The Ultimate Guide to Automation for Accounts Receivable Management

Chapters

  1. Introduction
  2. Executive Summary
  3. The Challenges Associated with Payments and Remittances
  4. The Impact of Poor Visibility and Process Management
  5. How to Reduce Manual and Paper-Based Accounts Receivable Management
  6. What is Accounts Receivable Automation?
  7. Why Companies Are Adopting AR Automation
  8. Reduce Accounts Receivable Days Sales Outstanding
  9. End-to-End Receivables Management
  10. Key Benefits of Using an Automated AR solution
  11. Summary

Introduction

Skillful accounts receivable management is critical to the performance of a company and to its ongoing success as a business. We’ve seen the impact that poor account receivables management has on a company, impacting liquidity management, reporting of corporate sales, credit decisions, and various other areas. More companies are now considering new accounts receivable management options as they are not currently satisfied with receivables and cash application processes.

So, how can we meet this demand for greater account management over the long-term future? Our Ultimate Guide to Automation for Accounts Receivable Management will make the case that automation and automated accounting systems will empower your accounting teams and eliminate many of the receivables management challenges facing corporations of all kinds.

Executive Summary

In this guide, you will learn more about the value of automation for accounts receivable management. Automating your accounts receivable processes can provide you with end-to-end visibility into your entire accounting infrastructure. You’ll see when the payments arrive and when they are delayed. You’ll be able to see how much cash-on-hand your organization has and how your organization is allocating its resources. You’ll also gain information on payment trends and then be better equipped to make decisions that keep your company agile and effective in the marketplace.

Automation is helping companies streamline accounting teams and keeping them focused on high-value tasks, such as tracking down non-payments and connecting with high-value customers. Our guide will explain to you the importance of automation in managing your accounting structure while resolving key strategic issues that still impact even the largest companies across the globe.

In this guide, you’ll also learn how to make the transition from manual to automated accounts receivable. We’ll delve into the process and the stakeholders and explain more about what other companies have learned in making the transition. This will help your organization streamline the process and give you a foundation from which to make the highly profitable switch with precision.

We’ll explore the challenges companies face in dealing with customer payments and in sourcing payments from customers that are delayed in paying their invoices. We also discover more about the problems that accounts receivable management can resolve. We’ll explain how your accounting team is being held back within their work and how automation can help to free your most important accounting stakeholders to take on work that is more profitable for your organization.

We strongly believe in automation and its capacity to support your organization in its future goals. And in this guide, we’re making the case for you to make the change within your company. Take the time to review each point in detail and speak with our team if you have any questions once you’ve read the guide.

The Challenges Associated with Payments and Remittances

The adoption of electronic forms of payments and remittances has been low across the marketplace. The latest data shows that 65% of businesses still disburse payments mainly in the form of paper cheques, but the use of paper cheques decreases with the size of the organization. And the studies show 28% of small businesses disburse all payments by cheque, while only 7% of large enterprises do so.

So why are companies still using paper cheques, and what are the roadblocks to technological adoption? One of the leading concerns for business owners is the lack of a standard format for remittance data, with companies across the marketplace each using different formats and different software to process its accounts. Companies also face difficulty integrating data with back-office systems, as its software does not support accounting systems formats, leading to further confusion.

Another point of confusion is the channel through which payments are being made. For example, many of the more common channels of payment in the modern-day marketplace—email and text messaging—require some form of manual input. The data shows that, across Corporate America, 15.5 billion remittances are generated each month, leading to millions of hours of keylogging and data input simply to process payments.

The connection between various forms of payment being made, and the use of paper remittances and cheques, means that there are clear inefficacies in the accounts receivable process for companies throughout the world. Company leaders who were asked to name the most common issues their team experienced with payments and remittances offered the following:

  • Missing payment data
  • Errors in manual data processing
  • Collection delays
  • Time spent manually logging data

The Impact of Poor Visibility and Process Management

The data shows that limited cash flow visibility impacts financial decision-making. This stands to reason; how can management teams make effective decisions without knowing the resources available to them or how the decision might impact the company’s bottom line in the long term? And so, poor visibility into the financial process has a clear impact on the larger organization, preventing the company from moving forward and reaching its targets.

For example, imagine the modern executive attempting to conclude a large deal with a vendor, but without access to the accounting data to secure optimal funding. It’s an issue that currently impacts a large percentage of senior executives who are unable to manage the cash within their organizations according to the demands of their business.

Poor visibility into accounting procedures and data also cause companies to have long cycle times. This impacts the firm in a number of ways. For example, it might make suppliers warier of dealing with the company when they have delays in the payment process. Long cycle times are largely the result of an inability to locate payment data and find supporting documents to ensure payments are made to the right person at the right time.

The studies show that less than 5% of accounts receivable functions are fully integrated across the order-to-cash cycle. This then means that information silos are created, and cross-department communication is limited.

