Most business processes are undergoing transformation including automation and accounts receivable is no exception. Automation of accounts receivable is the process of automating various manual tasks involved AR process like invoicing, collecting, and tracking receivable to ensure timely collection. An good account receivable automation tool integrates with CRM, OTC, ERP, or similar business applications to give you real-time 360-degree view of your receivable and collection data and insights into the blockages in your process to help your team act proactively on tasks that need immediate attention.
Cash flow management is one of the key areas that benefit from AI and ML-powered capabilities of automated AR tool, with a better predictability about which customers will be paying on time and which accounts will likely be missing their payments. If the automated AR application can alert the collection team about the probability of any payments getting overdue, they can proactively reach out to such customers to try mitigating the risk of a likely 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 accounts receivable automation software must address the following challenges in OTC/AR processes, to achieve the desired cash flow and profitability results.
Credit Management
The starting point in the AR process is credit check, though that is part of broader OTC process. Having few customers with bad creditworthiness and track record or history on board can disrupt the entire AR management and cash flow of a company. A well-designed credit management and customer onboarding process take away a large chunk of receivable collection risks. These days, with various data points related to your customers available in the public domain and technologies available to collect and analyze them in the way it is required, the credit authorization process is mostly driven by data and analytics provided by AR automation tools.
AR Collections
The collections process includes prioritizing the receivable to collect payment and developing strategies to proactively identify pre-delinquency and likelihood of non-payment. This poses some key challenges for the businesses, including:
- The need for real-time customer data to better understand the financial position of the customer at any given point in time and their capability to pay on time.
- The importance for identifying the difference between customers who may miss payments in the short term, but are likely to remain financially healthy, and those who are at risk of being financially distressed in the long term.
- The challenges of manually handling tasks like invoicing , collection, credit management, to keeping track of and identifying customer vulnerability and navigating new data protection mandates.
Cash Application
This process in AR management, if done manually, can consume a lot of time of AR team and make collection follow up difficult, and create a not-so-happy experience for both the team and customers. These days, there exists a lot of payment methods – technology-driven payment methods and traditional methods – that allow businesses to choose from depending on the business model. The process can get more cumbersome if deductions are involved.
Enterprises that have large number of customers across regions and huge volume of invoices can manage cash application quickly and efficiently only with automated AR solutions. The automation we talk about here is not just automating transactions using RPA, but intelligent automation using AI, NLP, and ML technologies that can read any kind of payment data from any document formats and match them with the entries in bank statement.
Such software can replace the traditional payment methods like lockbox services – where checks are physically collected and deposited in bank account – with the use of OCR functionality to extract the data from checks accurately and use them in cash application process. Different payment methods require different matching rules, including rules to match payment on PO/Sales Order/Item Level/Invoice, deductions at detail level that need summarization or coding for investigation, auto-linking of bank statement lines with remittance amounts, short payments due to discount, chargeback’s, shortages, deliveries, and bank fees.
How Does an Efficient AI-powered Accounts Receivable/AR Automation Software Benefit Businesses?
Businesses need quick order to cash conversion that is supported by an efficient account receivable processes. Smooth and swift processing of the incoming payments become critical for achieving agility in collection process. Adoption of artificial intelligence (AI) along with Natural Language Processing (NLP), a variety of AI, helps process a natural language text input and process it to complete the given direction in text or to take an action based on the provided natural language text.
Cash flow and working capital benefit substantially from a reduced days sales outstanding (DSO) achieved with the help of AR automation tool. There are case studies that have founds that AI-powered AR automation software helps shorten your DSO up to 25 percent. Automated AR software can bring in efficiency and speed to invoicing, collection, payment matching and cash application. This helps reduce days sales outstanding (DSO) and lay a solid foundation for financial supply chain.
Cost-savings through AR automation come mainly from three sources; one from the reduction in the number of AR staff who manually performs various AR and collection, the other from savings by resolving disputes and collecting deductions easily and quickly, and as well stopping your receivables becoming bad debts. It is estimated that AR automation can help improve the bottom line by saving operational cost to the extent of 50 percent.
Time savings is another key gain from automating repetitive and time-consuming tasks. This allows you and your team to seduce monotonous work and pend time more productively, to build strategic relationships with customers and partners and solve strategically critical problems.
An AI-powered accounts receivable (ar) automation tool brings more gains to your business, including
- Increased Visibility – provides visibility and insights into the entire AR and collection process and data.
- Customer Profiling – uses the customer payment trends to predict their future behavior and profile your customers into categories like critical customers -customers with overdue invoices -, delinquent customers, long-tail customers – low-volume or low–value customers showing trends of payment defaults.
- Minimize Error and Increase Accuracy – helps you generate invoices with no or nil errors or mistakes related to customer or billing information. Being able to raise correct invoice on time helps you get paid on time.
- Enhanced Customer Experience – accurate billing, in addition to helping in collection, helps improve customer satisfaction, nurture relationships, and stop losing customers.
- Compliance – with electronic and digital invoicing and invoicing becoming the standard in many countries, companies choose AR automation services that are GDPR and SOC2 compliant, to ensure that they are never in legal trouble.
The Bottom Line
Adopting AR automation is critical for the financial health of your business by improving cash flow and enhancing profitability. However, the automation must consider the business model and work flows of the company to make sure the automation fits well. The automated solutions provided by Emagia have helped enterprises, including some of the biggest names in the industry, to automate their OTC process including AR processes like credit management, collection, cash application, to acheive tangible results. Our next-generation intelligent Enterprise Receivables Management System (ERMS) uses the “3A trifecta” of Automation, Analytics, and AI to drive efficiency across the Order-to-Cash (O2C) process.
