The InvoiceSherpa Blog

Accounts Receivable Automation Best Practices

Tired of chasing down payments, or wasting internal resources with manual accounting practices? It’s time you learned how to automate accounts receivable, letting software do the heavy lifting so you can focus your attention where it’s better spent.

Automating your accounts receivable (AR) process will not only help you get paid faster and save you money, but it also helps eliminate human errors and improve financial clarity. 

We’ll cover the accounts receivable automation best practices here in this quick guide so you can start reaping the accounts receivable automation benefits ASAP. Step one - get set up with the best accounts receivable automation software available here at InvoiceSherpa!

Our solution accelerates your cash flow cycle while reducing human resources. You can automate everything from invoice generation to the overdue payment follow-up email. It syncs with your accounting software for rapid reconciliation, too. Try it free today!

What is AR Automation?

First things first - what is AR automation software? This is the process of using technology to streamline and optimize the management of incoming payments and invoicing processes. 

It typically covers everything from the initial billing to the final payment, integrating electronic billing, payment processing, and real-time reporting functionalities into one cohesive system.

AR automation minimizes manual tasks such as data entry, invoice tracking, and follow-ups on late payments. You can automatically generate invoices, send them to clients, track payment statuses, and even send reminders for overdue accounts without lifting a finger

The core benefit of this type of billing automation system lies in its ability to improve cash flow management. Why is cash flow management important, you ask? Simple - it’s how you pay your bills and fund future growth. 

With faster invoicing and payments, businesses can see a significant improvement in their cash availability, allowing for better financial planning and resource allocation. After all, a poor invoicing process is how cash flow problems usually start.

That’s not all though. The detailed analytics in AR systems offer deep insights into payment trends, customer behavior, and potential financial bottlenecks, empowering you to make informed decisions to enhance overall financial health.

From a cost perspective, leveraging technology is far more affordable than accounts receivable management services. While accounts receivable outsourcing is certainly a viable option, it can eat into profits for small and mid-sized companies - and there’s still the risk of human error. Plus, you lose control over your financial reporting through outsourcing.

All things considered, the best automated invoice processing software is well worth the investment. So - let’s get into the accounts receivable automation best practices so you can hit the ground running. 

Accounts Receivable Automation Best Practices

From setting your goals to choosing the right software, navigating the transition, and optimizing your processes after the fact - there’s a lot that goes into AR automation. 

However, the initial legwork is a small price to pay for the immediate and long-term benefits! Here’s what you need to know to harness the power of technology and streamline your accounts receivable.

Determine What You Hope to Get Out of AR Automation

Start by defining clear objectives for what you want to achieve. Are you looking to improve cash flow, reduce the days sales outstanding (DSO), or decrease administrative costs? 

Setting specific goals will help guide your decision-making process throughout the implementation and ensure that the automation provides the expected benefits.

Include Key Parties Throughout the Process

Collaboration across various departments within your organization is essential. 

Include representatives from finance, IT, and customer service to ensure that the system meets the needs of all stakeholders. Their insights will help identify integration requirements, potential bottlenecks, and training needs.

Understand What You Need in a Software

After laying out your goals and discussing the needs key stakeholders throughout the business have, you’ll be in a much better place to understand what you need in a software. 

List the features that are essential, such as integration capabilities with your existing ERP system, real-time analytics, or specific compliance standards. 

Maybe you want to be able to set up recurring payments so that you don’t have to bug clients on a monthly basis. Or, perhaps you want automatic accounts receivable reconciliation.

This is also a good time to think about your needs down the road. Consider the scalability of the software to accommodate future growth and changes in technology.

A conversation on a budget is probably a good idea here, too. Think about the money you’ll save on manual management of the AR process as you justify the investment in technology. Don’t stress too much about this - InvoiceSherpa is like hiring a full-time AR employee for just $49/month!

Take Your Time Transitioning

We know you’re excited to start reaping all the benefits AR automation has to offer. But one of the most important accounts receivable automation best practices we have to share with you today is to take your time in navigating the transition.

Plan for a phased rollout where you can test the software with a small group of clients before going company-wide. This allows you to manage risks more effectively and make adjustments based on initial feedback.

Document Key Performance Indicators (KPIs)

This goes back to laying out your goals in automating the accounts receivable process. You should have a list of KPIs you want to track - be it past due deliverables, days sales outstanding, bad debt reserves, or even something as simple as time spent managing the process.

