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Automation – Aiding Accounts receivable system performance


Chief Financial Officers are responsible for management of cash flow and working capital of a company. As a result, financial process performance comes as a top priority in companies especially those dealing with network of dealers, distributors, etc. Moreover, since Accounts receivable performance leads to faster and efficient payments, CFO’s today are turning to prioritize AR effectiveness.

In this article we would be looking at how Automation and new technological advances can be leveraged to improve AR performance.

Problems and implications:

From inefficient processes to lack of analysis, Accounts receivable systems are bringing down the company’s cash flow and profit as a whole. Following are the major problems faced by companies due to traditional AR systems.

  • Inefficient billing system: Companies that fail to incorporate a centralized billing system, often depend on their distributors to perform AR. Hence, forcing distributors and dealers to chase payments from their national account customers instead of focusing on business. Additionally, management of invoice exceptions may take weeks which would escalate DSO (Days Sales Outstanding) which is one of the key benchmarks of AR performance.

  • Manual process: According to IOFM, paper-based receivables generate more exceptions as compared to best-in-class electronic receivables. Moreover, incase of any inaccurate payments, manual re-keying of information is required for both paper-based payments and electronic payments. Hence, such manual processes exploit time and human resources.

  • Lack of analytics inclusion: In order to stay at the top of market, it is important for companies to leverage technological tools. Without such tools for purchase analysis, payment patterns and customer behavior insights, companies would have a limited strategic role for an AR system.

  • Expensive: Studies have shown that delays due to paper invoicing represent about 60% of all AR costs the company incurs in addition to paper check payments processing. Whereas, all-electronic payments cost much lower. Moreover, when short payment situation arises in a company’s invoicing system, they simply write off any disputed amount as it is cheaper than the reconciliation process. Hence there is a loss of revenue due to ineffective AR systems.

Need pay-offs:

From shrinking DSO to removal of credit default risk, Automation can be leveraged by companies to improve their AR systems. Following are the benefits of using automation in AR system.

  • Lower overhead expense: Automation allows companies to reallocate staff from manual and re-keying processes to value-added initiatives. In addition to productivity improvement, errors inherent in manual processes can be avoided. Hence, more customers who wish to connect their own AP systems with their supplier’s electronic AR systems can be accommodated.

  • Improved finance: Online payments are faster and direct. Also, automated solutions accelerate payments, help distributors and dealers receive payment in full with approved deliverables, allow discount for early payments, help avoid costs associated with chasing invoices or payment problems, paper-invoice charges, reconciliation expenses and help bring third-party financing alternatives.

  • Effective process: With automation, invoices can be delivered via secured website, cloud based solutions such that the recipient can manage the invoices with the available tools. The recipient can also drop invoices directly into an accounts payable workflow, make payment approvals online, manage disputes electronically, and track the invoices. Overall, both the buyer and seller can save money and time by avoiding a manual reconciliation process.

Also, cloud based solutions enable companies to adopt most advanced software along with relevant training and constant upgrades.

  • Analytical tools: By applying analytical tools at every stage of payment process, CFOs can manage the cash flow and understand the buying patterns in order to improve financial forecasting. Also by electronically tracking the payment, companies can check the status of altered payments, why they were altered and how they were approved.

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