Automating accounts receivable processes would allow your teams to effectively cut down the time and the costs associated with registering customers through lengthy email correspondence, distributing invoices manually, answering customer inquiries, and sending and tracking invoices. The time saved by the teams can then be used to concentrate on strategic goals and other value-adding tasks.

Automation can collect payments faster as it reduces the dependency on humans to mail invoices and conduct regular follow-ups with clients.  

As a result, as you automate your accounts receivable process, you will not only save time on recurring tasks and reduce human error, but you will also reduce your DOS(Day Sales Outstanding), adding numerous cashflow benefits to your business.

Here is a guide with the best automation practices you need to implement to improve your accounts receivable process.

AR Automation Best Practices

Any AR automation project’s goal is to improve the process so that cash comes in faster, customers feel better about doing business with the company, and more work is done by fewer people. However, how those objectives are met varies from company to company. That is why it is critical to involve the appropriate people from your company in the conversion to AR automation or the extension of an AR automation system.

The best practices for automating accounts receivable are outlined below:

  • Move to full automation incrementally.

    Both the AR staff and the company’s customers should migrate processes gradually rather than all at once. Large-scale changes can be overwhelming for internal staff and cause customer confusion, all of which can quickly become problematic for a company’s cash flow. Paced automation allows employees to learn and become comfortable with changes before introducing new ones.

  • Envision the future state.

    This includes determining the company’s specific AR automation goals, as well as how those goals will be measured. It is beneficial to agree on a set of metrics that will quantitatively evaluate progress and measure performance, as well as a method to collect the necessary data. Envisioning the future state can assist in prioritizing the features that are most important to the business, allowing the team to stay focused and avoid being distracted by nice-to-have features that may not have the greatest payoff.

  • Get your accounting department involved.

    It is critical to assemble the right team of people to evaluate AR automation, and the earlier AR system users are included, the smoother the implementation will be. Accounting staff who are currently in charge of the AR process have invaluable, detailed knowledge that must be heeded. Furthermore, because they will be the primary users, it is critical to obtain buy-in before deployment.

  • Document the current state.

    One of the first steps in implementing AR automation is gathering the AR team to thoroughly document the current process, displaying all relevant workflows as they currently exist and describing any pain points and bottlenecks. This aids in identifying the gaps between the current and desired future states.

  • Ensure new AR tools integrate with existing technology.

    An end-to-end AR automation solution that integrates with other systems, such as order management, general ledger, cash management, and inventory management, can provide even more benefits. Having IT representatives on the team aids in identifying integration opportunities and challenges.

  • Establish Key Performance Indicators (KPIs).

    KPIs are useful tools for tracking performance and can be used to track progress when automating AR. Based on the company’s priorities, decide which measures will be used, set benchmarks for each KPI, and decide how frequently they will be reviewed. If you want to generate more KPIs then outsourcing accounts receivable management is also a great option. 

  • Establish a key stakeholder for migration.

    It is best practice to obtain high-level executive support for an AR automation project, especially since the changes will be visible to the company’s customers. Consider adding cross-functional team members, such as sales or customer service representatives, for the same reason. In addition to an executive sponsor, each project requires an internal accounting department sponsor or champion who is accountable for the project’s success.

  • Communicate with customers and clients about the switch.

It’s recommended practice to notify customers in advance of any changes that may affect how a firm interacts with its customers as a result of AR automation.

  • Set up dashboards.

    AR dashboards are automated, graphical displays of summary data that are used to track a company’s customer balances and receivable activity. KPIs, summary customer aging reports, top customer balances, and department productivity measures are all common components of an AR dashboard. Role-based AR dashboards can be customized to provide continuous information relevant to an individual’s job responsibilities.

  • Outline and set up your workflows.

    After documenting current-state workflows (see no. 2 above), outline required and desired changes based on the selected AR automation solution. Labour should be freed up as a result of AR automation taking over mundane, repetitive tasks. Setting up new workflows thoughtfully may provide an opportunity to redeploy efforts to different or new tasks, in addition to capturing potential cost savings.

  • Track those first invoices to catch glitches early.

    Invoice problems or errors frequently lead to payment delays and awkward conversations with customers. When implementing an AR automation solution, it is best practice to implement quality control measures to ensure that the first invoices are sent correctly. Consider using KPIs to track the level of rework, such as tracking the number of revised invoices or customer disputes.

  • Seek client/customer feedback.

An automated AR system should improve customer relationships. When done correctly, it can also reduce processing time and costs because one company’s AR is another’s accounts payable. It’s a good idea to check in with customers on how their experience is changing to ensure that the working relationship is improving.

  • Encourage early payments.

    An automated AR system should improve customer relationships. When done correctly, it can also reduce processing time and costs because one company’s AR is another’s accounts payable. It’s a good idea to check in with customers on how their experience is changing to ensure that the working relationship is improving.

  • Review AR regularly for inconsistencies.

    It is best practice to review AR to ensure that the automation plan is working properly. This could imply reallocating some AR resources to perform more frequent AR reconciliations, including customer contact data and any unapplied cash. AR dashboards can help with alerts that detect irregularities within predetermined tolerances.

FAQs

What are the 5 strategies for effective accounts receivable management?

The following are five effective accounts receivable collection strategies:

  • Maintain accurate records of your accounts receivable collection procedures.
  • Start each service arrangement with a clear contract.
  • Create simple processes for invoicing and reminders.
  • Rethink your payment strategy.
  • Adopt accounts receivable process automation.

What are the three types of AR transactions?

Receivables are broadly classified into three categories: trade accounts receivable, notes receivable, and other accounts receivable.

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