What is accounts receivable automation?

ABCAdda | Updated Nov 22, 2022

Automating accounts receivable frees your accounts receivable team to focus on higher-value work. Finance and accounting professionals across the industry benefit from using our accounts receivable automation software as it simplifies processes and eliminates the potential for costly human error.

What is accounts receivable automation, or what is AR automation?

Account receivable automation, or AR automation, automates manual claims processing with software to save time, reduce costs, and eliminate errors.

Turning complex manual claims processing processes into electronic by automating accounts receivable and simplifying systems reduces repetitive and time-consuming tasks (potentially error-prone).

By automating accounts receivable throughout the entire process, from credit management to invoicing and reconciliation, you streamline every step of the way, resulting in increased cash flow by getting money into your business faster.

Can accounts receivable be automated?

Yes, With accounts receivable software, you can automate many of these processes to save time and money.

How do you automate the accounts receivables process?

Here’s a simple 6-step process that you can use in your business to provide a secure automated accounts receivable UK service.

  • Step 1: Choose your tool: The first thing you should do is select the A/R automation tool you want to use. You can choose from the above list.
  • Step 2: Connect to your cloud accounting software: Next, you’ll want to integrate your cloud accounting software with your A/R automation tools so that overdue invoices and customers are synchronized.
  • Step 3: Set up an automatic payment reminder cycle: The main thing we are trying to automate is payment collection. This is done through automatic reminders to debtors. So you need to configure the part of the app that controls the reminder template and how you should send payment reminders.
  • Step 4: Connect the payment gateway: Different apps have different ways to raise money. Either way, you should ensure there’s a way to collect payments through the app, thanks to your efforts in Step 3 above.
  • Step 5: Clean the books before running the automation: This app works by sending automatic reminders based on unpaid bills. If your books haven’t been updated in a while, you may be sent a reminder for payments that were received but not reconciled. So make sure the books are updated before the payment reminder goes out.
  • Step 6: Assess collection effort: Once the accounting process automation is complete, you should evaluate how successful your debt collection efforts have been. Depending on the results, you may want to modify the reminder and message templates to see if your collection efforts improve in the future.

What is the accounts receivable process?

Accounts receivable process: 4 Steps

The accounts receivable Europe workflow process is similar for each company. It usually consists of four simple steps:

  1. Establish credit policies
  2. Invoice customers
  3. Track and monitor account receivable.
  4. Account for accounts receivable

Are you ready to learn how to handle accounts receivable like a pro and get paid by your clients? If so, keep reading.

Establish credit policies

You must establish and enforce credit policies to weed out customers who won’t pay you. If you must specify a policy, be sure to specify the following.

  • Who can qualify for credit
  • The amount of credit you want to offer to your customers.
  • Payment period (e.g., payment due within 30 days)
  • If you want to offer an early payment discount and the amount, you plan to offer
  • Late payment fees
  • Credit terms specific to your business or industry
  • Other terms and conditions
  • Once the customer agrees to pay the loan, you can run a credit check to see if the customer is trustworthy. You can also get them to sign a contract promising they will pay you back if they buy something on credit.

Invoice customers

When a customer buys a product or service and agrees to pay you later, you can send them an invoice. Your invoice must include the following information:

  • Invoice date
  • Invoice number, if applicable
  • Due date
  • Product or service information (such as the quantity and price of each product)
  • Sales tax, if applicable
  • Discounts, if applicable
  • Any additional comments and notes
  • Your contact information
  • Payment information (e.g., how to pay, accept payment types, etc.)
  • Late fee for an invoice not paid on time (if applicable)
  • Bill payment terms should one day be clear to our customers.

Your invoice payment terms should be clear as a day for your customers. That way, they know exactly how much they owe, when they pay, and the consequences of late payments.

You can send a paper or an electronic invoice, depending on your business’s preferences. You can streamline sending electronic invoices and receiving customer payments using accounts receivable software.

Track and monitor account receivable.

