Accounts receivable (AR) refers to the system of tracking, following through, and recording payments owed to your business for services or products already delivered.
Accounts receivable automation (or AR automation) applies digital technology to the low-value, manual tasks that comprise accounts receivable.
AR is an important element of the overall business accounting system. If a business is not effectively managing its collections, and there is a widespread and persistent problem of payments not being received on time, the business may run the risk of not having enough cash on hand to sustain its operations.
Automating the AR process enables the business to leverage sophisticated software platforms like AR collection management software to improve its AR and free up staff for less repetitive tasks.
These platforms use some of the latest advances in digital automation, such as artificial intelligence (AI) and robotic process automation (RPA), to reduce and/or eliminate some of the tedious and time-consuming aspects of AR.
By utilizing digital processes, automation minimizes, and may even eliminate, the need for manual data entry and the creation of cumbersome spreadsheets. Accounts receivable automation software executes fundamental tasks, such as capturing and entering data into the AR ledger, reconciling discrepancies, updating records, and producing reports and financial statements. Automation greatly reduces the time, labor, and costs involved in AR. It improves efficiency and accuracy, and it frees up staff to perform higher level tasks.
There are many benefits of AR automation, including reduced processing time, improved efficiency, increased security and compliance, and the near elimination of human errors.
Accounts receivable comprises a number of functions and tasks. This includes the extension of credit, customer relations, invoicing, monitoring and analysis of payment trends, collections, and reconciling of payments received.
AR automation starts with the credit management process by digitizing the evaluation of a customer’s creditworthiness. It extends to the invoicing process.
Software can extract information from other platforms to digitally generate and distribute invoices to customers. It can monitor and age outstanding invoices and generate follow-up notices according to pre-defined schedules.
Automation can also assist the business by digitally performing the reconciliation process for all of accounts receivable.
Automation can help with many of the tedious, manual aspects of accounts receivable, such as data entry. Traditional accounting systems rely on the manual input of information into a centralized source, typically paper ledgers. Even with the advent of computers and digital spreadsheets, accounting information still needs to be entered manually.
Accounting staff must enter information from various documents they receive that record the financial activity of the company, including receipts, invoices, bills payable, and expense reports. Automation can eliminate the need for manual entry of this information by capturing and recognizing the data from these different source materials and inputting it into a central information source.
In this regard, AR automation can help with the maintenance of master data, a term now commonly used to refer to the basic, static information that a business maintains about its customers. Master data contains information about customer profiles, such as business name, address, and bank account, but it does not include transaction data.
Master Data Management is the process of maintaining this information in a centralized location that is standardized, accessible, and secure. AR Automation can help maintain the so-called “golden record” of information by recognizing data in different formats and platforms and storing it in a centralized and standardized repository.
Many accounting automation programs employ artificial intelligence. Otherwise known as machine learning, AI can execute such tasks in the receivables process as entering and matching data from receipts and invoices to purchase entries.
AI is distinct from RPA in that the software “learns” and develops its own logic from the data that it processes. This helps improve the process over time, by increasing efficiency and accuracy.
AR automation also utilizes robotic process automation. This is a form of automation that performs repetitive assignments, including sorting, data insertion, form completion, and interpretation of text and data.
Unlike AI, RPA does not learn or develop logic. Instead, it relies on structured data and rules, but it can greatly reduce processing time and free up staff for other work by performing these time-consuming, repetitive tasks. It can be used in the AR process by performing such tasks as generating late payment notices to customers.
Accounts Receivable Aging Report
Accounts Receivable Assets
Accounts Receivable Collections
Accounts Receivable Dispute Resolution
Accounts Receivable Journal Entry
Accounts Receivable Reporting
Accounts Receivable Turnover Ratio Balance Sheet
Credit Risk Management
Credit Utilization Ratio
Days Sales Outstanding (DSO)
Debits & Credits
Depreciation Journal Entry
Month End Close Process
Robotic Process Automation (RPA)
The traditional accounts receivable process involves manual “touchpoints” at every juncture along the way. Invoices are manually generated, printed, and sent. Data is entered into spreadsheets.
Monitoring of accounts receivable, analysis of the data, and follow-through with customers regarding overdue payments all have traditionally been performed manually.
With the development of accounts receivable automation software, businesses can now automate many of these inefficient and time-consuming measures. Automation is the modern solution to the needs of business for efficient and streamlined collection of payments due.
It can save time, improve accuracy, and reduce delays in the accounts receivables process, giving the business peace of mind that its cash flows are sufficient and financials are sound.
Leveraging digital solutions in the AR process confers many benefits to the business. The traditional AR process is labor intensive, tedious, repetitive, time-consuming, and error prone. Still, it is a vital function in the business that ensures a healthy cash flow to support ongoing business objectives.
A healthy business relies on sound receivables management.
Migrating to an automated platform for AR management helps reduce and even eliminate many of the manual touchpoints in the AR process. This reduces the incidence of human error and greatly improves processing time.
These improvements free up the accounting team for higher level functions, such as analysis and strategic development. A streamlined AR process can also help lower the number of Days Sales Outstanding, which is a reflection of how long it takes for to business to collect payments.
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