Automating Accounts Receivable: Your Digital Infrastructure Is Key

Financial Automation
8 min
Nov 14, 2022

Getting paid — and especially getting paid on time — is vital to the financial health of your company.

No matter the size of your company, if you don’t have money coming in you’re going to face some serious hurdles. From making payroll to paying vendors, even scaling your business — you’re definitely going to feel the strain of late and missing payments.

Streamlining your cash flow doesn’t have to be a massive undertaking. We show you how to automate accounts receivable and why it’s essential for any growing business.

A General Overview of the Typical Accounts Receivable Process

For most small to mid-sized companies, the typical accounts receivable (AR) process involves four basic steps, including:

  • Establishing credit practices – when you create a purchasing agreement, you want to make it clear what the payment terms are. When your customers understand what’s expected from them in terms of payment, you’re more likely to get paid on time.
  • Invoice your customers – sending payment requests that include a due date and reminder of any penalties that may be incurred for late payments should be done on a specific day each month.
  • Keep track of payments and payments due – cash flow depends entirely on the timely processing of invoices, so you must track all payments received and have a clear tracking and follow-up system for collecting past due payments.
  • Bookkeeping – reconciling incoming customer payments with invoice numbers. 

Companies with only a handful of invoices each month (10-100) usually conduct this process manually. But, when dealing with hundreds of invoices each month, replicating these tasks can become an arduous and time-consuming task. 

What Is the Most Efficient Way To Run Your Accounts Receivable?

You’ve probably heard about accounts receivable automation, but maybe you’re not entirely sure what it is and how it works.

Automating accounts receivable is simply eliminating the day-to-day, labor-intensive administrative activities of AR and transferring them to technology.

AR automation:

  • Creates invoices based on the data received 
  • Delivers invoices to your clients electronically
  • Sends payment reminders
  • Reconciles payments with the correct invoices; and
  • Supports multiple forms of payment

Adopting an automated accounts receivable system gives you greater visibility when tracking customer payments and creates a digital history of all of your accounts. 

How To Automate Accounts Receivable Processes in 4 Steps

Step 1: Map Out Your Collections Process

Before you do anything, you must understand your exact collection process. If you’re not sure what that looks like, it’s time to speak with your finance team. 

Knowing exactly what each step is from your order to cash (O2C) cycle will give you a clear picture of where your team is wasting most of its time.

Pinpoint the most repetitive tasks and prioritize a system that eliminates that manual labor. 

At the end of the day, you want an accounts receivable process that automates the low-level tasks so that your team can prioritize the high-level strategic tasks that will help you scale your business.

Step 2: Understand Your Business Needs  

Now that you’ve mapped out your AR process, identify your pain points and learn how automation can help. 

From various software options to hiring offshore, not every AR solution will be the same.

Hiring offshore, for example, still incorporates manual processes, but can save your company a lot of money. This could be a great option for businesses that aren’t quite ready to invest in full automation.

Partial automation is also an option. It could make sense for your business to start by switching to e-invoicing to eliminate the paper trail but continue to match payments manually. 

Or, you may notice additional gaps in your AP process and want a solution that encompasses more than your AR processes.

Starting with a clear goal will help you make the best decisions from the start.

Step 3: Coordinate With Your Accounting Department

Who better to brainstorm automation solutions with than your AR team? They’re already extremely aware of your current AR operations and challenges.

By taking advantage of their knowledge, you’ll gain the valuable insight needed to make the best decisions and improve your chances of employee buy-in when the time comes to automate your processes.

Learn what type of workflow your team would prefer. From manual processing to overdue accounts to debt collection, it’s important to gather feedback from your team on these topics. 

A successful transition depends on whether or not your employees are happy and whether the system makes sense for everyone.

H3: Step 4: Choose the Right Automation Software

Your company may already use some kind of accounting software for AR, such as QuickBooks. Automation software shouldn’t require you to get rid of what you have in place already, it should complement it. 

Many accounts receivable automation systems will integrate smoothly with your current enterprise resource planning (ERP) system. This is especially ideal for companies looking to start by automating only the most repetitive tasks first.

When choosing automation software, think of it as an ecosystem where everything works together to accomplish your specific goals while staying within your price point.

6 Benefits of Automating Accounts Receivable

#1: Get Paid Faster

If your company is like most small to medium-sized businesses, it can get a little worrisome when customers take their sweet time paying their invoices. Gaps and delays in payments can cause a massive burden on any business.

Automating accounts receivable can help alleviate these concerns by making it easier for customers to pay as soon as the invoice arrives. Since everything is done electronically, your customers can’t use the same old “the check is in the mail” excuse. 

Automated accounts receivable systems keep your revenue stream flowing with speedy invoicing and payments.

#2: Increase Revenue

Speaking of revenue, automated accounts receivable processes help to eliminate failed payments and lost revenue.

Automated dunning emails, payment retries, and other early-stage collections processes ensure that you’re collecting more revenue with less effort. 

Automating accounts receivables also helps capture potential payment fails due to basic errors, such as address changes or expired cards.

#3: Reduce Costs

Saving money also increases your revenue. So, why waste money having your admin team spend time on repetitive tasks that software can do?

Automation helps reduce the costs associated with accounts receivables, causing that cash to flow back into the company by way of increased productivity.

AR is one of the most effective starting points when attempting to reduce your overhead because your team will have more opportunities to focus on strategy and scaling for growth. 

#4: Lessen the Risk of Mistakes

Eliminating people from the accounts receivables process is not only impossible, it’s also not advisable. However, human error can complicate the entire process and add significant costs to your company.

Automating accounts receivables reduces the potential for human errors while also ensuring that every invoice is prepared and tracked carefully.

Reducing the manual work involved in AR also reduces the amount of time needed to correct mistakes.

Automation also builds trust with your customers by increasing the accuracy and consistency of your invoicing process.

#5: Forecasting Your Cash Flow

Paper-based accounts receivable processes could increase the O2C cycle by up to 90 days per invoice. From customer inquiries to managing order changes to keeping track of data, manual AR processes really slow things down.

When automated, accounts receivable processes become fully streamlined, allowing your financial team to focus on revenue management by understanding what happens to the revenue from every invoice.

Automation allows AR professionals to follow trends and better forecast your cash flow.

#6: Enhanced Customer Service

Collections can strain your relationship with your customers. But when you automate your accounts receivables, you create opportunities to focus on customer experience, rather than collecting late or failed payments.

Your AR software should deliver a seamless experience that lets your customers know what to expect and empowers your team to focus more on quality interactions.

Additionally, automation makes first-party collections a priority, meaning a better experience for your customer and money saved for your business.

Accounts Receivable Automation: How To Tell It’s Time To Move Forward With a More Digitized Infrastructure

As a start-up, your financial stack is likely not a priority because it’s not generating any direct revenue. But as you grow, you’ll want to start to piece together the right tools to keep scaling your business the right way.

But how do you know when it’s time to automate accounts receivable? 

Moving from manual to automation usually makes the most sense when your business generates 1–20 million dollars in revenue each year or when you’re trying to raise capital. Investors will want to know what tools you have in place to support growth and how streamlined your processes are.

Just remember, your accounts receivable automation software must support the needs of your business now and in the future.