Once your customers agree to pay you back later, you must ensure they follow that promise.

Track and monitor account receivable management for every customer who owes you money. Each customer must maintain the following organized list

  • Customer name
  • Total balance owed
  • Current amount
  • Days past due, if applicable

To simplify this process and make it less complicated, you can use accounts receivable software to create and view accounts receivable aging reports. AR aging reports show which customers have outstanding invoices. Some software can even help you communicate with customers about late payments through automatic reminders.

If you’re handling things manually, follow up with customers when their payments are past due. You can manually send payment reminders in bulk or contact customers individually. If you can’t get your customers to pay, you may need to hire a debt collection agency.

Account for accounts receivable

To complete the business process for accounts receivable UK, you must register the debtors on your books. This includes recording payments of invoices.

Record each incoming payment in your books accordingly. During this cycle stage, you also need to update your balance sheet, make adjustments for bad debts, and write off unpaid invoices.

Update accounts receivable management regularly (e.g., monthly) to ensure your books are as accurate as possible.

How do you automate the cash application process?

7 Steps to Automating Your cash application Workflow

Step 1: Identify the processes that are preventing the team from reaching its potential

The first step in automating accounts receivable departments are identifying areas where your team is experiencing enormous inefficiencies. You don’t spend money on automation just because you feel you should.

Find your reasons to automate your workflows thoughtfully, regarding which specific problems automation can solve. It will help you plan and get the best return on your investment in a modern automation system.

Do you often record overages on the cost of processing invoices? Is there a clear approval hierarchy? Have there been missed payment dates, incorrect payments, or upset vendors whose complaints were not resolved promptly?

The aim is to scrutinize your current AP workflows to identify weak points that can be improved upon. The conclusions based on this self-assessment will vary depending on the needs and operations of the organization, but automation can help in all areas.

Step 2: Set your goal

Once you have identified the problem, the next step is to set clear and achievable goals based on the problem you identified in the first step. Now is the time to determine your Accounts Payable automation needs and plan how best to meet them.

What results would you like to achieve from automating the Accounts receivable workflow?

Be as specific as possible. If necessary, write it down. Here are some examples ideas to get you started:

  • “We need to process and approve more than 1,000 invoices per month, but we don’t should hire additional staff or incur additional costs.”
  • “We want to continue to process the same number of invoices, but we want to do it with three fewer employees.”
  • Whatever conclusions you come to here should stem from the inefficiencies you identified in the first step.

Step 3: Choose the software that best suits your purpose

After identifying your problem and setting your goals, the next step is finding a technological solution to help you achieve it. In general, it is recommended to use process-specific automation software.

The reason is apparent: you don’t want to spend your money on accounts receivable software that promises to do “it all” when you already know the specifics you need to work on.

Process-specific workflow automation tools are designed with industry trends in mind and often come with features that help designed teams perform better.

For example, unlike most general-purpose automation technologies, AP-specific workflow software has built-in form and workflow templates designed explicitly for vendor invoice processing. This workflow automation software helps reduce your team’s time and effort in creating custom templates.

When choosing an accounts payable solution, choose one with the needed features. This list of features likely includes OCR functionality, data retrieval technology, the ability to post automatically to your ERP system, etc. Here’s a post we made about the best features to use in a to-do workflow automation tool.

And whatever software you choose should integrate seamlessly with the third-party services you already use.

Step 4: Get your employees on board

Once a new system is selected and implemented, the AP staff and the vendor must join forces for it to be used. Point them to some of the specific benefits that an automated workflow system will bring to them.

For example, if the new system allows suppliers to send invoices electronically, you can tell them they no longer need to waste time and money on paper invoices. With just a few mouse clicks, their new e-invoicing process will drastically reduce the time it takes to receive payments.

Your accounts payable automation team will most likely appreciate that they save time on manual data entry every week.

Step 5: Request a demo

Learn more about the account payable workflow solution by watching the live demo.

