TL;DR — An AR automation platform can bring you multiple benefits leading to savings of several thousand dollars a year, both directly and indirectly. In this blog post, we uncover why you should consider automating your AR process, if you haven’t already.
What is the #1 pain point most Accounts Receivable teams have across the globe?
We had conversations with AR and finance teams back in 2021 and this is what popped up repeatedly—overdue invoices and missed payments are two of their biggest challenges.
The inability to accurately predict cash inflow, and the failure to implement an effective cash collection strategy are known yet unresolved problems for collections teams.
According to a Forbes article, up to 75% of companies have less than two months of operating cash at their disposal. Combine that with the estimate that small businesses have nearly $ 825 million in unpaid bills, and it's no surprise that many of the affected businesses are closing down permanently.
While most companies have a standardized AR process in place, every stakeholder has their own source of truth. Because customer data is spread across teams and tools, visualizing data becomes incredibly hard.
As a result, AR teams struggle to identify bottlenecks that are holding up payments and fail to follow up with customers at the right time.
That’s where accounts receivable automation comes into the picture.
In this blog, you’ll learn what AR is, and how accounts receivable automation tool can cut down repetitive tasks, and save you time and money with smart predictions.
What is Accounts Receivable Automation?
Accounts receivable, simply put, is the amount of money you collect from customers who have subscribed to your services or purchased a product.
Whereas, accounts receivable automation, as the name indicates, refers to the process of automating repetitive tasks in the invoicing and payments collection process so you get paid on time.
How do you do that? No prizes for guessing—by using AR automation software.
An efficient account receivable automation software can give you real-time visibility into your collection data. It can integrate invoicing and CRM tools, and create a consolidated view of your AR data and collection funnel.
An AR automation tool can also show you bottlenecks in your process based on current and historical data so your team knows what needs their attention immediately.
Here’s an example of how Growfin flags invoices so that sales and collections teams can take appropriate action and collect dues.
An AR automation tool can also help in bringing a better degree of predictability to your cash flow. So you know which accounts are going to pay on time and which accounts are expected to delay their payments. AI and ML-powered capabilities in an automation tool are key for bringing better predictability to your forecasting.
In Growfin, for example, we assign a health score to individual customers that helps companies strategize their debt collections better and predict cash inflow more accurately. Better the score, higher is the probability of the customer paying on time. If the AR team notes that the payment is bound to be delayed, they can pre-empt and initiate reach outs much in advance to secure cues from customers for on-time payments.
How Does the AR Automation Process Work?
How an AR automation process operates depends on the tool you’re using.
The first step starts with choosing the right software for your solution followed by setting up an account, connecting your book-keeping and billing tools to feed data, defining a collection strategy, and finally automating your follow-ups.
Let’s run these through a fine-tooth comb.
1. Choosing the Right AR Automation Software
Choosing the right AR automation tool can help you make your process at least 2x more efficient. A bad tool that isn't built for handling your workflows, on the other hand, can bring down your efficiency by several notches.
Before you commit to partnering with a company, make sure you understand the features and know that it offers the exact benefits you're looking for. Most importantly, make sure that the software has the capabilities to mimic your current and ideal collection workflows.
While pricing is one of the deciding factors, efficiency, trustworthiness, security, transparency, connectivity to other platforms, and ease of use are some of the other important parameters to look for in your AR automation tool.
A simple thumb rule to remember here is that every software has been built to be the best of breed in certain functionalities. Identify what those are and you are on your way to understanding if the tool is a good fit for your enterprise.
Allow me to explain Growfin’s AR automation platform. The tool solves for two parameters—collection efficiency and cash flow predictability. To help enterprises achieve a higher collection efficiency, Growfin offers companies the flexibility of setting up the different stages in their debt collection process, and offers dynamic, role-based solutions to various stakeholders. The predictability aspect is supported by AI/ML-powered features like Expected Payment Date and Health Score. That takes away a big chunk of the burden from the accounts receivable teams; they can collect dues on time and predict cash flows more efficiently.
A good AR automation tool will help you to:
- Define collection strategies and help you prioritize the customer accounts to collect from.
