to, and that it integrates with other solutions such as cloud accounting software. If you’re using accounting software with built-in automation features, make sure that the rest of the package is a good fit for the needs of the business. Lastly, think about your customers and their needs, and their preferred payment methods (support for international).

Plan automation steps in line with your AR workflow

The AR process workflow is the timeline of everything that needs to happen between providing a service to a client and getting paid for it. You need to make sure that at every stage, automation offers a benefit compared to a real person carrying out the task. Remember that there are some cases where you need real-life accounting or finance expertise.

Test, test and test again

It’s normal to have hiccups when implementing AR automation, but these can be ironed out. It’s worth putting the time in early to make sure everything is set up and tested properly.

Accounts receivable automation software

There are countless tools, apps and software out there that offer automation features.

To help you narrow it down, here are a few of the most popular options available in the UK right now:

Accounts receivable automation benefits

The benefits of accounts receivable automation include the following:

• Faster payments. Automation can dramatically speed up the invoicing process, meaning your company gets paid sooner.
• Improves cash flow and cash management. If you can get paid faster, this means more cash coming into the business. It can help to prevent late payments and generally speed up payment timelines, which makes cash flow management, forecasting and planning easier.
• Saves time. Carrying out repetitive tasks manually can eat up an extraordinary amount of time. Automation can dramatically reduce this, allowing you to send hundreds rather than tens of invoices a day - and the same for processing and reconciling payments. This saves your business money and frees up staff time for more value-adding tasks.
• Reduces errors and improves accuracy. Manual tasks always carry the risk of human error, such as mistakes on invoices or forgetting to chase up with payment reminders. Automation can make this a thing of the past, generating accurate invoices quickly and reducing error-related delays in getting paid.
• Improves the client/customer experience. Automation offers your customers a consistent experience, which is really important when it comes to payments. Invoices and even the billing process itself can be personalised, which can further enhance customer relationship management.
• Improves record-keeping and compliance. AR automation ensures fast and accurate reconciliation between payments and invoices. It also guarantees that all transactions are recorded in a format which complies with HMRC, Making Tax Digital (MTD) and other relevant UK regulations.

How to implement automation in accounts receivable

Here’s a quick run through of how to implement AR automation in your UK business:

1. Map out your AR process workflow in as much detail as possible.
2. Identify problem areas, pain points and the kind of manual, repetitive tasks that are eating up too much time - these are where automation could be useful.
3. Choose accounting software which offers the AR automation tools and capabilities you’re looking for. You may also want to consider dedicated AR automation software, making sure it can be integrated into your accounting software.
4. Connect your AR tool to your cloud accounting software, if separate.
5. Connect your payment gateways and other payment methods.
6. Configure the automation settings for accounts receivable processes. This may involve creating templates and setting the timelines for payment reminders, switching on automated receipts. You might also need add-ons for some tools. This step can take some time, as you play with the settings available in your chosen software and work out how best you can use them to streamline your processes.
7. Test out your new settings, using phantom customers to run through the whole of the AR process workflow. You’ll then have the chance to iron out any bugs.
8. Generate reports to see how well your new system is working, including improvements in efficiency, accuracy and payment speed (as well as saving the business valuable time).

FAQs - accounts receivable automation

Why to automate accounts receivable?

There are many compelling reasons your business may want to implement accounts receivable automation tools and solutions. These include:

• Speeding up payments
• Saving time on repetitive manual tasks, freeing up more time for value-adding activities.
• Improving cash flow and cash management
• Reducing errors and improving accuracy in invoicing and record-keeping
• Enhancing customer relationship management
• Strengthening record-keeping and compliance.

What is the difference between AP and AR automation?

AP automation is the process of automated accounts payable functions within the business. For example, paying invoices for goods or services received, scheduling payments and managing suppliers, contractors and staff.

AR automation is designed to automate processes related to accounts receivable. This is the function dedicated to invoicing clients and customers, in order to collect funds owed to the business for goods or services provided.

What is the workflow in accounts receivable?

All businesses will have an accounts receivable process workflow. This is the timeline of all the steps that need to be carried out between providing goods or a service to a client and getting paid for it.

A typical AR workflow may look like this:

1. The customer places an order with a Purchase Order (PO) - the business creates a corresponding Sales Order (SO).
2. The customer is approved for credit - this means the goods or services are not paid for upfront, but allocated to the customer account.
3. The business sends the customer an invoice.
4. One or more reminders are sent when the payment becomes due.
5. The payment is collected.
6. At this stage, disputes (if any) are investigated and addressed.
7. The payment is processed.
8. The customer receives a receipt for the payment.
9. The payment is matched to an invoice within the company’s accounting system.

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And that’s it - our comprehensive guide to accounts receivable automation and how it works.

We’ve covered everything you need to know, including some of the top benefits of implementing accounts receivable automation software. Plus, some tips for AR automation software providers to check out.

You should now be all set to start mapping out your own AR process workflow and start researching solutions, so you can find the best fit for your business. Good luck!

Sources used:

Sources last checked on date: 23-Oct-2024