How Accounts Receivable Automation Generates Healthy Cash Flow

Sep 19, 2023 by Kelsey Banerjee

When collecting accounts receivables (AR), businesses have their work cut out for them. Manual processes, legacy infrastructure, and an uncertain economy determine how soon organizations get paid. One study found that 49% of B2B invoices become overdue. And if a company doesn't collect that amount within three months, 26% of those invoices will be deemed uncollectible.

Accounting professionals also struggle with scale. As the required manual tasks create up to 60 hours of additional work per month, it's unsurprising that the finance team is experiencing burnout without overcoming cash flow bottlenecks.

Accounts receivable software offers one solution to these challenges.

A best-in-class accounts receivable automation software reduces staff workload, standardizes the AR process, and saves your organization money. Your automated AR workflow could even increase your revenue.

In this guide, we'll cover everything you need to know about an automated accounts receivable management solution, including:

  • Differences between automated solutions
  • What manual processes can be automated
  • The benefits and challenges of implementing accounts receivable software
  • How to evaluate different solutions
  • Best practices to streamline your payments strategy


First: What is AR Automation?

The manual accounts receivable process is labor and time-intensive. Spending hours drafting invoices, mailing them, processing checks, and reconciling payments takes significant effort and resources away from the accounting department.

AR automation software lets you bypass those cumbersome tasks and provide a better payment experience, thus improving cash flow. Automation streamlines the repetitive accounts receivable process by eliminating or significantly reducing these low-value tasks. These solutions typically plug into your ERP or accounting software.


AR Automation vs. ERP vs. e-invoicing

It may seem like AR automation is already included with your accounting software. However, the digitization of your processes is different from automation. And ERPs and e-invoicing are hardly substitutes for these solutions.

An ERP is simply a digital transformation of the accounting process. It doesn't necessarily include automation for any of its functions, and most programs don't have a truly automated workflow. In other words, your team must still rely on manual data entry.

E-invoicing, too, is a sub-feature of most ERPs. However, the definition of this continues to be broad. An e-invoice may be a PDF or private web page with a link to payment options. It's often a static record, although it may be a part of the automation process.

Meanwhile, a proper AR automation solution streamlines those digitized processes.


What About Accounts Payable (AP) Automation?

Most accounts receivable software solutions don't include AP automation features, and vice versa. Rather than deal with cash application, AP automation handles the outflow of revenue – often to vendors, suppliers, maintenance, and other related business expenses.

Many organizations choose to integrate different apps for AR and AP automation with their chosen ERP.


What Does Accounts Receivable Automation Apply To?

When you want to implement an automated AR solution, the first question is what aspects can you automate. Not every part of the AR process can be done by a computer or customer self-service—but a lot can.

The goal of any automation initiative is to ease the workload for the AR team, reduce or eliminate errors, and process payments faster. All without sacrificing accuracy.

Therefore, automation typically applies to any process that can be easily repeated and doesn't require a complex workflow. While technology like artificial intelligence (AI) and machine learning (ML) can handle more challenging workflows than before, these tools can't handle everything.

Deciding on a strategy, troubleshooting with customers, and handling exceptions are examples of things AR automation will not apply to — although automated solutions can still provide support. Common AR software features such as enhanced data reports, scheduled follow-ups, and reconciliation help finance teams analyze things quickly.


What does the manual AR process look like versus an automated AR process?

Accounts receivable has several different tasks. Many can be automated, but not all. For example, you have:

  • Invoicing
  • Collections
  • Client onboarding
  • Invoice reconciliation

However, each of these items requires an in-depth process. Many times, it's looking through hundreds, sometimes thousands of purchase orders, sending payments and receipts.

Let's dig deeper into some of these processes. When we map out the manual AR workflow, we see:

  1. Client onboarding. You go into your ERP and add client information. This can include their name, business ID, business address, email, and even payment information. Mistakes or errors in this kind of data entry can cause numerous problems.
  2. Sending invoices. Even if using an ERP, you must type information verbatim and link each invoice to the right account. Even if you have a scheduling feature, you must match information. If you are using a templated invoice or a spreadsheet, this can be even more time-consuming and prone to error.
  3. Collections. Another repetitive, manual task is following up on invoices. You may need to call or email clients to prompt payment repeatedly. If the client says they've lost an invoice or there is an error, this is easier to fix. But if you work with paper-based invoices, you will need to edit or re-mail the invoice, thus adding significantly more time to your days outstanding.
  4. Processing payments. Let's say you finally get your payment. If you have electronic payments set up, such as credit cards or ACH, they are typically processed quickly. Paper checks, however, can take several days, if not weeks, to process. Even with a traditional lockbox, time savings are minimal.
  5. Payment reconciliation. Once you finally receive payment, you must match this information to the original invoice and generate a receipt. Scouring your bank statements and comparing them to outstanding invoices can be tedious.

Each step includes different sub-tasks that are repetitive and easily automated.

