Most business processes are undergoing transformation including automation and accounts receivable automation is no exception. Accounts receivable automation software automates various manual tasks involved in the AR process like invoicing, collecting, and tracking receivables to ensure timely collection. A good accounts receivables software tool integrates with CRM, OTC, ERP, or similar business applications to give you a real-time 360-degree view of your receivable and collection data, providing insights into the blockages in your process to help your team act proactively on tasks needing immediate attention.
Cash flow management is one of the key areas that benefit from AI and ML-powered capabilities of automated accounts receivable software, with better predictability about which customers will be paying on time and which accounts will likely miss their payments. If the accounts receivable management software can alert the collection team about the probability of overdue payments, they can proactively reach out to customers to mitigate the risk of payment defaults. A study by Forbes found that around 75% of companies reported having less than two months of operating cash at their disposal.
Key Challenges in AR (Accounts Receivable) Process
An efficient and useful ar management software must address the following challenges in OTC/AR processes to achieve desired cash flow and profitability results.
Credit Management
The starting point in the AR process is credit check, though that is part of a broader OTC process. Having a few customers with bad creditworthiness or poor track record can disrupt the entire AR management and cash flow of a company. A well-designed credit management and customer onboarding process reduces receivable collection risks significantly. With various data points available in the public domain, account receivable management software leverages data and analytics to drive credit authorization.
AR Collections
The collections process includes prioritizing receivables to collect payment and developing strategies to proactively identify pre-delinquency and likelihood of non-payment. This poses key challenges for businesses, including:
- The need for real-time customer data to better understand their financial position and ability to pay on time.
- Distinguishing between customers who may miss short-term payments but remain financially healthy, and those at long-term financial risk.
- Manually handling tasks like invoicing, collection, credit management, tracking customer vulnerability, and navigating new data protection mandates.
Cash Application
Manual cash application in AR management consumes significant time and complicates collection follow-ups, creating a poor experience for both the AR team and customers. Multiple payment methods—both traditional and technology-driven—exist, depending on the business model. The process gets more cumbersome with deductions involved.
Enterprises with large customer bases and high invoice volumes can manage cash application efficiently only with receivables management software that offers automation. This automation goes beyond RPA transactions, utilizing AI, NLP, and ML technologies that read payment data from various document formats and reconcile them with bank statements.
Such accounts receivable collection software replaces traditional payment methods like lockbox services with OCR functionality to extract data accurately from checks. Different payment methods require customized matching rules, including PO/Sales Order/Item Level/Invoice matching, handling deductions, auto-linking bank statement lines with remittance amounts, and resolving short payments due to discounts, chargebacks, shortages, deliveries, or bank fees.
How Does an Efficient AI-powered Accounts Receivable/AR Automation Software Benefit Businesses?
Businesses need quick order-to-cash conversion supported by an efficient accounts receivable accounting software. Smooth and swift processing of incoming payments is critical for collection agility. Adoption of artificial intelligence (AI) along with Natural Language Processing (NLP) enables processing of natural language text inputs to complete directions or take actions.
Cash flow and working capital improve significantly from reduced days sales outstanding (DSO) achieved by best accounts receivable automation software. Case studies show that AI-powered ar automation software can shorten your DSO by up to 25%. Automated AR software increases efficiency in invoicing, collection, payment matching, and cash application, building a solid foundation for the financial supply chain.
Cost-savings stem mainly from three areas: reducing AR staff manual workload, resolving disputes and deductions quickly, and preventing receivables from becoming bad debts. It’s estimated that accounts receivable solutions can improve the bottom line by saving operational costs up to 50%.
Time savings come from automating repetitive and time-consuming tasks. This enables your team to avoid monotonous work and spend more time building strategic customer relationships and solving critical problems.
An AI-powered accounts receivable (AR) automation tool brings more gains to your business, including:
- Increased Visibility – provides end-to-end visibility and insights into your entire AR and collection process.
- Customer Profiling – analyzes payment trends to predict customer behavior, categorizing them into critical, delinquent, or long-tail customers at risk.
- Minimize Error and Increase Accuracy – generates error-free invoices, ensuring timely and accurate billing for faster payments.
- Enhanced Customer Experience – improves customer satisfaction and retention with accurate billing and timely communication.
- Compliance – ensures your **accounts receivable program** adheres to standards like GDPR and SOC2, avoiding legal issues.
The Bottom Line
Adopting account receivable software is critical for the financial health of your business by improving cash flow and enhancing profitability. However, automation must align with your business model and workflows to fit effectively. The automated solutions provided by Emagia have helped enterprises, including industry leaders, automate their OTC processes including AR functions like credit management, collection, and cash application to achieve tangible results. Our next-generation intelligent Enterprise Receivables Management System (ERMS) combines the “3A trifecta” of Automation, Analytics, and AI to drive efficiency across the Order-to-Cash (O2C) process.
Next Steps:
- Click here to start your free trial
- Click here to download the Hackett Group’s best practices in transforming accounts receivable automation
- Click here to download Emagia’s AI-powered accounts receivable automation software datasheet
