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Accounts Receivable (AR) Automation Isn’t What You Think It Is

AR collections

Alex Louisy

Jul 15, 2024


Let’s talk about a CFO’s biggest accounts receivable challenges What is accounts receivable automation? The key benefits of accounts receivable automationReduce errors with automated Cash ApplicationAutomate your accounts receivable processes with Upflow

Accounts receivables are crucial for any business, and their importance should be recognized from the start, even for small businesses and startups. Without timely customer payments, there's no cash flow, and without cash flow, growth is impossible.

As a B2B business, we understand how challenging it can be to manage collections effectively. You might be wondering:

Which tool or ERP should you choose? Which solution best meets your needs for collection management?

It can be overwhelming, but AR automation can help eliminate manual processes and free up your time for what truly matters. Continue reading to discover:

Let’s talk about a CFO’s biggest accounts receivable challenges

It goes without saying that CFOs have a lot on their plate. And by no means do they want or need manual administrative accounts receivable processes to get in the way of that.

If you’ve touched the accounts receivable process in any way over the years—and have relied primarily on a flurry of spreadsheets or an assortment of invoicing tools to keep things in order—you probably have experienced a few common pain points, including: 

  • Spending a lot of time on zero value-added tasks, like managing multiple spreadsheets and following up with customers manually;

  • Small inaccuracies, due to human error, causing invoices to go to the wrong person, which makes it difficult for accounts payable to pay bills in a timely manner;

  • The negative long-term impact that chasing down late-paying or non-paying customers can have on building strong and successful customer relationships;

  • The challenge of resolving payment disputes in the absence of a clear “paper trail" or business process

All of these pain points lead to three things: 1) a lot of wasted time, 2) businesses not getting paid in a timely manner and possible bad debt, and 3) a negative impact on customer relationships. A lot of this stems from ineffective and highly manual internal accounts receivable processes, which often keep CFOs up at night. 

Taking a look back, finance teams were often times previously perceived to be a support function. Accounting took place in the background or in parallel to regular business activities. This is now changing. Finance teams have now moved up the ladder and have become key strategic partners in decision-making.

Having said that, it is critical that any finance function in a business has a solid foundation in activities such as recording and transactions. Without establishing these basic layers, the finance team can't become more strategic. This should become their goal. To become an integral part of driving the business forward and influence other important business functions.

CFOs should aim to be proactive and provide key insights that only they have into the business's cash flow, credit management, and more. For example, the finance team can help the sales team close better deals and get faster payments by implementing new customer invoicing methods or how they manage contract billing.

In sum, there are no shortcuts to be taken for effective accounts receivable management. You must lay solid foundations and have a strong basic process in place before finance teams can shift to strategic roles. Accounts receivables software can help fast-track this process by taking care of basic but time-consuming accounting tasks.

A lack of efficiency makes it harder for CFOs to do their jobs effectively on two fronts:

1. Getting greater visibility across all AR processes

As with everything in life, you don’t know what you don’t know. But this becomes a pretty big problem when what you don’t know is the reason why your company isn’t getting paid on time and your profitability and working capital takes a hit.

CFOs aren’t necessarily interested in diving into the nitty-gritty of accounts receivable and invoice management on a daily basis. However, they still need to have real-time visibility across the most important aspects of basic accounts receivable processes. That’s the only way they can pinpoint weak spots in the process that negatively impact an organization’s financial health. 

What CFOs need is immediate, real-time access to high-level “financial health” information to help them drill down into who’s paying and who’s not. And for those customers who aren’t paying in a timely manner, they need to know what roadblocks are getting in the way of that. In other words, they simply need to know early on what risks are impacting the bottom line, so they can course-correct and identify critical process improvements to be made.  That's where automated A/R software can help.

It’s important, especially in smaller companies that outsource AR, that finance teams stay connected to their AR metrics and KPIs. Believe it or not, some businesses only take a look at their cash flow and liquidity at the end of quarters. This is because finance teams would receive revenue and invoices throughout the quarter and would only generate a report in the form of financial statements at the end of the quarter. Unfortunately, when decision-makers finally receive this key information the data is outdated and is not useful to inform and proactively make good decisions for the future of the company.

