There has been a significant shift in the functioning of businesses in recent years. As more and more people started working remotely, the challenges of cash flow management and working capital optimisation have become apparent.
Legacy accounting systems have also become ill-suited for managing business continuity in such a scenario. These systems could not provide accounts receivable teams visibility, transparency, and flexibility for cash management and payment collection. As a result, businesses worldwide have started adopting modernised accounts receivable (AR) processes.
Manually managing accounts receivables is not only labour-intensive but also quite time-consuming. A comprehensive AR automation software will facilitate the digital transformation of your business, so it is crucial to choose wisely.
In the following sections, we will look into the challenges of completing AR processes manually. We will also provide a step-by-step guide for narrowing down the best AR automation software for your business.
- Challenges of Manual AR Collections
- Step-by-step guide on choosing an AR automation software
- Unlock better Accounts Receivables collections
Challenges of Manual AR Collections
Most businesses have an Accounts Receivables policy in place, which lays down the ground rules for payment collections and the process of billing. However, in executing this AR policy, most businesses make mistakes. Small mistakes can lead to overdue invoices, resulting in cash flow bottlenecks that drain the capital needed to grow the business, hire new employees, and buy new equipment.
Here are some of the other challenges of an inefficient manual AR collection process –
1. Cash flow management
Tracking how much money is coming in and out of your business requires analysing cash flow changes which can be time-consuming. Cash flow management involves the following:
- Tracking and posting payments
- Management of the payment information
- Applying cash
It takes considerable effort and time to send invoices and receive payments using manual processes. On top of this, if the customer does not pay on time, the wait time can put additional stress on your budget and cash flow.
Reconciling payments with a manual AR process is another challenging aspect of cash flow management. Because the payment information comes in different file formats, it must be matched manually with corresponding payments. Your team might have to spend hours synchronising data and reconciling it with outstanding accounts receivable. Even if you hire additional staff for the AR processes, a manual system will always be error-prone and sluggish.
Adopting an AR automation software is crucial if you want to see efficient reconciliation. AR automation facilitates the automatic sending of invoices on a scheduled date, so you don’t have to worry about forgetting to send invoices on time. It also includes payments automation that automatically reconciles payments and attaches them to the correct invoices.
2. Data Transparency
Another time-consuming task in the Accounts Receivable (AR) process is investigating and resolving disputes around unexpected payments. The manual management of the process makes it all the more difficult. Using an AR automation tool will help you avoid all these issues.
AR automation is always data-based, so internal teams and customers get complete transparency and visibility into the agreed and owed amounts. Thus, the automated platform will essentially work as the single source of truth on information about all open receivables. Minimising errors and avoiding data duplication contribute to the timely resolution of any form of dispute in collections.
3. Credit management
As a business, you would always want to ensure that you extend credit to customers who are diligent with their payments. However, evaluating the right people for credit extension requires visibility into their behaviours and payment history. Determining the creditworthiness of individuals can be another time-consuming task and costly if you are to hire credit agencies to do it for you.
An automated AR system helps manage credit risks. With Modern AR automation platforms, you can access business credit scores within the system without subscribing to a separate credit reporting service. This will allow you to look into the customer’s payment behaviour – are they usually a little late on a payment? Do they pay the full amount? Equipped with the necessary information, you will be able to decide which accounts need closer monitoring and which ones need more lenient handling.
4. Payment collection
Another major challenge with manual AR collections is chasing the customers for payments. The traditional methods of collecting payments require a lot of time, energy, and resources. Your AR teams would have to send payment reminders to the customers through dunning letters or by calling them.
Besides distracting your team from other high-value activities, repeated calls and emails can also sour your relationship with the customers. It is essential to work smarter using AR automation software in such a situation. Rather than hounding all your customers, AR automation software will guide you to pursue the most at-risk accounts. Modern AR automation also integrates with online payment platforms so your customers can pay you quickly through multiple digital payment options. The more you lessen the friction on how and when customers can pay you, the easier it is to receive those payments.
Related blog post: Modernizing B2B Payments For the New Normal
Step-by-step guide in choosing an AR automation software
Choosing the right AR automation software will help you overcome the challenges mentioned above. To derive a better and quicker return on investment (ROI), you should ensure that your chosen AR automation tool can meet all your unique requirements. Here are the basic steps involved in selecting the best AR automation software for your business.
Step 1: Take time to understand the pain points of your AR team
Before you start researching the various options for AR automation software, it is important to first connect with the team members who the new solution would directly impact.
The first step in choosing the right AR automation tool is to understand the main challenges faced by your team members. Understanding their requirements will help you set clear objectives about what you want from an AR automation tool. It would help if you also considered any existing tools your teams and colleagues use to ensure that you do not duplicate the effort. You will also be able to find out why the current solutions cannot meet the needs of the teams.
Here are some critical questions you can ask in this step:
- What are the major bottlenecks in the AR process?
- Are a significant number of clients turning bankrupt?
- What is the error rate in reconciliation?
- How much time is spent on invoicing?
- How are collection calls made?
- How much is your business losing because of these bottlenecks?
- What issue would the team like to resolve with the new AR solution?
- Are the current AR-related issues because of a gap in knowledge, technology, etc.?
- Who are the other internal stakeholders included in the evaluation process?
With these questions, you will identify which AR processes need to be automated most urgently to improve the system’s efficiency.
Step 2: Research for new AR automation software that aligns with your needs
Once you have identified the gaps in your AR process, you need to look for vendors providing AR automation solutions that will help you plug those gaps. Good AR automation software solutions will allow you to automate the AR workflows while also providing options for customisation.
Key features to look for in AR Automation software:
- Auto-generation of invoices and auto-delivery of invoices and reminders via emails and SMS.
- A digital payment platform for your customers that is accessible 24/7
- Option to process multiple payment methods like checks, direct debits, and credit cards.
- Facility for customers to schedule payments or pay instalments.
- Tracking the mature receivables categorised based on the number of days outstanding.
- Automatic ranking of outstanding accounts (based on amount and days overdue)
- Online credit application for efficient client onboarding
- Credit score insights to help you plan your next course of action in extending credit terms to customers.
When selecting an AR solution from the various options available, examine the following:
- Whether the AR solution aligns with your values and unique goals.
- Whether the AR solution prioritises customer experience in the process.
- Whether the AR solution provider has any previous experience in your industry or type of products.
- Does the AR solution provider understand the regulations that will impact your business?
- The strategic investment outlook of the AR solution provider for the next 3-5 years.
- Will the new AR system integrate easily with the other IT systems in the company (and those of the partners’ too)?
Step 3: Ensure your success after implementation of the new AR solution
While choosing a new AR automation solution, you also need to consider what your partnership will look like post-implementation.
AR Software post-implementation checklist:
1. Customisation options
There can be times when a one-size meets all AR solution will not work for your company, especially when the existing systems are complex. To get the maximum value from your AR process, you need to find a solution that comes with customisation options.
2. Excellent customer service
Another critical thing to look for is your software provider’s track record of excellent customer service. A provider committed to improving your experience with the software and your interactions with them is a big part of the equation to ensure your success with AR automation.
Unlock better Accounts Receivables collections with ezyCollect.
If you are looking for a smarter way to manage your B2B accounts receivables processes, ezyCollect AR Collection Software is your choice. ezyCollect’s robust system will help you get paid faster while accelerating your cash recovery rate.
Book a demo today, and let our AR automation experts walk you through solutions for your business.