  • Your full name
  • Email address
  • phone number
  • Request a demo

Usually, the best way to present your idea is to have your software vendor provide a demonstration, be it a video or a live demonstration. This is necessary for two reasons:

  1. To test the software of your choice: Most automation software vendors offer you the opportunity to try out their products for free for some time in the hopes that you decide to adopt them ultimately. This allows you to evaluate the new system and decide if it best fits your accounts payable department.
  2. To troubleshoot your team and suppliers: New things can be scary when everyone in your organization—employees and suppliers—only did things one way before. Please make sure everyone moves forward together and give them a chance to ask questions and clarify any issues.

Demonstrations should be conducted in person to give participants hands-on experience with the new system. Everyone will immediately be clamoring for full implementation.

Step 6: Roll out

Everything until then was preparation for the big day. It’s time to deploy your new AP automation tools at the organizational level.

While it’s not uncommon for problems to arise at this stage, you can implement a phased implementation to avoid problems associated with time, cost, and workflow disruption.

Staged delivery replaces part of your workflow. That way, the issue only affects a portion of the workflow, so you don’t jeopardize the entire billing process.

Step 7: Follow up

You might think you’re done after release, right? Not true!

For the automation process to run smoothly, you must continuously resolve issues, ensure compliance, and analyze results. Continue to work with your account manager to ensure systems are fully implemented, identify and resolve bottlenecks, and measure automation success through process analytics.

What types of accounting tasks will be automated?

Automate these 5 tasks and save time

Billing and Invoicing

You don’t make money without billing and billing your customers. Therefore, improving billing and invoicing processes can deliver results for your business.

Unfortunately, the traditional invoicing process is full of manual tasks that are time-consuming and error-prone. For example, you can send the wrong invoice. Fixing problems is detrimental to your cash flow and can damage your relationship with the customers you charge.

Automatic billing can help you get paid more accurately and faster. Many accounting software products offer time-saving and cash-flow-enhancing features such as Automatic invoicing, customer invoice reminders, tools that convert quotes into invoices and the ability to store customer payment information.

Obligations

On the other hand, the coin is your billing obligation. If you don’t pay your bills accurately and on time, your supplier-supplier relationship will suffer. You will miss out on potential discounts, and some may even stop working with you.

Like the other things we’ve discussed, the tasks associated with paying your company bills are time-consuming.

Each invoice must be checked for accuracy before being sent to someone else for approval. Once approved, someone has to sign in and process the payment. Finally, write a diary entry.

All this for one bill – let alone a few days.

Imagine how much time you could save by automating some of these steps. Accounting automation can securely capture billing information, notify the right people in the payment process to do their part, and even record entries in your ledger.

It also saves money by lowering costs associated with paper payments, reducing your staffing needs, and helping you take advantage of early payment discounts, if applicable.

Payroll

Proper and timely payroll accounting is essential to keep your employees happy. They also have to deal with complex payroll elements such as vacations, overtime, benefits, etc.

And then there are payroll taxes. Miscalculate your income tax, and there is a penalty.

Payroll tasks are notoriously manual, including sorting through spreadsheets and math.

Accounting automation is beneficial when it comes to getting all the numbers on the payroll right. Automation removes the human error part of the equation and saves hours on the payroll task and correcting errors.

Tax Compliance

Tax compliance is a thorn in the side of many entrepreneurs. Tax legislation is a complex set of rules that can sometimes be difficult for even the most experienced tax professionals to understand. There are income taxes, payroll taxes, sales taxes, and more.

In the past, small business owners had to figure it out independently (which often caused more trouble) or hire one of these professionals.

So one of the most critical use cases for automation is tax issues. Many accounting solutions can calculate the tax requirements for each business transaction. This is especially useful when doing business across state or international borders.

Many solutions even provide valuable reports for tax planning and other things.

Processing and administration of expenses

You and your employees sometimes have to spend money on the company. Managing and tracking these expenses is part of expense reporting and administration, a traditionally time-consuming and labor-intensive process.