The Critical Importance of Tracking

Tracking is a key element in maintaining visibility across the accounts receivable process. When an order is tracked from its origin to its conclusion, team members at each stage of the process gain a greater level of control and autonomy, and these team leaders can ensure that decisions are being made based on a comprehensive data set, rather than a vague understanding from pieces of information.

Without effective tracking of the data, delays are made in the closing of deals and companies may experience critical losses of productivity.

How to Reduce Manual and Paper-Based Accounts Receivable Management

We’ve spoken about the challenges associated with paper-based accounts receivable management, and so it’s important to review the steps many companies are now taking to eliminate manual accounting procedures and develop a streamlined, high-performance accounting process.

Highlighting Bottlenecks

One key step companies must take in reducing manual processes within accounts receivable departments is highlighting the bottlenecks and studying why these bottlenecks occur within this particular area of the organization. By focusing on bottlenecks, companies can then free team members up to work on other areas and improve the efficiency with which the accounting team works.

Staff Training

Another key area of consideration in reducing the focus on manual and paper-based accounts receivable management is in training staff to work with the latest accounting automation technology. This process takes time but should be carefully considered before simply bringing in new solutions.

Staff should be first trained on the benefits technology can bring to their accounting procedures. The focus should be on how technology can improve their working life and enable them to become more productive while freeing them to concentrate on other areas besides tedious number-crunching. Once most employees see the clear benefits of automating accounts receivable, they will adapt to using the technology within their job and help the organization capitalize upon investments. For example, one surprising benefit most users fail to consider regarding accounts receivable management is its value in dispute resolution with customers. When using automation systems, disputes can be reduced—automatically collecting related documents and notifying the customer of their access to documents, supporting effective communication and clear visibility into the terms being discussed.  

Adopting Accounts Receivable Automation

The final step in reducing manual and paper-based accounts receivables management is to begin the integration of automation tools. Automation can help companies save thousands of dollars in lost labour hours while providing teams with the control they need to gain end-to-end visibility into their full accounting infrastructure.

What is Accounts Receivable Automation?

With the challenge of reducing paper transactions and improving tracking across the accounting cycle, many companies are now turning to accounts receivable automation. An automated receivables management solution includes the following components:

Transaction Identification

As payments arrive, data is extracted by the automation system, and the system then identifies the type of document and the data that the document contains. The information from this process is then extracted and disseminated to authorized parties.

Data Verification

As part of the identification process, data from the documents is verified and compared with other documents already in the system. Payments are then reconciled with outstanding invoices so that open receiving accounts can be closed and transactions can be completed with efficiency and precision.

Document Distribution

The distribution element of the accounts receivable automation system allows for data to be routed securely through work teams. The automation tool then updates the information used by parties throughout the organization, to ensure the data is correct and that all stakeholders are working with consistent information.

Centralize All Documents

The accounts receivable automation system also works to centralize all documents so that information is available to stakeholders on short notice. This helps to streamline communication within the organization and with customers and suppliers when data queries arise.

Automation tools also simplify the process of accessing accounting data via mobile devices, giving work teams on the road information that can often be crucial to sales and management decisions.

Simplified Deposit

Another key element of the automation system is that it works to simplify the deposit process for accounting teams. They no longer have to wait for the physical cheque to arrive and then visit the bank to deposit it. They can now manage all accounting procedures from the comfort of their office.

Why Companies Are Adopting AR Automation

Now that you know a little more about accounts receivable automation, you might consider the many reasons companies are adopting the technology for working processes. From one study, 42% of companies have cited reducing time to payment collection as the leading reason for adopting an AR automation system. Automation tools simplify the capture process by quickly capturing all paper and electronic documents and automating the extraction of the data from remittances and related cheques.

Faster cash application and deposit is another of the foremost reasons behind the continued adoption of accounts receivable automation. The process works by applying accurate remittance data quickly, creating image cash letters through the use of protocols under the Canadian banking regulations. Any problems or exceptions discovered within the system can quickly be routed to the right department so that disputes can be resolved with precision.

A Tool for Strengthening Customer Relationships


This brings us to another key advantage in accounts receivable automation. Customer-facing staff is also now able to better resolve customer account issues in a number of new ways. For example, staff now have access to an end-to-end accounts receivable solution, so the data within the system is easy to track. When a customer calls the company searching for a specific piece of information, or a supplier calls wondering why their cheque hasn’t been sent, the customer service representative can easily go into the system, find the data and provide an accurate answer to the question.

This process helps to enhance the organization’s reputation and limit the amount of time that teams spend dealing with disputes.

Enhance Your Accounting Team’s Impact

Also, a company’s accounting team is made up of some of the most proactive, thoughtful, and forward-thinking professionals within the organization. Here’s another explanation why firms across the marketplaces are now utilizing accounts receivable automation systems. The process helps free up talented accounting staff to work on other areas of the business.

