Accounts Receivable Automation Offers Benefits

4 min read
  • Accounting & Finance
  • Process Automation

Considering that accounts receivable (AR) is bringing money into an organization, it’s ironic that, according to industry analyst Paystream Advisors, implementation of AR automation has lagged behind accounts payable (AP) automation.

For AP processes, automation enables stronger internal controls, improved quality, significantly reduced errors such as duplicate payments, over payments and fraudulent payments, and capture of early payment discounts. Payment disputes can be more quickly resolved, eliminating late payment penalties.

In general, automating business processes makes it easier to consolidate information, which in turn makes it easier to find later, reduces duplication, and eliminates errors introduced through recopying the information, according to Melissa Webster, IDC’s program vice president for content and digital media technologies. Implementing automated AR means that organizations can go paperless—something we’re always in favor of—and help businesses incur lower collection costs. As companies are feeling the fiscal push to improve operations in the new business year, automated AR can improve collections at reduced costs.

QuotingPaystream Advisors, Jeanne Wild writes in Accounting Web that companies that use AR management software recognize such benefits as:

  • 20 percent reduction in Days Sales Outstanding
  • 25 percent reduction in past-due receivables
  • 15 to 25 percent reduction in bad-debt reserves
  • ROI in as little as two months

Research shows that the benefits of AR automation have driven 32 percent of medium and large corporations to use AR automation tools, with an additional 9 percent planning to automate their AR over the next 12 months, according to Paystream Advisors.

“Digitized invoicing is like the grease that makes an accounts receivable revenue recovery machine operate more smoothly,” writes Keir Walker, senior research associate for the Aberdeen Group in his report Turn the Page on Paper-Based Invoicing. “By incorporating digitized invoice features, AR solutions eliminate major process bottlenecking and inefficiencies.” In the report, he notes:

  • Leaders, which Aberdeen defines as the most successful 35 percent of companies, are 70 percent more likely than followers to receive purchase orders electronically
  • Leaders are 73 percent more likely than followers to issue invoices electronically
  • Organizations with digitization are 32 percent more likely to have automated PO matching capability
  • The On-Time Payment Rate is 38 percent better for organizations that digitize AR processing

Shifting to automation and away from paper helps organizations contain costs, optimize cash flow, and mitigate risk, agrees Brian Shannon in Wards Auto. While he’s writing specifically about the automotive industry, what he says could apply to any business, especially ones with periods of unevenness. “The technology now available has created new possibilities and opened eyes to the inefficient and error-inducing repetition that manual data entry presents,” he writes. “Organizations that fail to act now will be at a disadvantage and lag behind the leaders who are reaping the benefits experienced from a streamlined accounts-receivable process.”

The biggest hurdle to productivity is the fact that AR processes are often too complex—too many disparate financial systems, too little standardization and too many manual steps. Add in interruptions resulting from issues demanding quick resolution, and it’s no wonder that productivity suffers.

For example:

  • Too much paper. Inefficient AR processes result in time wasted filing, retrieving, faxing, copying, mailing or looking for documents that have been misplaced, misfiled or lost. According to The Aberdeen Group, it may take up to 16.3 days to process a single invoice when an office has minimal business process automation. Combine paper volume with low levels of automation and the result can be a productivity quagmire.
  • Costly errors. Keying errors, matching errors, and lost and misfiled documents derail service quality, irritate vendors and aggravate business managers. AR automation can help reduce errors by extracting and entering data. Whether it is supplier names, check numbers, invoice dates, invoice amounts, PO numbers or specific line items ordered, business process automation reduces the number of data errors when compared to manual data entry.
  • Complex manual processes. Finance managers need in-depth information on departmental metrics to accurately determine productivity and identify bottlenecks. With AR automation, it’s easier to collect these metrics—including cycle times, queue throughput and user productivity.

Many financial professionals fear AR automation, but those fears are based largely on misconceptions, Wild writes. “The actual processes being worked through are going to remain the same, the only difference is that the software will be doing the work for you,” she writes. “The software is designed to leave room for both automation and human interaction, giving you complete control over what the system does and when it does it. In fact, many people find that they have more control with automation than without it.”

One part of the decision behind AR automation is whether to run the software on-premises or in the cloud. And that decision is based on the same factors as any other business process automation decision. The cloud takes direct control responsibility away from your organization, which is a disadvantage to some people. It’s an advantage to others who don’t want to have to go to the capital expenditures involved in implementing their own system and would prefer to offload the responsibility and put it as an operational expense.

Part of the problem is simply that, as with any business process automation, people fear change. But once people know why the change is being made and are reassured that it doesn’t threaten their job, they will be able to look at the business benefits of AR automation. These include “Reducing late invoices and bad debt write-offs; no longer needing to hire an additional employee to keep up with overwhelming manual processes; and savings on small items that add up over time, such as the cost of manual printing and mailing invoices or notices,” Wild writes.  Think of how many invoices your company sends out. Even if you save just a couple of dollars on each one, those savings add up.

Find out why business process automation is the top habit of every highly effective finance department. Download “Five Steps to Accounts Payable Automation” today!

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