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Why you should be automating your accounts receivable collections

calculator and ledger When a customer buys a product or service on credit from a supplier, the supplier considers it a sale, but because the cash has still not been received it is accounted as accounts receivable. The accounts receivable automation (AR Automation) process means automating the production, sending, and collection of invoices. AR Automation involves using software, often with artificial intelligence and machine learning technology, to streamline the AR collections process. AR automation is a part of order-to-cash process automation process which involves:
    1. Order Management
    2. Credit Management
    3. Order Fulfillment
    4. Order Shipping
    5. Customer Invoicing
    6. Accounts Receivable
    7. Payment Collection
    8. Reporting and Data Management 
AR automation can automate processes from customer invoicing to reporting and data management.

Key Challenges in the AR Collections Process

High Transaction Volumes  If a company is doing well, there will be hundreds, if not thousands, of transactions which need to be handled by the accounts receivable department. If all the tasks are handled manually, then the turnaround time (TAT) would be incredibly slow. Inefficient Collection Process Manually processing accounts receivable occupies resources with the mundane activity of generating and emailing invoices. Because reps will have insufficient time to cater to each and every query, the collections rate will suffer and bad debt will accrue. Also, if there are no pre-generated collections processes set for collection activity, each collector will do their own thing leading to variability and human error. Inconsistent Credit Assessments If the process of credit assessments is manual, then the selection might be subjective–giving unqualified customers higher limits than those who may have been more qualified.  Alternatively, companies sometimes lose track of who has which credit limits because of disorganization in the account records. This increases the risk of bad debt. Reporting Errors   In the manual AR collections process, it may happen that the employees are working in different systems e.g. tracking customer data using excel, following-up using outlook, issuing invoices using ERP.  Due to the manual nature of the process and working across the three different systems, it might happen that the employee might miss some data for reporting, this may lead to serious reporting errors. Almost all the above problems can be solved by AR automation as it follows a single process, is fast and precise, and all the data can be found in one place.

Key Benefits of AR Automation

Frees Up Employees To Do High Value Work Manual accounts the receivable process is too cumbersome and very costly, as it requires dedicated employees to work full time in trivial tasks of producing and sending or uploading the invoices, AR automation process will free up the employees from such mundane tasks and those employees can be allocated to some higher value task. Environmentally Friendly AR automation can also reduce the cost of manual printing and stationery, it can auto generate invoices and the system can email invoices to customers and hence save a lot of costs. Reduces Human Error AR automation removes humans from the equation, eliminating human error, improving data consistency with real-time responsiveness. The result? AR automation increases accuracy and reduces the likelihood of a customer dispute. Credit Tracking  AR automation can better manage credit assessments and track outstanding credit limits helping keep money in the company. Centralized Workspace For All AR In AR automation, every document and data can be found in a single place, so the chances of reporting errors are extremely low.

Who AR automation benefits

AR automation benefits almost all the industries, however, there are some industries where the implementation is higher.  For example, the banking and financial services space see a huge transaction volume. Similarly, industries with high transactions would see huge benefit in automation. Below examples of industries where the AR automation would be a gamechanger:
  • Banking, Financial Services, and Insurance
  • Telecom and  Information Technology (IT)
  • Manufacturing
  • Wholesale Distribution and Logistics
  • Food and Beverage
  • Retail
AR automation if implemented smartly will help immensely in cutting the cost, streamlining the process, companies have better working capital cycle, stable cash flows and can have fewer bad debts. As the process recently is widely accepted by the industry, it is imperative for a company to implement AR automation for its success. Want to learn how Peakflo tackles AR automation?