- Integrate seamlessly with other platforms like accounting, invoicing, and subscription billing software, and track collections status in real-time.
- Identify high-risk profiles.
- Track and resolve disputes, easily.
- Automate follow-ups and manual reporting.
- Track customer follow-ups and responses.
- Collaborate with every stakeholder involved in collections, without much of a hassle.
2. Defining and Automating Your Collection Strategy
Once you’ve decided which tool you’re going to use, it’s time to define the scope of your automation workflows. The first step is understanding what are the different aspects of the collection process you want to automate. The how-to comes next.
An A/R automation tool works closely with your invoicing and accounting software. Find a way to get the necessary customers and invoicing data into your collections software. Usually, integrations should happen as part of your onboarding and be hassle-free.
Next, divide your customers into segments based on different parameters like dollar value, industries, payment patterns, etc. It’s important that you spend time in this step because your follow-ups are not going to be effective otherwise.
Once these segments are defined, this is where you begin to set up the automation.
Set up as many collections strategies as you need to cover all your customer segments. Within each of these strategies, you should be able to define a dedicated, unique cadence meant for the segment you’re targeting.
Every automation tool almost works in the same manner. But there might be tiny differentiating factors that can work to your advantage if you look closer. In Growfin, for example, automation is not merely about removing grunt work. It’s also about personalization and collaboration.
When you define a cadence to send out automated collection follow-ups, you can personalize the mail templates to include placeholders for first names, contact details, invoice details, overdue amounts, etc, which would be replaced as the emails go out according to the customer, automatically.
While personalization at scale is good, it gets even better with collaboration at scale. AR teams can add a placeholder in the cadence to assign tasks looping in stakeholders from finance and customer success. So the sequence assigns tasks to stakeholders for every customer, depending on how far the cadence has been executed.
Look out for game-changing features that can help you put your collection process on an auto-pilot, without actually seeming so to the customer.
3. Inviting Team Members and Assigning Roles
Bring your team from multiple departments like finance or sales onboard and educate them about the collection process. Also, share the communication strategies you’re planning to use. Now align the stakeholders based on their roles so they can streamline the process, and are aware of who needs to take care of what and when.
But the real leverage for you is having collaboration features built into your AR tool. This can negate the need for multiple sheets and workflows, and have all your stakeholders access AR data, act on them, and report from a single source of truth.
4. Tracking AR Metrics on your dashboards
A good AR automation platform should have built-in dashboards to track AR metrics.
Having a dynamic AR Ageing Dashboard where you can not only look at your receivables aging as of today but also as of a historical date without much of a hassle, is going to help your AR team immensely.
Look for a central dashboard that would showcase all the high-level AR metrics like total balance to be collected, total outstanding, DSO, overdue amount and invoices, the top debtors, etc.
In Growfin, we understand that depending on the role, the metrics you look for might also vary. So we provide two independent dashboards, one for the collector and one for the leadership.
Using accounts receivable automation software can help you track the right metrics in real-time so you get the whole summary and set the right expectations for cash inflow.
7 Benefits of Using AR Automation
There are two primary ways in which an AR automation software can help you:
- Working capital savings
- Productivity savings
The biggest benefit is the working capital you realize due to a shortened DSO. An AR automation tool like Growfin should be able to bring down your DSO by anywhere between 10 to 50 percent. For each additional day that you have gained as compared to your earlier DSO, your collection platform should be able to help you collect more. As a result, you would have collected a lot more than what you would have originally had, due to a faster cash inflow. For an outstanding of USD 3 million, that’s approximately USD 900,000 and working capital savings of more than USD 140,000.
For productivity savings, if you assume the average salary paid out to a collector as USD 60,000 with an average of 3 collectors in the team, your resource costs add up to USD 180,000 a year. With an AR automation solution in place, you are easily looking at saving anywhere between 20 to 60 percent of this cost. That’s about USD 72,000 a year.
Apart from these direct benefits, AR automation software also offers several other indirect benefits.
1. Customer Profiling based on Payment Behavior
Identifying customer payment trends to predict their future behavior can be difficult. This is especially true when you have a large customer base.
