Get Your Hands Off Your AR Process

Oct 19, 2021 by Kelsey Banerjee

For people on the outside looking in, accounts receivable (AR) processes appear deceptively simple. After all, isn't it just accepting payments? What's better than handling payments?

Of course, accounting professionals know differently, especially if they have ever worked with highly manual systems. Tracking down unpaid invoices is bad enough. Manually matching transactions to paper checks is a mind-numbing nightmare.

And mistakes are expensive. Paper invoicing can cost companies $53.50 to correct. Filing an invoice manually takes anywhere from $15-30. It doesn't take much to start hemorrhaging resources if the AR process isn't pristine.

But the complexity of setting up an accurate, transparent, and manageable AR process workflow can be overwhelming, at best. As an organization grows, spreadsheets become more of a detriment than a solution. Other technology tools, even best-in-class ERPs, are nothing without automation.

The Traditional Accounts Receivable Process

When looking at accounts receivable workflows with a birds-eye view, there are a few key steps that every department needs to take. Namely, they'll need to:

  1. Confirm the sales or delivery of an order.
  2. Send an invoice related to that order or service provided.
  3. Collect payments.
  4. Reconcile payments.

There are, of course, smaller steps that can you can take. For example, if your system is even partially automated, you can send automatic reminders for outstanding invoices. But the dependence on manual processes at any point—especially collecting payments—can result in chaos.

Imagine the waiting time involved with receiving and reconciling checks. Even if you have payments sent to a lockbox, your account department will wait for days (sometimes weeks) to receive the cataloged payments. Then they have to review them by hand.

What happens if a payment is late by a few days and accounting has to follow up with the purchaser? Regular reminders can strain any business relationship, especially if their check is in the mail.

For AR departments with fully manual or mostly-manual processes, there are very few items they actually have control over:

  • Credit Practices - Determining your payment terms, discounts, and payment methods and enforcing them can help reduce billing team stress. Keeping to a 30-day payment term or offering incentives such as early payment discounts, as well as limiting outdated payment methods like checks, can go a long way.
  • Invoicing Customers - How you choose to invoice can remove some of the complexity from traditional workflows. Invoicing processes have long been digitized. While receivable workflows continue to rely on manual sign-offs, they are better than paper-based accounting practices.
  • Tracking Payments- Tracking payments, especially if the billing department takes checks, is extremely difficult. However, switching to accepting credit cards, even if you have to complete the payment over the phone, will ensure that the company maintains a steady cash flow.

One thread among these accounts receivable processes is the lack of automation. Most accounting software offers the ability to invoice customers, manually "track" payments, and set credit terms. But it's not automated. And every single human touchpoint you add to this process provides another opportunity for something to go wrong.

To really take your AR process to the next level and reduce errors, it's critical to take a hands-off approach.

Optimizing AR Process Workflows

Accounts receivable automation often appears to be hype. But the fact is, streamlining your balance sheet and only manually reviewing the exceptions can shave hours, if not days off of time spent on data entry.

Remember that $15-$30 cost for processing an invoice? Automation solutions drop that down to $2.25. At the same time, days sales outstanding (DSO) can drop as dramatically. At Paystand, our clients have seen DSO drop by 60%.

And when your process is automated, you don’t have to worry about errors.

And these results aren't just from electronic invoices. Reductions in late payments and AR expenses, as well as increases in accuracy and visibility, stem from optimized automation processes.

End-to-end platforms that allow you to send customized invoices from your ERP and track that payment until its reconciled are the receivable workflow of the future.

But what should that look like, in practice? It's simple:

  1. From your ERP, you should be able to click and create an invoice.
  2. Your customer receives said electronic invoice in their email with a "Pay Now" prompt.
  3. When they click that button, your customer is directed to a secure payment portal with your set payment options.
  4. Your client enters their information and sends their payment.
  5. The payment is automatically reconciled, they are sent a receipt, and the information is synced with your ERP.

With a completely automated process, you can also accurately set reminders, allow clients to make a partial payment or pay several outstanding invoices, or even add convenience fees to cover credit card processing costs.

Since you are tracking payments throughout the process, you also have access to payment insights. It becomes a cinch to compile reports to determine who regularly pays late or on time, whether or not the AP team should shift their payment dates around, and other crucial information.

In other words, automation transforms a highly labor-intensive program into a data mine to further optimize accounting workflows.

Strategizing payments with additional features

Because automation provides businesses with the capability to effortlessly scale their manual AR processes, accounting professionals are looking for more than just another software solution. After all, once you have your system on autopilot, the next step is improving your payments strategy.

Sometimes that looks like adjusting payment terms or reviewing pricing. But it can also be looking for features that help you to reduce fees.

Zero fee structures are one way to take full advantage of your accounting software without adding more to your plate. With a Zero Fee strategy, you would subsidize the transaction fee of low-cost payment options, like ACH or bank-to-bank transfers, to incentivize clients to choose your preferred method.

At the same time, you can add a convenience fee to credit card charges, so that you aren't paying the 2.5% plus processing fee. Adding this fee discourages clients from choosing this option, and pushes them towards your preferred payment method.

AR teams that have decided to use the Zero Fee approach have saved B2B Payments Platform on the cost of receivables.

But there are several other features, too. It can be helpful to review a platform's security measures (we use tokenization and blockchain technology), comprehensive customization, smart lockboxes, and more.

Take your process to the next level

The only way to truly scale is to automate. The AR process is far more complex, with many moving parts, and continuing to rely on manual processes not only slows businesses down but also wastes the accounting department's talents.

Whether they are overseeing billing or brainstorming budget strategies, finance professionals in AR and beyond shouldn't be stuck doing data entry. When a business decides to take its hands off the AR process and streamline their workflow, they are actually freeing up time for high-value tasks.

At Paystand, we specialize in creating and maintaining an end-to-end payments platform to support AR teams. To see how we work, book your demo and ask us anything.