Why Does Your Scaling Business Need AR Automation Software and How to Choose the Right One?
Oct 5, 2022
Your business is growing: that’s great news! Acquiring new customers and increasing your revenue means you’re on the right track for your business.
It’s also in times like this that your business model is put to the test: is it scalable? More customers means keeping track of more payments, which can overwhelm your invoice-to-cash process and your finance team.
Using manual processes to keep up with payments is time-consuming and error-prone - reducing your overall profitability. On the other hand, late invoices have a direct impact on your cash flow.
So, what’s the solution? Automation! Automating parts of your collection process will help you get paid faster and ensure the continuous growth of your business.
In this article, discover:
Why does your scaling business need AR automation software?
What to look for when choosing accounts receivables software for your business.
Upflow is an AR receivable software that helps you get paid faster. By automating the most repetitive tasks of your collections process, you can streamline it and get more efficient. That’s more time for you and your AR team to dedicate to higher-value tasks like establishing your long-term growth strategy.
Why Does Your Scaling Business Need AR Automation Software?
Is your Business Scalable?
Being scalable is essential for a start-up. That applies to its business model, but also to its operations.
When you grow your business, you need to automate certain operations (especially repetitive ones) so you can focus on higher-level strategic activities.
That is true for your accounts receivable processes, too! It is crucial to use the right processes and tools to be able to support the growth of your business.
At the start of your business, your finance stack is often not a priority, as it doesn’t directly generate revenue. However, as you grow, it becomes essential to have the right pieces of the puzzle to keep on growing the right way.
It’s never too early (or too late!) to lay the proper foundations for a good finance stack. And one important piece of this is accounts receivable software.
What is Accounts Receivable Software?
AR software helps you automate all or a part of your receivable process. It’s a tool that can do tasks like:
Send late payment follow-ups to your clients,
Setting up internal reminders for your team,
Tracking the overdue invoices,
Calculating and showing your important AR KPIs,
And much more!
Depending on the automation solution you choose, it’ll come with its own set of features. The main idea of AR software is to help automate the tasks that are time-consuming to streamline your collections management.
AR automation software also helps increase your visibility over your entire receivables process.
What are the Benefits of AR Automation?
Incorporating an AR software drastically improves your receivable management - but not only! Here are some of the advantages of AR automation:
Increased productivity and profitability: your finance team spends less time on your collections process, and there are fewer errors that naturally stem from manual processes.
Standardized collection processes: you have specific workflows that assist in streamlining your AR processes.
Reduced churn and late payment rates: since customer payment reminders can be automated, your customers remember to pay on time. There is also less involuntary churn from payment failures.
Better cash flow management: getting paid faster, as well as getting a better estimate of when your overdue invoices will be paid both contribute to better liquidity. This improves your working capital, too.
Better customer experience: your customers are gently guided through the whole collections process. They receive the right information at the right time: invoice number and amount, a link for credit card payment, instruction for ACH, etc.
Improved visibility: you can see all your pending invoices on your dashboard, as well as access analytics of your accounts receivables in real-time. Forecasting helps you plan for the future.
All of that amounts to reduced accounts receivable costs and a high ROI on your AR software.
Accounts Receivable: When to Move from Manual to Automation?
10-20 millions in revenue is when you should start thinking of automating operations that are at the bottom of the pyramid (such as accounts payable and AR)
Switching to AR automation is something to consider if you are trying to raise capital for your company as well. Investors look into how streamlined your processes are and what tools you use to support your business’ growth.
What to Look for When Selecting Your Receivable Automation Software?
Besides pricing, there are several things to pay attention to when it comes to choosing the right AR management software for your business.
Level of Receivable Automation.
First things first: what do you need your AR software for? Take a moment to map out your current accounts receivable process and see which tasks could benefit from automation.
From there, you can decide how automated you want your collections process to be. For example:
Do you want your customer communications to be 100% automated, 100% personalized, or in between? Maybe you’d like more personalization for your bigger accounts?
Do you want to have a collaborative and action-oriented tool? Is being able to take corrective action straight from it and leave notes to your team members important?
Do you want to have access to your financial dashboard from your AR tool, or would you prefer to use another tool for it?
Different software provides a different levels of automation. In some of them, you can actually choose how automated you want your processes to be.
Our recommendation is to have one centralized tool to manage all your accounts receivable activities, as it makes for more optimized processes. It also helps you be more accurate.
Integration with Your Current Tech Stack or ERP System.
Your current tech stack probably looks like this:
An accounting software (like Netsuite or Quickbooks),
A billing tool for payment processing,
A CRM to manage your customer base,
An ERP to manage specific aspects of your business.