You need to set the right expectations from your customers by identifying their payment behavior and reaching out to them in advance if they look like they are going to delay payments.
Growfin applies smart prediction based on past payment behavior and helps teams understand which accounts to prioritize.
Using this information, you can profile your customers into:
Critical Customers
New customers with due invoices are categorized as critical customers. This segregation allows you to build an effective collection and communication strategy, such as sending gentle reminders and setting the required number of follow-ups.
High-Risk Customers
Unpaid high-value invoices or large enterprises can be categorized as high-risk customers. You can assign dedicated account managers and CSMs to contact these high-risk customers and ensure a smooth flow of incoming revenue.
Delinquent Customers
Almost every subscription-based company has delinquent customers who would neither pay nor respond to follow-up messages. By identifying these accounts, your team can take appropriate action and automate tasks such as sending follow-up emails and warnings.
Here’s a simple chart that shows recommended actions and follow-up stages based on customer behavior.
Long-Tail Customers
We can categorize low-value invoices or customers who might even show trends of delayed payment as long-tail customers.
As following up with these customers can be time-consuming, you can automate tasks to take care of follow-up emails and reminders, and save time.
2. Personalize Messaging
We’ve just discussed how Growfin helps you identify customers based on risk factors. Now you can use this information to build a personalized follow-up and messaging strategy. You can also regulate when to stop automated reminders or escalate cases.
This can help you cut short payment periods, recover bad debts, and resolve disputes on time.
For example, you can send warm reminders to regular customers who pay on time and stop reminders once the dues are cleared.
Similarly, you can set up follow-up emails for high-risk customers who regularly delay, put those accounts under the scanner, and dedicated account managers to review those profiles. If they’re not paying debt, you can set the tool to escalate those cases and send them to the right department.
Personalized messaging also allows you to offer attractive incentives to bring back delinquent accounts, provide installment options to them, or even terminate service after sending repeated reminders and warnings.
3. Automate Tasks, Save Time and Money
By automating repetitive and time-consuming tasks, you’ll save your team precious hours, which they can spend more productively, building real relationships with customers.
You can reduce costs associated with payment collections by automating accounts receivables.
Through this, you can improve productivity, reduce monotonous work, and help your team focus on more strategic tasks.
4. Streamline Workflows and Speed up Collections
Cash inflow management is a priority for those businesses that act as vendor partners or suppliers to other companies. And many times, they struggle with check processing or collecting dues because of limited resources.
By digitizing invoices and collections using an AR automation system, businesses can receive payments faster and streamline the entire accounts receivable process.
5. Reduce Human Error and Increase Accuracy
There are internal reasons that can result in delayed or non-payments, like -
- Incorrect billing information.
- Duplicate bills and invoices.
- Wrong contact information of payers.
- Not sending the relevant documents (like a purchase order or statement of work) while sending the invoice
By using accounts receivable automation, you can have all your customer data in one place. It helps you collect and store customer information, avoid duplicate bills or wrong billing information, and get paid timely.
6. Improved Customer Experience
Increased accuracy in billing improves customer satisfaction. Businesses that send inaccurate invoices or incorrect billing information due to human error are at the risk of losing customers and jeopardizing their reputation.
By automating AR, they can nurture relationships, build trust, avoid billing mistakes, and provide a better customer experience.
7. Legal Compliance
As more countries are mandating electronic payment and invoicing, companies are forced to choose AR automation services to better serve their customers.
AR automation companies such as Growfin, care for their customers, maintain full transparency, are GDPR and SOC2 compliant, and are in a position to cater to customers in different markets in various countries.
This ensures that you or your business is never in legal trouble.
The Bottom Line
Implementing AR automation is critical for your business but more importantly, the tool needs to be a perfect fit for your workflows. As a trusted accounts receivable automation partner for some of the biggest names in the industry, we at Growfin, are committed to your growth.
Our services are aligned with your goals so that you can achieve more in less time, with very low IT involved.
Schedule a free no-obligation consultation and talk to our experts today to find out how we can streamline your revenue growth.