Consider how an automated workflow might look in comparison:

  1. You onboard your client by adding them to your ERP.
  2. You send your invoice. An automated invoice solution will pull data from your ERP and create recurring emails with a payment portal.
  3. Your client received an invoice with a "pay now" link to a payment portal. They select their preferred payment method, add payment information, and submit.
  4. The payment is processed via your payments solution, and the invoice is automatically matched and reconciled.


How Does AR Automation Work?

AR automation works in a variety of ways. Sometimes, your ERP or invoicing software may have a few automation features. For example, you may be able to send recurring invoices, or you may be able to sync bank account data.

However, most of the time, you must use an integration. Depending on the integration, your AR automation software can be custom-coded into your ERP or a plug-and-play application. Once installed, you can customize your workflow.

Asking about the technology behind automation can be more complex, and each solution has its tech stack.

For example, the Paystand solution leverages:

  • Artificial intelligence. Artificial intelligence enables the program to rapidly match invoices and payments through an enhanced understanding of context.
  • Machine learning. This tech is a sub-sect of AI that allows the program to "learn" or optimize its operations based on feedback from prior work. As a result, it's possible to see your AR process improve and become more accurate over time without extra work.
  • Blockchain. Some solutions use blockchain to add another layer of security and assurety to your payment workflow. For example, blockchain technology does not allow users to go back and change transactions, reducing the likelihood of internal fraud and ensuring you can keep accurate, auditable ledgers. Each solution uses a different degree of blockchain technology, if they use it at all.


What Are the Benefits of Automating Accounts Receivable?

Reducing costs is often the easiest sell when explaining automation to your management team. After all, some studies suggest you can cut invoicing expenses by up to 65% through e-invoicing alone. But there are many other advantages to automating your process:


Faster Payments

One of the biggest obstacles to business growth is a cash flow bottleneck. Late or slow payments limit the amount of revenue available. AR automation, meanwhile, enables you to accelerate your cash velocity and cut your day sales outstanding (DSO)—sometimes by 60%. At least, that's our experience at Paystand.


More Time for High-Value Tasks

The repetitive, low-value tasks that occupy an AR professional's day easily create a sense of overwhelm and are difficult to scale. The right automation software reduces or eliminates these tasks, thus saving the accounting team time.

In particular, the AR team can reduce time spent on month-close activities, which one-third of finance professionals consider a pain point.


Better Client Experience

It's no secret that client satisfaction is linked to retention. A fast, accessible payment process that gives customers flexibility and security. This improved experience lends itself to client retention, healthier revenue streams, and increased trust.


Increased Accuracy

When it comes to money, every single transaction should be recorded promptly and accurately—not only for forecasting but also for auditability. A precise ledger is one tool to prevent or quickly identify fraud. An automated AR workflow functions according to your accounting setup, ensuring you can audit your accounts better.

At the same time, improved accuracy reduces or eliminates costly errors. Each invoice error can cost up to $53.50 to correct. According to the Institute of Finance and Management, 39% of invoices contain inaccuracies.


Comprehensive Insights

Another benefit of automation is data. The ability to tap into relevant, high-quality data about your payment process offers insights into its strengths and weaknesses. As a result, you can efficiently design an improved payment strategy and continue to monitor its progress.


Improved Security

Most B2B organizations are cutting out checks and taking more types of digital payments. However, handling sensitive customer information and payment data becomes a liability without compliance. An automated approach removed the potential for internal or external threats.


End-to-End Transparency

Manual payment methods often create a murky audit trail—and that's assuming you're keeping a reasonably clean ledger. But it's too easy for invoices, client communications, receipts, and other tasks to fall through the cracks. Even if your accounting operations are tip-top, you have limited access to payment data. If a payment comes into dispute, the lack of information can make it challenging to resolve efficiently.

In contrast, an automated AR workflow tracks everything. As a result, your team can review every step of the process, from client onboarding to invoicing, communications, payment, and reconciliation.


What are the disadvantages of AR automation?

That said, accounts receivables automation may have some limitations or disadvantages.


Solutions Vary Widely

Not every AR automation solution is made equal. This can make evaluating potential integrations or even implementing them a challenge—particularly if you are attempting to automate your entire AR process at once.


Lack of Customization

Depending on your chosen solution, you may have little say in things like:

  • Invoice or payment portal branding
  • Available payment options
  • Ability to add a convenience fee or absorb fees for other methods
  • Doesn't sync all information with your ERP
  • Lack of custom dashboards


Employee Training

Another factor in adding automation is employee training. While automation should make the process easier for your team, they will still need to understand how it works and deal with exceptions.


How Should You Evaluate Accounts Receivable Automation Software?

Selecting the right automation software is vital to a successful strategy. Since each solution differs on various matters, such as:

  • Security measures
  • Ease of use
  • Payment options and customizations
  • Integration
  • Fee structure

Let's break down what each AR solution should have and what are "nice to have" features for a competitive edge.


