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What is AR automation and how can it help your business?

Introduction: The need for AR automation

Keeping on top of invoices, especially when handling hundreds or even thousands of them manually every month, can be an overwhelming task for any business. This is where AR automation comes to the rescue.

What is AR automation?

AR automation is the process of automating the billing and receipt of payments and the reconciliation of those payments, usually through an AR automation solution. From the time you issue a billing to the time payment is collected, you are managing Accounts Receivable—or “AR”—a process that can become very cumbersome very fast, especially when you have an outstanding balance and need to collect. If you are issuing hundreds or thousands of invoices a month this can quickly become untenable.

Understanding the AR process

Typically, the AR process includes seven steps which, for many businesses, may be done manually:

  1. Creation of a billing
  2. Submission of a billing for approval (if needed)
  3. Posting the billing to your account
  4. Emailing the billing for customer payment
  5. Creating the cash receipt after customer payment 
  6. Applying the cash receipt to the billing
  7. Reconciliation of the cash receipt

And if payment is not received, a separate collections process will need to occur.

The benefits of AR automation

The process of AR automation allows you to automatically generate a billing after services have been completed, or a milestone has been reached. This could range from the start of a new retainer for services, or a completed product sale and can be set based upon triggers most relevant to your business.

The key benefits of AR automation are time savings, improved billing accuracy, and faster time to payment collection. With AR automation, once a contract is signed, for example, you can automatically generate the billing— or determine if additional steps (such as an approval process for discounts) are needed before issuing the billing.  Once approved, the bill is automatically issued and emailed to the customer so that they can pay.  Thanks to automation, the whole process requires minimal to no touchpoints for the business. 

The following benefits of AR automation will help save your business time while improving the accuracy of billings:

Payment flexibility and security in AR automation

As you send bills to customers it’s important to provide flexible payment options, such as credit cards, ACH, or check. You may also consider offering payment options, such as partial pay to further support your customers’ needs. You’ll also want to ensure your AR automation process properly accounts for processing fees associated with credit card transactions. Finally, having a secure, branded payment site will help your customers feel comfortable making online payments to your business. With a high volume of fraud today, this step should not be overlooked.

Automated reconciliation and time savings

Once payment is received, the receipt is automatically created and applied to the billing—and from there, automatically cleared on a bank reconciliation. The automated reconciliation process alone can be a massive time saver for businesses. Imagine no longer needing to check each item line by line on a bank statement to reconcile within your accounting system

Collections and AR automation

Unfortunately, collections are often an unavoidable part of the AR process. In the best-case scenario, a customer always pays on time. However, when this doesn’t occur, utilizing AR automation to create a templated approach can save your business time. 

Templated communications allow you, for example, to automatically notify customers 30, 60, and even 90-days past due—each with a different message (perhaps getting each more stern the further the bills are past due). You may also have a separate set of emails for your preferred customers that should receive more of a white glove approach, such as a more personal outreach versus a standard message.

Conclusion: The impact of AR automation

Automating AR tasks can be a substantial time-saver for businesses. Taking a series of manual steps and turning them into a repeatable, efficient process can shave hours off of daily tasks, substantially freeing up resources and reducing costs while improving billing accuracy and time-to-payment. 

Boost efficiency with Accounting Seed. Learn how our AR automation software can help streamline financial processes, simplify billing, and accelerate payments.

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