Top 6 Accounts Receivable Benefits
Cash is the lifeblood of any business.
Businesses depend on cash for purchasing materials and finished goods, manufacturing and distribution, facilities management, sales and marketing, and payroll and administration.
Getting cash into the bank falls onto the shoulders of the accounts receivable (AR) department.
But manual and semi-automated processes across the AR lifecycle – from credit and risk management through payment collections – make it hard to collect, manage, and forecast cash.
That’s why more organizations are deploying AR automation solutions.
This article details the benefits of automating accounts receivable.
Challenges Accounts Receivable Faces
Collecting, managing, and forecasting cash isn’t easy, particularly for AR departments with lots of manual, repetitive tasks such as keying remittance data, shuffling paper and emails, and fixing errors.
- Credit and risk management. Many AR departments don’t have ready access to the information they need to assess the creditworthiness of customers to determine the likelihood of them paying their debts.
- Cash flow management. Without real-time visibility into payments, AR departments can never be sure that the business has enough cash on hand to meet its financial obligations. Fragmented systems make it hard to collect payments efficiently and effectively from customers.
- Data management. Manually applying payments with open invoices complicates the process of maintaining accurate and up-to-date information on customer accounts.
- Compliance with regulations. It’s hard for AR departments to comply with laws and regulations related to credit and collections when you don’t have visibility or control over how things are getting done.
- Deductions management. Unauthorized customer deductions are a fact of life in AR. But it can take days or weeks of back-and-forth phone calls and emails for many AR departments to resolve disputes with customers over billing or payment issues.
- Cost management. Every business wants to “do more with less.” But manual and semi-automated processes make it hard to scale operations, without hiring more staff.
These are some of the reasons that AR is one of the most burdensome finance functions.
Accounts Receivable During a Recession
AR is critical in good economic times. But during a recession, it can make or break a business.
During a recession, businesses may face bigger challenges with their AR due to a decrease in customer spending and an increase in customer bankruptcies. This can strain a supplier’s cash flow, drive up bad debt and write-offs, and increase the risk of financial insolvency –running out of cash.
To reduce the risk of cash flow issues during a recession, many businesses implement stricter credit policies, increase monitoring of customer creditworthiness, and implement more aggressive collection efforts. Some businesses offer customers incentives for early payment, such as 2 percent discounts on the amount due on an invoice, to encourage customers to pay their bills on time.
AR automation offers businesses another way to address the challenges created by a recession.
What is AR Automation?
AR automation digitizes and simplifies the collection, management, and forecasting of customer payments – from credit management and payment processing through collections and reconciliation.
It is especially important during a recession.
More efficiently and effectively managing receivables can help any business maintain financial stability during a recession while providing a foundation for growth when the economy improves.
Several technologies can be used to automate the receivables process, including:
- Credit management software, which automates the process of checking a customer’s credit history, setting credit limits, and monitoring customer creditworthiness.
- Electronic invoicing enables businesses to send invoices electronically, accelerating invoice delivery and potentially providing better visibility into the cash flow cycle.
- Document capture solutions, which aggregate convert unstructured documents into actionable information that be more easily processed, stored, and shared.
- Cash application solutions, which manage the process of updating customer accounts.
- Optical character recognition (OCR), which automates the capture of remittance details.
- Artificial intelligence (AI) and machine learning, automate tasks such as validating data accuracy, identifying discrepancies in invoices and predicting payment patterns.
- Robotic Process Automation (RPA), connects systems without the need for programming.
These technologies make it easier for organizations to manage their receivables and cash.
Benefits of AR Automation
AR automation provides tremendous benefits to organizations of all sizes across all industries.
- Lower costs. AR automation eliminates manual tasks that can drive up overhead.
- Better efficiency. Automating the AR process can streamline time-consuming tasks such as keying remittance data, matching payments to remittance documents, applying payments to open invoices, and resolving unauthorized customer deductions. The efficiencies provided by receivables automation also help an AR department scale without hiring more staff.
- Improved accuracy. Errors and mistakes are inevitable when businesses rely on manual and semi-automated tasks. Extracting data automatically greatly reduces the possibility of errors.
- Increased visibility. The real-time visibility provided by AR automation enables businesses to identify and address potential customer payment issues fast. Real-time AR visibility also helps businesses make better-informed decisions on financial planning and forecasting.
- Enhanced customer service. AR automation helps businesses deliver a better customer experience by reducing the possibility of posting errors and making customer information instantly available to sales representatives, call center agents, and other customer-facing staff.
- Greater corporate agility. With the insights provided by AR automation, businesses can more quickly adapt to changing economic and market conditions and customer demands.
These are some of the reasons that more businesses are deploying AR automation systems.
How to Get Started
There are lots of AR automation solutions. Choosing the wrong one can set your department and your business back. Here are some key considerations when evaluating AR automation solutions.
- Features and functionality. Don’t settle for an AR automation solution that doesn’t have the capabilities to address your department’s unique business requirements.
- Compatibility. Make sure the solution can integrate with your existing systems. Some AR automation solutions use RPA to connect systems, without the need for programming.
- Cost. Don’t get tricked into buying an AR automation solution with hidden fees and pricey professional services contracts. Be sure you understand the total cost of ownership.
- Scalability. AR automation is foundational, not throwaway technology. Look for future-proof AR automation solutions that can meet the needs of your business as it grows.
- Track record. There are lots of fly-by-night technology providers. Give extra weight to prospective vendors with a proven track record for automating finance applications.
These strategies will help ensure that your AR automation project is a success.
Businesses have a lot riding on their AR process. The stakes are even higher during an economic slowdown. Automating accounts receivable delivers big benefits, no matter the economic situation.
To see how ibml can help to automate your AR, contact one of our experts.