Imagine a full team of professionals with accounting experience looking for ways to enhance budget planning and financing for upcoming projects. That could add a significant percentage to company revenues and help streamline complex accounting processes.

Reduce Accounts Receivable Days Sales Outstanding

One of the easiest and most effective ways of improving cash flow is reducing accounts receivable days sales outstanding (DSO). Days sales outstanding measures the number of days it takes to collect a dollar of sales, and it highlights the average age of the accounts in a company’s accounts receivable.

The higher the average age of the account, the more the company is likely to struggle in terms of cash flow. The most effective means of reducing days sales outstanding for the accounts receivable department is with timely billing and faster invoicing—two great advantages to working with automated accounts receivable systems.

When using accounts receivable automation, companies are no longer dependant on overworked accounting staff to send out invoices by a certain date and to pay bills at a specific time. You can now automate these key processes and significantly reduce your days sales outstanding to a far more manageable number for the long term.

End-to-End Receivables Management

Another key reason companies are now turning to accounts receivable automation is to achieve the visibility offered through an end-to-end receivables management system. This visibility is now critical to making decisions throughout the accounts receivable department.

Accounting team leads depend on this information to provide managers with actionable data regarding the health of the organization and the current status of client accounts. Achieving an end-to-end structure allows for decisions to be made proactively before downward trends impact the organization. It enables decision-makers to capitalize on trends that then benefit the company in meeting its key targets.

Growing Your Business Through Accurate, Prompt Receivables

The research shows that continuous improvements and scaling up are difficult challenges when core functionalities within the organization are segmented. Some companies have a streamlined collections process and then struggle with resource management and application. These companies can harness automated solutions for accounts receivable management to maintain clear insight into how the money collected is being allocated. The process not only outlines the bigger picture regarding organizational health in minute detail, but it also allows decision-makers to trace strategic errors and navigate complex financial challenges adeptly.

End-to-end receivables management also ensures your team is paid sooner. Rather than waiting for several weeks while your accounting team communicates back and forth with a client, sharing documents and analyzing discrepancies, data will be at the team's disposal immediately. The data can then be shared with the client, and any disputes can be quickly and efficiently resolved so that payments can be made in a consolidated timeframe. This then frees your accounting team to focus on other areas of the organization and to capitalize more effectively on their skill sets so that the company progresses in its marketplace.

Key Benefits of Using an Automated AR solution

Automated accounts receivable is rapidly changing the way companies do business, communicate with customers and manage its internal finances. It’s giving growing businesses in all industries the opportunity to make the most of both financial and staffing resources. Let’s go over some of the conclusions reached in this post and highlight the benefits that accounts receivable automation brings to the forward-thinking business owner.

Improving Your Cash Position

Your company must pay its bills on time to maintain its positive relationship with creditors. Accounts receivable automation does the hard work for your company. It can be used to send out reminders to clients about outstanding invoices and make it easier for your clients to pay.

The technology also helps make client payment schedules more predictable, using historical data to identify when each client tends to pay their bills. The process allows you to increase cash-on-hand and make prudent decisions that help safeguard your company’s future.

Reduce Time Spent Resolving Customer Disputes

The latest data shows companies that integrate accounts receivable software reduce the workforce’s time spent managing customer disputes from 40% of their working day to 13%. The same research also shows that businesses can increase the time spent soliciting customers to complete their payments from 20% to 62%, supporting your company in streamlining payment management.

Since they've been freed from the responsibility of researching files and sourcing historical data for managing payments, your accounting team can work proactively for your company, making the most of their skill sets and nurturing the company’s relationship with customers.

Consolidate Administrative Costs

Growing companies are still spending thousands of dollars per year on mailing statements and invoices. Automating all accounts receivable tasks that don’t require a human interaction can significantly cut your administrative costs. Costs related to paper, ink, envelopes, and other administrative consumables can be reduced while labour costs relating to administrative tasks can be saved and reallocated to profit-centre areas of the organization.

Summary

Manual accounting work is causing costly delays within your organization, preventing you from utilizing your resources effectively and damaging your customer relationships. The studies show that two thirds of companies are not happy with their accounts receivables system and are actively looking for alternatives. While paper cheques and remittances continue to be the most popular format for receivables, this discontentment will remain, and companies will continue to experience revenue shortfalls and inefficient accounting processes.

Implementing an end-to-end accounting infrastructure that capitalizes on the latest accounts receivable automation tools is the best option for companies to build moving forward. As they blend data capture and content management, the leading automation tools are now empowering accounting teams across marketplaces and supporting operators to achieve their business objectives.

With growing firms throughout industries reviewing accounting automation systems, your organization can no longer afford to simply wait and deal with manual accounting challenges. It’s the ideal time to turn to automated accounts receivable tools, and our team at MESHDS can help.

Call our experienced team at MESHDS now to learn more about the value accounts receivable automation can bring to your business.