How to automate your AR process

Nov 4, 2021 by Kelsey Banerjee

Receivable departments worldwide have a single problem: time. There’s never enough of it.

It's entirely too common for CFOs and their AR teams to spend 90% of their time on financial close. Manual processes such as mailing invoices, following up on unpaid bills, matching traditional lockbox checks, and correcting billing mistakes mean less time to analyze data and design competitive workflow strategies.

Unfortunately, spending more time on these repetitive processes doesn't guarantee results. Across industries, organizations of all sizes are struggling to get paid on time. In fact, AR teams in 26 different industries recently reported that over 10% of their payments are over 90 days past due. Publishing and construction have been hit especially hard, with over 50% of their invoices remaining unfilled after 90 days.

The worst part is, the value of these payments drops to 20% of the original value by 90+ days. At the same time, organizations with a high DSO are feeling a tight cash crunch. But their AR departments have their hands tied.

It's tempting to want to believe that a solid ERP will solve these problems. But even having a state-of-the-art ERP system won't save a significant amount of time if there's no automation component.

Why accounts receivable automation?

Accounts receivable automation is more than adding digital or over-the-phone payment options like ACH and credit cards and hoping that your clients pay on time.  An AR automation solution should reduce costs and DSO time while freeing working capital and providing rich data.

It should also offer a seamless and flexible customer experience to encourage fast payments. The easier it is to fill an invoice, the quicker your customer's AP department is likely to complete the payment.

According to a recent study on B2B payments, organizations that use automated AR processes save 23 days on average on their DSO. With automation, AR teams have revealed that they are processing AR functions 87% faster, and 79% have said it boosts overall team efficiency.

It's clear that the right AR automation software can reduce time spent on financial close and free your team for more high-value tasks But what does shifting to an organized AR process look like?

5 steps to automate your AR department

The key to a successful automation transition is solid planning and getting buy-in from other decision-makers and the team.

1. Map your current workflow - First and foremost, you should have a detailed map of your cash processes, current resources, AR software, and key metrics. Having an overview of how you are working will help you decide what to automate and what to remove entirely. For example, you may choose to stop accepting checks and begin promoting electronic payments.

2. Select what to automate first - Automating every aspect of your department can quickly spiral out of control. Between choosing software, training staff, and implementing new solutions, it's possible that redundancies will crop up. Or the chosen software won't match up. In addition, attempting to automate everything without prior successes can make it difficult to bring other decision-makers on board.

Instead, it can be helpful to start small. Look at what tasks your team is spending too much time on and automate that first. Spending time in the transition phase instead of racing for the rewards will increase your likelihood of success.

3. Review potential receivable software - You'll want to research two to three possible receivable automation solutions not just for their features but also for their privacy and security measures. After all, you'll be handling sensitive personal information, including credit card numbers, addresses, and other crucial payment data. Your ideal solution should be compliant with payment standards, such as PCI-DSS, and with any other regional regulations.

Furthermore, if there is a client-facing aspect to the automation, such as a customer portal for payments, you'll want to ensure it's easy to use. After all, if the process is cumbersome or confusing on the client's side, the lag between payments will remain.

4. Install, train, and optimize - Once you've chosen your platform, it's time to put it into action. Most likely, you will be integrating your solution with your current ERP. Once your solution is implemented, you'll need to train your staff on how to use it.

The best automation software doesn't require a hands-on approach. Technology like AI and machine learning will take care of typical cases, so your financial professionals should only have to manage the exceptions. But your team will need to know how to use it.

Over time, your platform should also be collecting payment data. After three to six months of using the platform, you should know what tweaks to make to improve the workflow.

For example, you may add a convenience fee for credit cards or a zero-fee option for ACH.

5. Automate the next task - Once your team has a good handle on the new automation tool, it's time to move to the next part of the workflow. Now that you've freed up time and resources through your initial automation project and can highlight the success to other C-suite and board members, you can move on to the next automation project.

Features to look for

Most of the five steps are relatively straightforward. It's finding the right receivable automation solution that typically takes the most time. There are so many different software options, many promising the same thing, and it can be difficult for most firms to decide which provides the best value for the monthly fee.

Key features you'll want to consider are:

  • How much of the cash cycle is automated? All of it? Or just a fraction?
  • Will the software integrate with your ERP?
  • Does your AR solution offer fraud-prevention technology, such as real-time verification?
  • What is the customer experience like?
  • Is there robust customer support that your team can leverage?
  • Can you encourage certain payment types, such as ACH or eCheck, through zero-fee incentives?
  • Can you add a convenience fee to discourage credit cards or at least cover the processing fee cost?
  • What kind of data does the platform collect?
  • Is the software PCI-DSS compliant?
  • What are the safety protocols for user data? For example, do they use tokenization, data aliasing, or something else?
  • Can you easily follow up with late payments?

These are just a few questions that can really help CFOs and accounting professionals decide on high-quality AR automation software.

Get paid faster

Receivable automation is the best way to get paid faster. And we're not just talking about outside studies. Clients like Choozle cut their late payments in half and decreased DSO by 33% when they automated their payment process.

Ready to know how you can boost your efficiency while saving time and money? Book a demo with us today and see if Paystand is right for you.