In contemporary finance operations, Accounts Receivable (AR) has been one of the most important sources of pressure without much noise. Although the revenue figures might be healthy on paper, the late collections remain a liquidity problem in all industries.
Using industry standards, almost 60% of small and mid-sized companies report issues with their cash flows directly related to late collection, and days sales outstanding (DSO) is a metric that is hard to manage among finance executives.
AR automation is not a new concept; however, its importance has never been greater. As already stated by BusinessWire, 23% of the businesses were prepared to invest heavily in AR automation, and the focus is on the collection efficiency, even in the face of economic uncertainty.
Since that time, the process of inflationary pressure, tightening of credit markets, and the increasing operating costs have only added to the necessity of faster and more predictable cash conversion cycles.
Simultaneously, there is an element of doubt. The current AI hype vs. reality discussion has put a lot of finance leaders on alert. The automation will lead to increased speed, accuracy, and scalability, but the issues of loss of control, overdependence on algorithms, and customer experience are in the limelight.
The question is no longer whether or not automation works, but in what places it works, how it ought to be applied, and what dangers it poses when applied improperly.
There are powerful signals from market leaders. According to the Journal of Accountancy, major accounting and ERP vendors, including Sage, have publicly reported massive operational improvements on the introduction of automation and AI into their receivables processes and cited increased visibility, less manual intervention, and quicker close times.
Individually,industry research shows AR automation can save 30-50 seconds of manual processing, and speed collections by 20% with systematic follow-ups, real-time reporting, and prioritization of high-risk accounts using intelligent methods.
Yet adoption remains uneven. Fragmented processes (invoking by hand, spreadsheet-based tracking, reactive collections, etc.) continue to be used by many organizations, even when the scale of operations is increasing and it is clear that such approaches are not scalable. AR is actually a strategic liability in a world where cash is more valuable than booked revenue.
Leaving the ethical arguments and jargon behind, this article will approach the subject of AR automation in a very practical and tangible manner, of what it does, where it pays off in practical terms, and where human subjectivity is unavoidable.
We will analyse:
- What accounts receivable really is, and is a core business process, other than invoicing and follow-ups.
- How AR automation is beneficial and beneficial or harmful to collections performance.
- Is AR automation the strategic decision to make in your business, depending on the scale or complexity, and tolerance of the risk?
It is a goal of clarity at the end of this debate, not hype. Having data, real-life background, and operational experience, this guide will enable finance heads and business persons to make knowledgeable and confident decisions concerning the inclusion of AR automation into their accounting department.
What are Accounts Receivable?
As mentioned in a prior Expertise Accelerated publication, which we do recommend as a complementary reading experience to this.
The accounts receivable function is responsible for managing invoiced payments for services rendered that customers have not paid for (Investopedia).
Put bluntly, any amount still owed to the business by customers or collaborators is counted as accounts receivable. The AR function’s job is to keep track of all such outstanding payments and ensure prompt collection when the time comes.
The electric bill is a great example to illustrate the AR function’s operations. Electric companies tend to bill you after you have used electricity over a specific period, typically monthly. In technical terms, they are selling you the electricity first, and then at the end of the month, they send you the bill depending on how much you have used.
You have already received the product for the month and are paying for it a month later. That electricity bill is considered accounts receivable, as it is money that you, as a customer, owe the electric company for goods you have already obtained. The bill is there to ensure the prompt collection of that outstanding invoice.
What is Accounts Receivable (AR) Automation?
AR automation is the implementation of automated receivable invoicing and debt collection measures to facilitate the AR process and promote efficiency. In simpler terms, AR automation is when a business leverages accounting software to issue invoices at the time of service or product sales, issue collection notices to debtors, and send reminders to accountants when a collection is due.
The point of AR automation is to reduce the manual labor that goes into running the AR function (Invoiced). Instead of your accountant having to issue and record invoices and then regularly check to see if a payment is due, automation cuts out the menial labor portion of the work and frees up your accountant or accounting team for more important tasks.
How AR Automation Works and Why It Matters?
Carrying on the electric bill example, say that your bill comes in on the 20th of every month. Without AR automation, you would need an AR professional to look at the power consumed, manually generate an invoice, and issue it. This would take up several minutes of their time. Now imagine this same work needing to be done for every client.
With automation, all of this manual process becomes automated. Once a customer purchases, the software automatically records the transaction and generates the invoice. It typically sends it to the customer via email.
All of this can happen in a matter of seconds with automation. Plus, as long as the data in the database is accurate, the chances of errors are reduced drastically (Invoiced). Then, when it’s time to collect payment, the software will issue automated reminders to the accounting team. It will also automatically alert customers that their payment is due.
AR Automation Improves Cash Flow:
As you can imagine, manual AR slows down the credit-to-cash cycle for the business. It can also greatly limit the business’s operational capacity. The longer it takes for the business to realize a credit transaction into tangible cash, the more limited its options are for future growth.
