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What is accounts receivable automation?
Accounts receivable automation (AR automation) involves automating parts of a business’s accounts receivable process. It aims to help accounts receivable departments operate more efficiently by streamlining tedious or repetitive tasks.
There are various points in the accounts receivable process/cycle that can be automated, from the creation of invoices to payment collections management. Each step that’s automated helps the entire process run more smoothly while also freeing up time to spend on other value-adding tasks.
Other accounts receivable techniques and technologies, like accounts receivable financing solutions, can improve how accounts receivable work towards a business’s objectives by speeding up cash flow, for instance.
However, accounts receivable automation has contributed most to the increase in efficiency that modern accounts receivable management delivers compared to more traditional approaches to the process.
Spending a lot of time on repetitive, monotonous, time-consuming tasks
Making basic mistakes through human error
Issues with late payments from customers
The challenge of resolving payment disputes
The risk of overdue payments turning into bad debt
It can do this by automating, either in part or wholly, elements of the accounts receivable process, including:
Processing incoming purchase orders
Generating and sending customer invoices
Deploying accounts receivable financing
Managing payment collections and customer communication
Reconciling customer payments with purchase orders and invoices
How does accounts receivable automation work?
Fundamentally, accounts receivable automation works by using technology to automate the simplest elements of the accounts receivable process, including invoicing, payment collections, and reconciliation.
While the exact nature of an automated accounts receivable process will vary from implementation to implementation, the basics tend to remain the same.
An AR automation solution automatically generates an invoice based on purchase order details and often sends the invoice directly to the customer through a customer relationship management (CRM) platform.
At the same time, the relevant data contained in the invoice, including the invoice amount, due date, and payment information, will be uploaded to a centralized accounts receivable database.
Next, the accounts receivable automation system will begin the collection process by maintaining communication with the customer, sending timely payment reminders, or prompting early payment using an incentive.
Some accounts receivable automation solutions or broader working capital management platforms will also allow businesses to accelerate their receivables by leveraging an accounts receivable financing program.
Finally, an accounts receivable automation system will log the receipt of payment when customers settle their outstanding invoices and automatically reconcile the payment details with the relevant purchase order and invoice.
The benefits of accounts receivable automation
The benefits of accounts receivable automation have the potential to revolutionize the accounts receivable process for businesses, helping them to:
Streamline the AR process
The range of individual activities in the accounts receivable process that can be easily automated allows businesses to take a step back from manual accounts receivable management, saving time to spend on other value-adding activities.
Human error can be costly in terms of reducing the efficiency of accounts receivable and can even directly impact profitability. Automation removes a large part of the risk of human error, meaning receivables are handled with increased accuracy.
Reduce AR costs
Removing large chunks of human input from AR can save human resourcing costs. And since accounts receivable automation is naturally aligned with digitalizing accounts receivable processes, businesses can also benefit from improved information sharing opportunities that reduce costly friction in global communication.
Broaden AR visibility
The digitalization that comes hand in hand with accounts receivable automation also increases visibility over the accounts receivable process, allowing for live AR dashboards that highlight expected inflows and overdue invoices, for example.This helps businesses manage their working capital more effectively.
Increase compliance
Automating accounts receivable means that businesses can stay on the right side of the varying laws and regulations concerning payment collection in different areas more reliably, essentially automating 100% AR compliance.
Implementing an accounts receivable automation program
While the finer details of the process of automating accounts receivable vary for each business that undertakes it, depending on their business model and operational aims, the following steps broadly define what implementation looks like:
Consult with stakeholders: The first step in implementing accounts receivable automation is to speak with all relevant stakeholders, including the accounts receivable team, the IT department, and even certain customers. This will ensure that their unique insights and opinions are considered during the process.
Establish clear goals: An automation program is primarily designed to improve efficiency but can be tailored to contribute to diverse business objectives. Deciding on specific goals you want to achieve through automation can ensure that you stay on track during the implementation process, increasing the chance you’ll get a positive outcome.
Decide where to automate: Not every element of the accounts receivable process can be automated, and you may not even want to automate every element that can be. Figuring out how effectively accounts receivable are being managed currently will help you identify the areas where automation makes the most sense.
Consider AR financing: Although AR financing is separate from AR automation, they have significant cross-over in terms of affecting the accounts receivable process. During the process of planning an automation project, decide whether you want to take advantage of an AR financing program so that you can implement both together for maximum efficiency.
Choose a platform: With the planning out of the way, you can start looking for specific AR automation software that suits your needs. Consider how each option will work towards your business goals and meet stakeholder needs.
Remember – even after implementing accounts receivable automation, there’s still work to do. Keep a close eye on how things are working after implementation to identify and iron out any creases in the accounts receivable and payment process. Over time, you’ll be able to refine your accounts receivable automation strategy until it’s working exactly how you intended.
FAQs
Flexible Funding 2.0 is designed to help you meet your short-term cash objectives. Use Flexible Funding when you need to:
• Make DPO or CCE improvements for financial reporting
• Free up cash for an unplanned initiative (not forecasted)
• Avoid running short on cash payment accounts (due to early payment demand)
• Leverage a low-risk investment option for idle cash
• Maneuver as market conditions shift
• Improve supplier relationships with access to reliable cash flow
Generally speaking, no. Flexible Funding offers a blended experience of Taulia’s Supply Chain Finance and Dynamic Discounting solutions. Whereas Supply Chain Finance permits one early payment offer per day, Dynamic Discounting presents multiple offers on a sliding scale the user can review on a digital calendar. Selecting fixed or variable-rate financing with Dynamic Discounting will influence whether suppliers receive one or multiple offers per day in certain situations when Flexible Funding is activated. Consistent pricing between funding sources — structured in advance through collaboration by all parties — also ensures a unified experience for suppliers.
Rate parity concerns the consistent cost of supplier financing between funding sources. Traditionally, companies have sought to maximize their yield on dynamic discounting while insisting banks keep their margins thin on accelerated payments for suppliers. This rate disparity incentivizes suppliers to “shop” for the best price when both funding sources co-exist in a Flexible Funding-enabled program. A better approach is fair and consistent pricing between funding sources so that suppliers feel like they get a good deal on needed liquidity and buyers optimize the return on their investment with high supplier participation.
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