Jot down metrics before you make the transition and regularly review them throughout the transition period to make sure you’re progressing in the right direction.

Talk With Active Clients and Customers About the Crossover

Engage with your clients and inform them about the changes in how they will receive and pay invoices. Be ready to meet objections with benefits. 

For example, some clients may not be thrilled about having to set up an account to handle payments going forward - but tell them that this will make their life way easier since they can pay with the click of a button from here on out!

Provide reassurances that the new system will enhance the security and efficiency of transactions, which in turn benefits them through more reliable and transparent billing practices.

Put Your Automation Workflows in Place

Actually establishing efficient automation workflows is where you’ll reap the benefits of AR automation. This is the fun part, so explore all the capabilities of your chosen solution and make the most of them.

Define clear steps for each part of the accounts receivable process, from invoice generation to payment collection and follow-up. Automation should facilitate these processes without manual intervention, but with options for oversight and manual overrides when necessary.

Customize Your Dashboard

Customizing your dashboard to display key financial metrics and real-time data can support better decision-making. 

You can highlight information such as outstanding invoices, average days to payment, and current cash flow status. You’ll always have access to the most relevant and actionable insights.

Keep Track of Invoices to Catch Issues Early

While automation can all but entirely remove you from the invoicing process, you should still keep your pulse on the process, especially early on. This allows you to identify and address discrepancies or delays early in the process. 

Encourage Early Payments

Now that your clients are able to pay from their own dashboard any time an invoice is generated, put protocols in place that encourage early payments. 

This could be as simple as a discount, or if you don’t want to cut into profit margins, consider applying late fees automatically. We have resources on the maximum invoice late fees by state and tips on fine-tuning your invoice late fee wording.

These tactics improve your cash flow and reduce the burden on your collections team. Make sure incentives are clearly communicated and easy for clients to understand and act upon.

Gather Feedback From Your Team and Customers

Even if you feel as if the system is thriving, there is always room for improvement. 

Regularly check in with both your team and your clients about their experiences with the system. Understanding their challenges and suggestions can provide insights that drive enhancements and increase user satisfaction.

Better yet, set a regular review schedule to assess the performance of your AR automation system against the KPIs you’ve established. This review should look at what’s working well and what could be improved. 

Use these insights to refine your workflows, update your software settings, and make any necessary adjustments to keep your system aligned with your business objectives.

Put These AR Best Practices to Use Today With InvoiceSherpa!

Now that you know all the accounts receivable automation best practices, get started today with InvoiceSherpa! Our comprehensive solution for streamlining accounts receivable management is the #1 choice for small and mid-sized companies alike.

You can automate every step of your invoicing process, from the initial invoice creation to the final payment receipt, ensuring you maintain a steady cash flow.

Integrate with various payment processors so your clients can make payments via credit card or ACH directly from their invoice reminders. This ensures that payments are processed instantly, reducing the day's sales outstanding and enhancing your financial efficiency.

With the customizable dashboard showing a real-time overview of your accounts receivable, you can monitor cash flow, track invoice activities, and catch issues early before they affect your bottom line.

Meanwhile, our customer portal empowers your clients to view, manage, and pay their invoices at their convenience, improving customer satisfaction while accelerating payment cycles.

It’s time to reduce the administrative burden of manual follow-ups and accounting entries. Say goodbye to late payments and feeling like you’re constantly chasing clients down with their bills. 

Getting started takes just a few clicks, and now that you understand the best practices for accounts receivable automation, what’s holding you back? It’s time to harness the power of technology today!

Bringing Our Guide on Accounts Receivable Automation Best Practices to a Close

That concludes our guide to the accounts receivable automation best practices. Hopefully, you have a better understanding of how you can reap the benefits of this technology yourself going forward. It’s a powerful improvement in your business, but you need to use it wisely.

Our blog has additional accounting tips and tricks such as how to calculate accounts receivable, dealing with unbilled receivables, issuing a demand letter for payment, uncollectible accounts receivable, forecasting accounts receivable, how to send an invoice to collections, how to bill lawn care customers, and more.

But whether you’re looking for a legal invoicing software, plumbing invoicing software, or anything in between, remember that InvoiceSherpa is the #1 accounts receivable automation software you have at your disposal.

Don’t just take our word for it - get set up today in just a few clicks and see for yourself what it can do for you! A 14-day free trial awaits.

Posted on June 5, 2024

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