Contextually speaking, these statements were primarily used because businesses were legally obligated to report to financial authorities. Whilst this is clearly still very important, finance teams are able to deliver much more value than just fulfilling this legal obligation. CFOs need to orient their strategy towards producing value-added insights informed by real-time financial data to better help operate their business.

You might be asking yourself: how do finance teams get there? The answer is with the right tools. Tools that provide real added value such as accessing real-time financial data allow companies to know their financial standing if they are sending their money wisely and keeping costs under control. After all the old adage goes, knowledge is power!

Need help tracking your key AR metrics? Try out of free Discover plan and get real-time access to your AR dashboards in just a few minutes.

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2. Making cash collection a priority to maintain strong customer relationships

CFOs know that the customers who pay on time are more often than not the best customers overall—and it’s their job to maintain these positive customer relationships for the long term. 

But cash collection is nonetheless one of the weakest spots of the customer dynamic. Oftentimes it’s not even considered a priority by many departments, even though it should be. Why? Because ineffective payment collection methods not only impact cash flow in a negative way, it can also damage customer relationships over time. It’s a vicious cycle that has an impact on all of your business, not only your receivable team. 

While you might consider accounts receivable processes to be purely administrative, many CFOs today see it as much more than simply a support function. When fueled by accounts receivable automation, it can play a more strategic role in nurturing stronger customer relationships, on top of reducing your DSO.

If you decide to automate part of your AR, select a software that is collaborative. This is important as cross-team collaboration is crucial for efficient cash collection. Having this feature helps team members easily pick up at different touchpoints during the collection process. Upflow for instance, centralizes and tracks in real-time customers' payment timelines and cash application. Any team member from sales or customer success can intervene at any time if necessary.

What is accounts receivable automation?

Many people wrongly assume that accounts receivable automation means removing any kind of human element from the equation. That would be a wrong assumption. Because collecting money can be a sensitive and highly personal activity, you can’t rely solely on automated solutions to do all of the heavy lifting for you. Maintaining strong customer relationships, as noted above, is an important part of the process.

Therefore, there are really two sides to the accounts receivable management coin:

  1. Internal administrative processes 

  2. External customer communications

Accounts receivable automation can effectively touch both sides of this coin. In fact, it’s an ideal way to centralize and streamline simple internal accounts receivable tasks. After all, the end goal for practically every finance team is to make payment collection much more efficient and smoothen follow-up strategies

A big perk of accounts receivable automation is that it enables finance teams to gather the right financial health metrics at any given time. They need to be able to keep a real-time pulse on cash flow and other issues that could eventually impact the business’s bottom line. Having easy access to centralized reports and dashboards is essential for managing this part of the process. AR automation best practices will help you reduce DSO and improve profitability.

It’s important to note, however, that accounts receivable automation isn’t designed simply to send payment reminders workflows to customers. Even though that may be the first thing you think about when you hear the word “automation” thrown around. Of course, being able to schedule and send automated reminders to manage payment collection, especially for smaller customer accounts, is an important part of accounts receivable automation that you won’t necessarily have in regular accounting software or ERP systems

Being able to create highly personalized emails for larger accounts, or accounts that are at risk of being delinquent, is a part of this, too. At the end of the day, the finance team needs to have the flexibility to add a “human” dimension to the payment collection process whenever it’s needed. This can be incredibly useful when managing through points of friction with customers.

The big takeaway here is that accounts receivable automation exists to automate and simplify the processes that don’t necessarily need to be manual. It should still give you the flexibility to keep high-value work as manual as you want or need it to be, during sensitive phases like the onboarding for example.

And it surely isn’t intended to dehumanize this process either. Quite to the contrary, AR automation solutions are designed specifically to help finance teams be more effective in everything they do. This includes minimizing the potential for costly human error. 

The key to AR automation is to automate the most tedious tasks in the process. This typically includes preparing emails (reminders, follow-ups), pulling out invoices, etc. Automate anything repetitive, time-consuming, and low value added. Instead, your finance team needs to be focused on tailoring your customer communications with the right tone of voice and sending invoices and reminders at the right time. This is what makes a difference in getting paid on time

The key benefits of accounts receivable automation

There are a number of reasons why every finance team should implement AR automation software. Here are a few of the biggest AR automation benefits to keep in mind:

  1. Easier to understand the health of your A/R processes: Knowing exactly where all payment collection stands at any given time is easily the most life-changing aspect of accounts receivable automation. And this is exactly what CFOs need to ensure that all processes are operating efficiently at all times. Ideally, they need to be able to measure the right metrics in real-time, including things like Days Sales Outstanding (DSO), in order to measure the overall performance of the payment collection process and invoicing process. They also need access to key data points, like Average Payment Delay at a client level, to spot accounts that are most at risk of late payment.