Employees must keep complete receipts and expense reports. Someone must sign off before the accounting or finance team reconciles the costs and sends the reimbursement to the employee.

Many accounting automation solutions free your team from this manual work. The program can match expense reports with invoices and often create appropriate records.

How to digitize your accounts receivable process

As digitization continues to hit the business world, billing and billing functions remain largely paper-based for many organizations. Businesses that automate accounts receivable processes can achieve several operational and financial goals. Here are five key benefits companies can take advantage of by moving to “digital.”

Minimized manual processing; Maximum efficiency

Creating paper invoices is a time-consuming task, mainly when digital alternatives exist. Instead of creating, printing, and sending invoices, companies can automatically generate electronic invoices and electronic reminders for late payments.

This significantly reduces administrative effort. In addition, electronic invoicing saves on office supplies such as paper, envelopes, and postage.

Faster payment process

Digitization streamlines the money conversion cycle. Accounting should not waste time sending paper invoices and reminders. Instead, employees can be shifted from administrative tasks to value-added tasks such as budgeting, forecasting, and cash management.

On the other hand, customers who pay electronically—or set up automatic payment options—don’t have to waste time writing checks. Also, e-bill recipients are more likely to pay quickly to get a discount or cross payments off their to-do lists.

Customers can use their preferred payment method

Instead of forcing customers to write paper checks, they can make payments using digital payment options such as ACH or credit card. Businesses selling directly to

consumers can accept payments via PayPal, Venmo, or other digital payment apps. This alternative can result in lower fees than credit card companies charge.

Customer loyalty can increase

It’s easier to do business with organizations that enable digital payments. Reducing the administrative burden on customers can, in turn, increase customer retention. It can also eliminate potential conflicts arising when payments are missed or delayed.

The potential for fraud is reduced

Paper checks can be vulnerable to fraud. Going digital eliminates the need to store and mail paper checks, reducing the potential for employee fraud. And because you no longer have to send checks, third-party check interception is prevented.

Benefits of AR Automation solutions

Let’s say your company now tracks customer payments using a master spreadsheet. The table contains customer data, payment terms, and invoice requirements. The accounts receivable team uses this spreadsheet as a record system to collect payments.

Whether a past invoice is printed or emailed, the accounts receivable USA team puts a lot of manual effort into collecting payments. Customer payment options tend to be limited, and late payments are difficult to find and time-consuming to track.

Accounts Payable Automation provides a standard format with crucial input data for invoices, customer details, and payment terms. Users can enter data once and let the system manage itself. The platform automatically sends the invoice if a customer receives an invoice on the 1st of each month.

The online process also opens up several payment options, increasing the likelihood that customers will pay on time.

Businesses that use accounts receivable automation can also take advantage of workflows that overload billing platforms. Gone are the days of repeatedly calling customers whose credit cards have expired, turning down incentives because they are too complex to manage, or painstakingly signing back-and-forth contracts.

The remainder management tool automatically contacts the customer when the card has expired. Custom payment logic allows users to program time-based discounts to incentivize early payments or penalties to prevent late payments. The registration page allows customers to agree to terms and conditions as part of the billing process.

And last but not least, data collection in a standard online format allows companies to quickly verify collection performance and connect to other back-office software – such as accounting and ERP systems.

This benefit makes it easier to identify exceptions that require time and attention and communicate effectively with internal stakeholders.

Conclusion:

The main concern for most companies when considering starting an automation process is that it can seem like a daunting task. Where do I start, and will I see a return on my investment?

The great thing about automating processes like accounts receivable in India is that you can quickly see the effects. Some companies even get their money back after four months. Of course, this depends on many factors.

While having them all on the same platform is ideal, you can easily break down an automation project into sections and automate each section before putting them together.

The best thing about automating your claims process isn’t process improvement; it’s increased team engagement. Everyone gets frustrated when dealing with a highly manual and often flawed process.

Fix these issues, and the team will feel like they can spend more time doing meaningful work and adding business value. This is an actual win-win situation.