Accounts Receivable Automation: What, Why, & Top Benefits of Automating Your AR Process

Introduction

The innovation known as account receivable automation promises big things: cost savings, reduced DSO, and better customer service, all with less work. This is mirrored in the significant growth of the AR automation market.

The global accounts receivable automation market is expected to be worth USD 6.5 billion by 2027, with a compound annual growth rate (CAGR) of 14.2% during the period from 2022 to 2027.

For finance professionals, AR automation offers an exciting opportunity for greater efficiency, cost reduction, and an enhanced customer experience.

Starting an AR automation journey for your business might appear daunting, but with the right guidance, it’s more manageable than you imagine. Master it, and it holds promising rewards.

Here, we’ll explain everything AR and finance teams need to know about automation and how to use it to improve their order-to-cash process, empowering them to manage cash collection efficiently.

What Is Accounts Receivable Automation and Why Do You Need It?

AR automation, or accounts receivable automation, revolutionizes the accounts receivable process by automating the tedious and time-consuming tasks accountants typically handle. This not only simplifies the workload for your company’s accountants but also accelerates payment collection from customers.

AR automation expedites payment collection by automatically sending invoices to customers, offering a variety of convenient payment methods for their selection. This streamlined process reduces manual effort and enhances the efficiency of accounts receivable operations, resulting in quicker payments.

In essence, AR automation is a game-changer for businesses, as it optimizes cash flow and minimizes the time and effort spent on routine financial tasks. With automation, you can focus on higher-value financial activities, and the likelihood of errors decreases significantly.

By automating and streamlining the accounts receivable process, AR automation delivers tangible benefits, especially in terms of efficiency and speed. It’s a scalable solution that grows with your business needs, ensuring a seamless and efficient financial operation.

What Is an Example of AR Automation in Action?

Here’s an example of AR automation in action:

• Imagine a scenario where a customer purchases goods from you on credit, and you need to send them an invoice for services rendered. With AR automation in place, you can generate accurate invoices promptly, formatted to meet the customer’s accounts payable requirements.
• The moment the invoice is generated, it’s automatically sent to the customer’s email. This process eliminates delays and ensures prompt delivery.
• Upon receiving the invoice, the system tracks when it was viewed and paid. If the due date approaches and payment isn’t received, an automated reminder is sent, gently nudging the customer to settle their outstanding balance. The content of this reminder is tailored to the customer’s payment history and preferences, enhancing the chances of timely payment.
• As the due date passes, the system continues to follow up, automatically adjusting the tone and frequency of reminders based on the customer’s response or lack thereof. It ensures that follow-ups are consistent and persistent, yet always respectful of the customer’s circumstances.

In this way, by leveraging AR automation, businesses can effortlessly manage the accounts receivable process, reducing manual effort and improving cash flow. It allows for a seamless and personalized approach to credit and collections, ultimately increasing the likelihood of prompt payments and minimizing financial challenges.

Challenges of Manual Accounts Receivable Management?

Here are three main challenges of manual AR collections:

1. Human error and inefficiency: Manual AR collections are error-prone due to data entry mistakes, leading to delayed payments and customer disputes. This inefficiency results in higher operational costs and strained customer relationships.

2. Limited visibility and data analysis: Manual processes lack real-time visibility into payment statuses and trends, making it challenging to identify issues promptly. Additionally, without automated data analysis capabilities, businesses miss out on valuable insights for optimizing collections strategies.

3. Cash flow delays and scalability issues: Slow collections and late payments impact cash flow, restricting the ability to invest in growth opportunities or meet financial obligations. As businesses expand, manual processes become increasingly unmanageable, hindering scalability and overall efficiency.

What Can AR Automation Do for Your Business?

When we evaluate the prevalent challenges businesses face today, one critical priority emerges – efficient management of accounts receivable collections. Alongside this imperative, companies grapple with the growing complexity of financial data while striving to optimize cash flow.

Recommended Reading: 10 Powerful Tips for Collecting Accounts Receivable in the Modern Day

AR automation software steps in as the definitive solution to address these challenges, harnessing the formidable power of automation to streamline accounts receivable processes.

When executed adeptly, account receivable automation benefits businesses significantly – here are seven such benefits.

1. Lower bad debts with proactive credit risk mitigation

Efficiently manage your credit risk by leveraging AI-based tools to fast-track reviews. Identify external bankruptcy alerts, negative payment trends, and credit utilization thresholds.

These insights empower your credit teams to control and improve bad debt by proactively managing upcoming orders.

2. Cost reduction in A/R

Implementing end-to-end accounts receivable automation can result in substantial cost savings, exceeding 70% in invoicing expenses. Transitioning from paper to electronic invoices guarantees timely delivery, enhancing customer satisfaction.

Moreover, automated cash applications eliminate 100% of lockbox data capture fees, ultimately reducing operational expenses in A/R.

3. Improved productivity due to automation of clerical tasks

AR automation liberates your A/R analysts from manual, time-consuming tasks such as cash application, claims aggregation, and manual credit report aggregation and scoring.