  2. Simplifies the customer payment process: Accounts receivable automation puts customers in the driver’s seat. Giving them an easy way to provide updates on payment status creates more transparency and accountability in the payment collection process. Let’s face it, no one really likes to pay bills. But when done right and if different payment options are offered (credit card, ACH, etc), the process can feel much less transactional and much more collaborative. In this way, accounts receivable automation also allows you to take a more customer-centric approach to payment collection overall. This includes being able to send personalized “smart” reminders based on the unique needs of each customer. It also means that you should spare your customers from a reminder per invoice. Make it easy for them by sending them reminders at an account level.

  3. Easier for you to get paid faster: Accounts receivable automation provides finance teams with a centralized workspace for managing all aspects of the accounts receivable process. This includes tools that streamline communications and cash processes across both the finance and sales teams—especially in cases where the sales team is closing deals but customers aren’t paying. In the absence of clear cross-team communication, it’s very easy for payments to get lost in the shuffle.

    Remember, your sales team owns the customer relationship, so be sure to rely on them to help remove any payment collection roadblocks that arise. Receivable automation software like Upflow offers different collaborative features that will help all your teams communicate effectively.

  4. Scale and grow your business:

    You don’t have to hire additional people to work on your more basic and time-consuming AR tasks. These include sending manual invoices and payment reminders or even cash application. Not to mention you’ll reduce human error.

  5. AR automation takes your cash collection strategy to the next level:

    It frees up your time to perform more value-added tasks such as optimizing your payment mix. Think about it, you won’t be able to move your customers from one payment method to another that is more favorable for your business by just using spreadsheets. Of course, this all depends on your finance team’s maturity stage when it comes to its AR process. To mature your need to implement and use the right tools - it simply can’t be done manually.

All in all, automating accounts receivable management, plus being able to gather and access the right metrics easily, gives CFOs greater visibility across the entire process. This makes it possible to do drill-downs at the customer level and also run predictive cash flow reports and forecasts. Finally, it eliminates much of the guesswork and human error that goes hand-in-hand with manual accounts receivable processes.  


Reduce errors with automated Cash Application

Accounts receivable automation can take care of cash application for you. Previously, two methods of cash application existed:

  1. The old method: a software runs an algorithm that tries to match the amount you’ve received by wire to the corresponding invoice. This method has been around for some time and can be prone to errors.

  2. The modern method: when a customer initiates a payment it is automatically linked in to an outstanding invoice. This method is forward-thinking and is a more sustainable long-term solution to cash application. In essence, there is no cash application as the payment and invoices are linked.

For automated cash application to function, businesses need to offer online payment methods to their customers.

Automate your accounts receivable processes with Upflow

At Upflow, we are driven by a single promise: to help businesses collect customer payments effortlessly. We’ve built an intelligent accounts receivable solution to help CFOs redefine and reimagine accounts receivable management.

Our vision around accounts receivable collection revolves around the following pillars:

  • Systematized: Ensure that no invoice ever goes untracked or unpaid. Upflow integrates directly with your existing accounting system, making all invoices automatically tracked and accounted for.

  • Customizable: Tailor every account to a customer’s unique needs. Process automation is entirely up to you: you can make your collection more or less manual depending on your client.

  • Collaborative: Getting every customer to pay on time is a cross-functional team effort and depends on all involved teams’ responsiveness, which is streamlined by collaborative features.

  • Proactive: Anticipate payment collection issues before they become a problem. 

  • Automated: Send customers reminders at the account level, not per invoice.

  • Customer Satisfaction: Create a better customer experience to drive on-time payments with customized payment portals and several payment processing partners.

Are you still going about your accounts receivable processes in a manual way? Ready to try something new (and better)? Now’s your chance to book a demo with our payment experts and supercharge your cash collection.

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