November 24, 2022

What is Accounts Receivable Automation?

Accounts receivable automation is the process of automating the invoice collection process. The accounts receivable process normally looks like this in construction or material supply; Create the invoice, save the invoice as a PDF onto your computer, then craft an email to each individual customer, then once in the hands of your wait. Eventually someone realizes that the invoice is past due and your team will start the repetitive and time-consuming task of calling and emailing your customer to badger about the overdue invoice. After all that, and the payment is received the payment is then posted on your ERP or accounting software.

What is accounts receivable automation software?

Much of this process can be automated to reduce a lot of the headache and manual work involved and, ideally, free up a lot of your resources and superpower your team to do the important stuff. This can include automating the sending of the actual invoices to your customers, automation of the follow up to make sure that your invoice has been approved and is in for payment processing, even a follow up "thank you for paying" email to your customers to give them the warm and fuzzies. Accounts receivable automation can help to improve cash flow by reducing DSO (This makes the bank happy) the amount of time that is spent on repetitive and time-consuming tasks. It can also help to improve efficiency within the accounts receivable team by reducing the need for manual input and increasing accuracy.

How does AR Automation improve Cash Flow and Reduce DSO?

AR Automation can help to improve cash flow and reduce DSO, almost overnight. By automating the accounts receivable process, businesses can simplify and streamline their invoicing & receivable process, making it easier and faster for customers to make payments and eliminate the "The check is in the mail" excuse (by either offering customers to pay via credit card or ACH straight from their invoice) and reduce manual and error-prone work. Second, by using an automation solution for the tedious customer follow up emails you will effectively be "the squeaky wheel", but in a good way.

Added unintentional benefit of AR automation...

Your customers will start expecting that you are going to send a follow up to make sure that your payment is in the queue and will proactively let you know, and therefore get paid quicker. An unintended, but very important benefit is how these follow up emails will help foster a relationship with your customer staying front of mind for new projects and eliminated the chance for heated emotional emails that normally come tied to invoice follow ups. Electronic invoicing can also help to automate the accounts receivable process and make it easier for customers to pay. In addition, by automating the payment processing, businesses can reduce the time it takes to receive payments from customers.

Modernize AR in five steps and superpower your finance team.

Need a little nudge and some advice on how simplify your Accounts Receivable process? Here are five key steps you can take:

  1. Automate your invoicing process using templates inside your accounts software or ERP system. This will help ensure that all the necessary information is included on each invoice, and that invoices are sent out in a timely manner.
  2. Have a system for how invoices are sent, include as much relevant backup as you can with every invoice. Pictures, progress plans, back-up emails, signed change orders. Reduce the friction so there won't be an excuse to not pay you.
  3. Streamline your receivables by setting up automatic payments and offering payment options like ACH or credit card. This will help you get paid more quickly and reduce the amount of time spent chasing down payments.
  4. Offer quick payment discounts to customers, most customers won't elect to use this option and you'll take a little ding on the ones that do but the increase in your cash flow and working capital is well worth it.
  5. Stay organized by creating a system for tracking invoices sent and follow ups, as well as payments received and applied. This will help you avoid the "we might not have enough for payroll" , or "We need to get this vendor paid to continue working" tone of emails to your customers at the 11th hour. Consistency is key with late payments.
  6. Simplify your collections process by automating reminders and follow-ups. This will help you stay on top of collections without having to spend hours each week manually sending reminders to customers.

Optimize your accounts receivable team.

Let's face it, your AR team has one of the toughest jobs in the office. You're constantly chasing down payments and trying to get people to pay on time. On top of that full time job in itself, they're responsible for trying to reconcile payments, forecast cash flow, talk to project managers about questions and issues on invoices, make sure that cash application is posted correctly in your accounting system, be delicate with customer relationships and be extra detailed during the whole process. It's a very hard job, but there is a better way, one that empowers your accounting team and make the job a little easier.

  • Make sure you have the right people on your team. Accounts receivable is a people-oriented job, so you need team members who are good at communicating and building relationships as well as problem solvers. Reconciling an account is like putting together a puzzle, and then someone who is very detailed oriented and misapplied payments can wreck havoc on your processes.

  • Second, give your team the tools they need to succeed. This includes things like access to customer contact information, payment history, and account balances as well as project details, direct access to the project managers and sales people to get all of the relevant information, as well as the backing if those people need pushing.

  • Third, provide training and support. The entire accounts receivable task can be a complex process, so it's important that your team has the knowledge and skills they need to do their job well. Offer training on topics like invoicing, collections, and dispute resolution. Sit with them and go through the process with them, offer solutions or different ways to do their job with a fresh set of eyes.

  • Fourth, set clear goals and expectations. Your team should know what you expect of them in terms of performance, timelines, and results. Be realistic in your expectations, but also challenge your team to exceed them

  • Finally, implement an automation software to make their life a little easier. A few less frustrated emails and phone calls during the day so they're able to focus on the important things. Automated accounts receivable is one of the easiest, and most cost effective tools you can use to leverage your team to increase their productivity and streamline their workflow and get paid faster.

There is a better way, gone are the days of manual work involved by ad-hoc legacy systems. Let's work smarter, not harder. Customer invoicing and getting paid should be the best part of our job, not our least favorite. Automated AR helps businesses with all kinds of processes and procedures and helps reduce bad debt and improve the debt collection process, cash forecasting, and have happier employees in the end.

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