This super-ERP system is what helps your day-to-day operations. You need them to connect and work as one, so all your data is available in real-time from every software.
And as you grow, you’ll likely need other software solutions to add to your stack - like AR software!
That’s why you should always be working in open ecosystems, that is to say with software solutions that can integrate with each other. That’s true for a small business as well as a big corporation.
For the information to flow freely in your tech stack, you need to choose solutions that have native API integration. Concretely, it means the company that developed the tool has done the heavy lifting and the software naturally connects with others.
It’s much easier than custom integration that your own developer team would have to develop - and update - as your finance stack evolves. As a SaaS company, that would add to the workload of your engineers and take time away from focusing on your product development.
Cash Flow Metrics to Track with Automation Software.
Another important factor to consider when choosing your AR automation software is how well they track AR KPIs. These have a direct influence on your cash flow and should be closely monitored.
You want to find software that calculates your important metrics for you using the most accurate formulas and displays them in real-time on dashboards.
The analytics functionality can vary a lot depending on the software you’re looking at. What we recommend is one that displays at least these four important AR metrics:
Days Sales Outstanding (or DSO): it is the average number of days it takes your clients to pay you. It has a direct influence on your cash flow. You can then work on improving this metric by updating your credit management. Reducing your credit sales will translate into invoices that are paid faster, which helps reduce DSO.
Collection Effectiveness Index (CEI): it tells you how well your invoices are collected over a period of time. It’s a great way to measure the effectiveness of your collection processes.
Aging report: it is a visual representation of all your unpaid invoices, gathered in different time buckets: 0-30 days overdue, 30-60 days, 60-90 days, +90 days. At a glance, you can see which category your invoices are piling up and take appropriate action.
Billing cohort: it is what ties all your AR metrics together. Horizontally, it tells you if your cash collection strategy works. Vertically, you can follow the evolution of your efforts over time. It also helps with cash forecasting.
Looking at precisely which metrics the software will track lets you know how much visibility you’ll get from it. The better the data, the more informed your business decisions will be!
Fostering Collaboration in your Receivable Process.
You want AR software automation that fosters collaboration inside your team, but also throughout your company.
When looking at your different software options, look out for how many users can access the tool. Bear in mind that you’ll be able to streamline your AR process, even more, when you choose one that allows an unlimited number of accesses (like Upflow).
That means being able to involve every member of your finance team and attribute tasks to them. This way, everyone is on the same page and knows what’s the next step to take.
It also gives visibility to everyone in your team - and your company - over your accounts receivable, which makes it a shared responsibility.
A good way to promote this is by involving your accounting and sales team in the accounts receivable process:
Your accounting team would likely be able to do their cash application more easily by having access to your AR automation software.
Your sales team will be able to follow up with their client’s invoices easily. If you’re having trouble reaching out to a client regarding an unpaid invoice, their sales representative can use their closer relationship to contact them about it.
It’s good for them to check in to ensure the onboarding is going well. It also sends the message to your sales team that actually collecting the cash is more important than signing new clients.
While it can be tempting to keep your AR tool just for your AR team - it’s much more efficient to involve your whole company. Make sure your AR software supports this winning strategy.
Automation Software Supporting Your B2B SaaS Stack.
If you’re a SaaS company that does a lot of self-service, you might need different functionalities than a small business that only makes tailor-made contracts.
It also needs to support and recognize all your payment options like ACH or credit card in order to synchronize properly with your billing software. It’s all up to what your business needs - keeping in mind that this will probably evolve as you grow.
All in all, your AR automation software needs to assist your global reach by being supportive of your current and future business specificities.
And for that, you need carefully thought-out features. That’s why it’s better to select a specialized AR tool for general accounting systems - AR software is literally built to get you paid faster.
As your business grows, your AR processes need to adapt. 10-20 million of revenue is a good time to make the switch from manual processes to automation.
Just like the rest of your business, your accounts receivable process needs to scale as you grow. That’s facilitated by a carefully crafted finance tech stack.
Accounts receivable software helps you automate all or parts of your collections process. It has many benefits, including better cash flow management and increased profitability.
When selecting your AR software, make sure it integrates within your existing general accounting systems. Synchronized software solutions work better together and make for more efficient workflows.
AR metrics have a direct influence on your company’s cash flow. A good AR software will display various receivables metrics automatically, which gives you better visibility over your whole AR process.
It’s important to choose a tool that fosters collaboration both within your team and throughout your company. AR management isn’t only the finance team’s responsibility. Giving access to your accounting and sales team shows their involvement in the process is essential.
Your AR automation software needs to support your business specificities - now and in the future.