This automation allows your team to focus on more strategic work, improving overall efficiency.

4. Lower DSO with automated collections

Utilize AI capabilities, such as payment date prediction and dynamic customer segmentation, to proactively identify critical customers and recommend appropriate collection strategies.

Integration with self-service portals and multiple payment options encourages customers to pay faster, significantly improving your Days Sales Outstanding (DSO).

5. 360-Degree visibility into critical A/R metrics

Advanced AR automation software, like Highradius AR automation, provides an interactive user interface and real-time access to data across the order-to-cash process.

This comprehensive visibility allows senior A/R leaders to assess process health and analyze analyst productivity metrics, facilitating course corrections and strategic decision-making.

6. No more silos in accounts receivable process

AR automation ensures seamless end-to-end automation across the order-to-cash process, connecting all teams and enabling real-time data flow. For example, collections analysts receive instant updates about invalid deductions or blocked orders, allowing them to prioritize collections efficiently.

7. Improved customer experience with e-Payment adoption

Enhance the customer experience by offering digital collaboration options, including self-service portals, online payments, and integration into accounts payable portals.

Customers gain independence in managing their invoices, improving cash flow and fostering strong customer-vendor relationships. Simplified online payments and dunning processes reduce the need for collections calls, making payments hassle-free and secure while saving paper and enhancing security through PCI compliance.

By implementing AR automation, your organization can seamlessly automate the customer invoice process, saving time and money.

Key Steps Towards Effective AR Automation

To get started with AR automation ensure you follow the steps given below:

• Identify the goal for automation
  Setting goals for your A/R automation is the primary step. You will need to figure out whether you need to automate a particular process like invoicing, cash application, collections, etc., or automate the end-to-end account receivable process.

  If any particular department is lagging, you can try automating that single department. But, if the performance of your whole A/R department is slowing down, automating completely would be a better idea.

• Evaluate and select a vendor for automation
  The next step is to evaluate the best vendors in the market for accounts receivable automation. Based on your business requirements, you can review various receivables solutions and understand whether the vendor is capable enough to deliver your expected results.

  Reviewing a vendor’s past results also becomes crucial during the vendor selection process. You should always choose the #1 Accounts Receivable Software in the market to ensure the best possible ROI.

  Recommended Reading: 5 Key Steps to Choose the Best Accounts Receivable Software

• Build a clear As-Is and to-Be State of automation
  As you are aware of the nitty gritty of your account Receivables process, and also have clarity on what problems you want to solve through automation, it is recommended that you define the current state of your AR and the future state post-automation to the vendor.

  The more clarity you provide, the easier it becomes for the vendor to lay down the transformation plan.

• Continuously track the progress of the transformation
  It is important to define checkpoints in your A/R automation project. This way, you will be able to understand whether the transformation is moving in the right direction or not.

  In case of any conflicts with the expected results, you should immediately inform your A/R automation vendor to discuss possible course corrections.

How HighRadius Can Help In Accounts Receivable Management

HighRadius is revolutionizing the future of accounts receivable management by offering end-to-end integrated receivables automation solutions that break down silos across A/R teams and optimize financial health.

With HighRadius, A/R teams can leverage autonomous receivables technology to streamline processes and gain unprecedented visibility into global A/R health.

This enables faster receivables conversion, frees up A/R staff to focus on high-value tasks, and provides 360-degree visibility of global process health through access to 100+ out-of-the-box dashboards.

Unique Features that HighRadius’ AR Solutions Offer

What makes our clients love our solutions and enables us to stand apart from competitors is these valuable features that our new-gen AR automation software offers:

• Prioritized worklists: OurAI-based worklist prioritization feature helps you segment customers and identify high-risk customers.

• In-app VoIP calling: Native VoIP calling enables your collectors to call directly from the app and auto-log transcripts, notes, and other action items.

• Touchless dunning: Easy-to-create email correspondence templates, guest payment pages, and payment links embedded in invoices save your collectors much time and effort.

• Straight-through cash posting: Automated payment and remittance linkages, invoice matching, cash application to your ERP, and AI-based exception handling reduce reconciliation errors.

• Support for parent-child hierarchy: Identify parent-child structures among client accounts and match payments and invoices for them according to predefined rules.

• Self-service customer portal: Customer portals to help clients manage invoices, payments, and disputes quickly and easily.

• Multi-OCR Engine capture: AI-based OCR engines – to capture remittance data from check stubs and eliminate lockbox fees.

• Automated periodic credit reviews: Automated credit risk evaluation supported by out-of-the-box integrations with leading credit risk agencies to fast-track credit approvals.

• AI-based predictions: Predict customer payment dates leveraging AI-based features.

• Plug-and-play integrators: Ready-to-use connectors to integrate with popular ERPs such as NetSuite, Sage Intacct, and Microsoft Dynamics.

Here are real-world examples of how our solutions are making an impact

Shurtape reduced past dues by 50%

As Shurtape, a reputable consumer goods company known for high-quality tape products, grew, it faced increasing difficulties managing collections, deductions, and cash applications manually.