Essential Features

  • Payment portal. A payment portal is one of the best ways to reduce the Ar team's workload and accelerate payments. This feature enables a self-service payment portal—so clients add their information and fulfill invoices independently. As a result, the team only has to focus on sending the invoice and conducting the follow-ups.
  • Collections automation. Follow-ups can be time-consuming. However, creating a customized collections email workflow is possible to remind clients of their outstanding invoices.
  • Payment methods. The more payment methods you offer, the more convenient your AR process is for the customer. Today's payment landscape processes more than debt and credit cards — ACH, eChecks, and digital payments.
  • Assurety. Reconciliation and sending receipts on time often isn't possible. Automating this process ensures that you are staying compliant. With Paystand's digital notarization feature, your clients can be assured of transaction status.
  • Security. There are many different ways to protect sensitive data. Most platforms use encryption to make the information more difficult for hackers to read and intercept. Others, like us at Paystand, use tokenization. This form of security replaces sensitive information — like names, credit card numbers, and addresses — with randomized characters and numbers.
  • Compliant. As with many payment solutions, it's critical that your AR automation software be PSS-DCI compliant. This will make audits more manageable and give you and your customers additional security.
  • Analytics. Finally, you want to be able to tap into payment insights. Whichever solution you choose should have a granular view of customer payment trends. Ideally, it can generate reports and provide visuals.
  • Favorable fee scale. Of course, it's crucial that the pricing is in line with savings. There are multiple types of payment structures, from flat fees to percentages. Flat monthly rates, as opposed to transaction-volume pricing, offer businesses a unique way to leverage payment technology. We call this Payments-as-a-Service.


Features to Help You Scale

Depending on your industry or business model, you may want more features for your payment strategy. But no matter what solution you choose, the following additional features can help you scale faster:

  • Bank networks. Whether you offer bank-to-bank transfers or ACH, the most secure and easiest way to facilitate transfers is to work with a payment solution with a bank network.
  • Smart lockboxes. If you plan on accepting checks, switching to a smart lockbox can automate your paper check payment processing. This feature digitizes checks and transfers data to your ERP.
  • Customization. Being able to customize your payment strategy and brand your invoices and payment portal enables you to streamline the workflow and boost brand recognition.
  • Virtual Card. Being able to control spending goes hand-in-hand with tracking revenue. Sometimes, a virtual card may earn you interest or other perks—which you may want to consider when considering your total accounting.


6 best practices to make the most of automation

Once you decide on a solution, it's essential to ensure that it continues to meet your needs in the long run. Integrating the new program into your daily operations and overall accounting strategy is the best way to do this. Here are six best practices to help your team optimize your new AR software.


Train Your Team

First, you'll want to train your AR professionals on how the software will be used, whether its features are available within the ERP, and how to troubleshoot in case of problems.

The most significant shift will likely be a mindset change and potentially upskilling. Your employees will want to know whether or not automation will make their positions redundant. The answer is no; automation is there as a support system. But they'll also focus on more complex or higher-level tasks, which might require additional training outside the new platform.


Customize Your Workflow

Most programs tend to work well out of the box. However, a payment solution works better when you initially customize your workflow. You will also want to tweak your preferences periodically. This is true even with solutions that use machine learning technology, as you will likely adjust your overall strategy over time.


Regularly Review Metrics

It's essential to keep in mind if your strategy is working. Your AR automation platform should provide additional insights into the following:

  • Days sales outstanding (DSO)
  • Average days delinquent (ADD)
  • Collections Effectiveness Index (CEI)
  • Bad debt ratio

You may choose to monitor other metrics as well. Your AR platform should make this a simple task with an intelligence dashboard.


Be Proactive

When you make changes to your payment processing that may affect client-side operations, it's vital to let them know. Be sure to communicate changes and what they can expect.


Set Clear Terms

Clients should understand your payment terms, early-payment discount timelines, and late fee policies. Ensuring these are clear upfront will make it easier for them to understand the process and submit timely payments.

You will also want to clarify how your payment options work and if convenience fees (or zero fees) are involved. This helps your clients better determine their accounts payable strategy and keep up with your invoices.


Have a Clear Customer Support

Include information for clients to tap into customer support or have their payment queries solved. Some clients don't understand the process or require more information on their payment team.

You may choose to have a designated AR expert for these questions. It can also be helpful to create a knowledge base your clients can access online or use a chatbot on your website. Whichever support channels you select, you must let your customers know how they can use them.


Transform Your Payment Strategy Today

As the Venmo of B2B transactions, Paystand is a leader in AR technology. Our accounts receivable platform uses a unique tech stack to create a seamless payment experience for your customers and get you paid faster. From automated collections to the Paystand Bank Network, payment portal, and assurety, Paystand is built to help your business scale.

If you'd like to see how effortless your AR process can be, book a call with our experts today.

Or, if you still want to know more about AR automation and how it can transform your business, check out our free guide on how automation can make month-end accounting stress-free.