AR automation is a great way to harness the power of technology and unleash the full potential of your business. As reported by PYMNTS, 62% of firms reported Days-Sales-Outstanding (DSP) improvements after leveraging automation.
DSO is the metric that determines how fast the business is getting paid by customers. The faster the DSO, the faster cash flows into your coffers and the more capital you have to work with when making business decisions.
AR Automation Boosts Accounting Efficiency:
Manually managing AR can greatly hamper your accountant’s performance. Having to do the same manual menial labor daily will induce burnout sooner or later. It is just unhealthy for your accounting function in the long run (Airwallex).
Sure, you would end up paying a couple of thousand dollars to access the software, but think about how much growth you can achieve when your accountant has a few more daily hours to spend on activities that demand human attention.
Whether leveraging an in-house accountant or outsourced accounts receivable solutions, you’re still paying a fair bit to have an accounting professional on board. Instead of wasting their time and your investment by putting them up to automatable tasks, make the most of your investment by involving them in places where they can shine.
For example, any CPA worth their salt can address advanced accounting matters, such as budgeting, financial planning, resource allocation, cash flow projections, and financial forecasting, etc (Alternative Payments). On top of all this, accountants are invaluable assets that should be present when making decisions. They can provide immensely important insight and advice on the best course of action from a financial point of view.
Every extra speck of information you have when making a business decision is worth its weight in gold. Your accountant can only provide that information once they have untangled themselves from the burdens of manual accounting responsibilities.
The Strategic Customer Relations and Revenue Predictability of AR Automation:
Accounts receivable is often considered a mere internal finance operation; however, the fact is that it is at the real crossroads of customer experience, revenue reliability, and brand trust. The way a business invoices, makes follow-ups, resolves disputes, and communicates payment expectations influences the long-term relationship of a customer to the business as much as pricing or quality of products (Growfin). AR automation also alters this dynamic in fundamentals.
Conventionally, collections have been reactive and intermittent. The use of follow-ups varies depending on the availability of the individual accountants used to follow up, the tone is different with different people, and conflicts are often resolved when payment delays become a major issue.
Such a discrepancy creates tension–customers are being hunted, finance teams are pushed to the limit, and leadership is not being specific about what delays are short-term and what ones are long-term.
The use of AR automation brings order, uniformity, and openness to customer-related financial relationships. Automated invoicing provides the issuing of invoices in the right format and in real time, so that there is less confusion during startup.
No emotional judgment is to be used when smart reminder workflows are applied, and the same professional communication is applied at preset intervals without prejudice to courtesy or clarity. The customers are aware of what to anticipate, when to anticipate, and how to solve a problem swiftly.
Other than communication, AR automation is an essential tool for enhancing revenue predictability, which is a crucial statistic in executive planning. Automation systems identify patterns within the receivables that are hardly detected by manual systems due to categorization of receivables based on risk, aging profile, and past behavior.
Finance leaders can get early signals of probable delays that will enable them to anticipate changes and arrest receivables before they are too late to write off. This future-oriented transparency makes AR a future-oriented financial control mechanism, as opposed to a backward-oriented reporting feature.
Resolving disputes is also quick and not adversarial. Automated systems also provide centralized documentation, invoice history, delivery confirmations, and communication logs, resulting in quicker identification ofroot cause.
Rather than long-distance email exchanges, customers and both sides of the finance department work off a common, traceable book – reducing the time it takes to resolve issues as well as speeding up the payment process.
This strategic advantage builds up as time goes by in the case of growing businesses (Bill Trust). With the high volume of transactions, it is almost impossible to have personalized processes in disciplined AR without automation.
AR automation allows businesses to grow at a level without compromising on professionalism, goodwill with customers, and financial discipline. What is delivered is not only accelerated collections, but also enhanced commercial relationships and increased trustworthy sources of revenues.
AR automation is a unique one due to its dual-pronged advantage in a competitive market where the costs of customer retention keep increasing: better liquidity and improved customer experience are guaranteed.
Those businesses that understand that AR is a tactical touch point, rather than a financial requirement, place themselves in a position of sustainable expansion, improved collaborations, and enhanced financial stability.
AR Automation Covers for Human Error
Manual AR is very susceptible to human error. One wrong number entered can drastically change an invoice and cause you to lose money trying to fix it. Also, there is a decently high likelihood that your accountant may simply forget that a collection is due.
This due collection could go unnoticed for weeks and cost you precious cash flow that could have made a difference earlier.
AR errors are not business-threatening, but why take unnecessary risks? With AR automation, businesses can significantly lower the human error rate when it comes to AR and save a lot of time and money that can be allocated elsewhere.
Conclusion
We surmise that we have taken enough of your time today, so the discussion ends here for now. We hope our experts can translate the heavily jargonized realm of accounting into something more digestible for everyone.
The point we are trying to make here is that whether you like it or not, automation technology is here to stay. Instead of fearing and avoiding it, businesses need to start opening themselves up to it. At least give it a shot. If it is not worth it, at least you can rest easy that you did everything you could rather than regret not having leveraged AR automation in hindsight.