Due to limited resources, they were even writing off all deductions below $250, resulting in significant revenue loss. Manual prioritization of worklists further resulted in AR slipping through the cracks. There was only limited visibility into client communications and tracking.

To address these issues, Shurtape turned to HighRadius’ autonomous receivables product. Here’s how we helped Shurtape:

• Built-in structured workflows for deduction resolution
• POD backup and claim automation
• Automated worklist prioritization system for accurate account targeting
• 50% overall reduction in past-due receivables with streamlined processes
• Automated credit approval or denial correspondence to customers

HighRadius’ autonomous receivables solution provided Shurtape with the necessary tools to automate its accounts receivable processes, resulting in a 50% reduction in past-due receivables.

With built-in structured workflows, Shurtape was able to resolve deductions quickly, while automated worklist prioritization ensured accurate account targeting. HighRadius’ product also provided POD backup and claim automation, which streamlined processes even further.

Summit Electric Supply Co. improved A/R efficiency and achieved a 98% hit rate

Summit Electric Supply Co, a leading industrial electrical supplies distributor, faced challenges with manual accounts receivable processes. This impacted data aggregation, collections prioritization, deduction coding, and cash application. The lack of cohesion and visibility affected overall efficiency and customer experience.

Here’s how we helped Summit Electric Supply Co:

• Prioritized worklists for better collector effectiveness
• 100% elimination of lockbox fees
• Automated discount and deduction coding to save analysts’ time
• Match invoices to payments automatically
• Automated credit workflows for low-risk customers

With HighRadius’ autonomous receivables solution, Summit Electric Supply Co achieved a 98% header level hit rate, significantly improving their accounts receivable efficiency and customer experience.

They were able to achieve 80% CEI and reduced their DSO by 2.9 days over 1 year. The product provided a central hub for storing information and real-time alerts about customers’ credit status, improving visibility and cohesion between teams.

FleetPride increased productivity by 150%

FleetPride Inc., a major retailer of heavy-duty truck and trailer replacement parts with 260+ branches across 45 states, faced challenges due to numerous acquisitions. Managing a growing customer base became complex, requiring manual handling of collections, dunning, and reconciliation by a small team.

They grappled with a significant backlog of overdue invoices (19,365 accounts worth $31M), leading to time-consuming processes that demanded swift automation to boost productivity.

With HighRadius’ autonomous receivables product, FleetPride increased productivity by 150%.

Here’s how we helped them:

• Automatic and intelligent aggregation of data
• Rules-based automation to enable strategic collections
• Prioritized and self-generated worklists
• Automated correspondence
• Reporting and analytics

Overall, HighRadius’ autonomous receivables solution transformed FleetPride’s accounts receivable processes, enhancing efficiency, accuracy, and productivity.

This enabled them to effectively manage their extensive account portfolio and reduce the volume of overdue invoices, resulting in improved financial performance and a better customer experience.

Why is a robust AR management system essential for AR automation?

A good AR management system matters when automating your AR process because it helps streamline and optimize your accounts receivable operations.

It ensures efficient invoice management, faster payment collection, reduced manual errors, improved cash flow, and enhanced customer relationships.

In essence, it contributes to overall financial efficiency and business growth.

Wrapping Up

AR automation software can accelerate your cash flow while enhancing the customer experience, streamlining your finance processes, and reducing operating costs.

If you haven’t started leveraging AR automation yet, it’s high time you do. It’s the key to streamlined financial processes and sustainable business growth.

Try HighRadius accounts receivable management software to automate your end-to-end order-to-cash processes.

FAQs

1). Why is automation needed in finance?

Automation in finance is needed to reduce manual intervention and streamline processes such as accounting, financial planning & analysis, and reporting. It reduces manual work, saves time, minimizes errors, and optimizes processes using technologies like RPA, AI, and predictive analytics.

2). What processes can be automated in finance?

By automating core processes such as bookkeeping, invoicing and receivables management, accounts payable, tax management, payroll, and reporting, you can significantly enhance the productivity and efficiency of your finance team.

3). What are some signs that indicate the need for AR automation?

Signs indicating the need for AR automation include a rise in past-due invoices beyond 90 days, delays due to incorrect invoicing, challenges in achieving same-day cash posting, difficulty in prioritizing invalid deductions, and increased operational costs. If you’re experiencing these issues, consider an AR automation assessment for solutions tailored to your needs.

4). What are the ways to optimize the order-to-cash process?

There are several ways to optimize the order-to-cash process, including adopting digital transformation, standardizing processes, centralizing data repositories, and automating customer onboarding.

5). What are the benefits of revamping your order-to-cash process?

Revamping your order to cash process can bring several benefits, including improved cash flow, enhanced customer experience, increased efficiency, reduced errors, better compliance, and increased employee productivity. It can also help businesses stay competitive in today’s dynamic business environment by leveraging the latest technologies and best practices.

6). Why is it crucial to automate your AR process?

Automating your AR process eliminates duplication, reduces errors, and saves valuable time for your finance and AR professionals. It also helps businesses reduce collection costs and improve efficiency as they transition to a paperless environment.