Managing Receivables: 4 ways automation makes it 100X easier

Managing receivables is one of the most important yet tedious tasks in business. Ensuring that payments are collected efficiently is crucial for maintaining cash flow and supporting growth, but the traditional methods of handling this process can be overwhelmingly manual, often involving a maze of paperwork, constant follow-ups, and meticulous record-keeping.

Automation can turn this situation around 180 degrees, minimizing human error, speeding up transaction times, and transforming this process into a streamlined, efficient operation overall. Let’s see how can this be achieved for your business.

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Key Takeaways

• Managing receivables is vital for business growth but traditionally labor-intensive.
• Automation streamlines receivables management, reducing manual effort and errors.
• Automation enhances invoicing, collections, dispute resolution, and payment processing.
• Use automation to offer convenient payment options and efficient processing, improving client satisfaction.

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What is receivables management?

Receivables management is essentially how a business ensures it gets paid for what it sells on credit. It's a crucial part of keeping the cash flowing, which every business needs to operate effectively.

This process is more than just chasing payments. It's about maintaining positive relationships with customers, keeping accounts in order, and upholding a strong reputation with both vendors and team members. When managed well, it leads to a healthier cash flow, satisfied customers, and solid business relationships. However, poor management in this area can hinder a company's growth and negatively impact its financial health. 

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What are the steps in receivables management?

These are all the steps Accounts Receivables teams go through on a daily basis to ensure they are effectively managing the flow of incoming credit payments:

1. Receiving Orders: This starts with a purchase order from the customer, leading to a sales order that details what's being sold, including price, quantity, and other sales terms.
2. Credit Approval: Before proceeding, it's crucial to assess the customer's creditworthiness. This step determines if the customer is eligible for credit or if alternative payment arrangements are needed.
3. Invoice Issuance: An invoice is then sent to the customer, outlining the payment amount, due date, and any other relevant details like late payment fees or discounts. Delivery methods vary from email to regular mail.
4. Collections Management: This involves following up on overdue payments. The process includes internal checks (like verifying invoice accuracy) and then reaching out to the customer at various intervals, depending on how overdue the payment is.
5. Addressing Disputes: Sometimes, payments are delayed due to disputes over the invoice details or issues with the product/service. In such cases, partial payments may be made, and the dispute needs to be resolved.
6. Writing Off Uncollectible Debt: If all efforts to collect fail, the debt may be deemed uncollectible, depending on the company's policies and industry standards.
7. Processing Payments: Once payments are received, they're processed using various methods like ACH, wire transfers, or checks. This step includes recording the transaction and updating financial records.
8. Handling Reporting: Finally, all transactions are reviewed, and financial statements are prepared. Regular review of the accounts receivable status helps in evaluating the effectiveness of the process and achieving key performance indicators.

As you can see, it is a lot of work. Most companies lose tens of hours per week in the repetitive process of managing receivables by hand. Hours that could be better used in other areas of the business, such as developing new products, enhancing customer service, or strategizing for growth. Let’s take a look at how automation can level up your AR team today.

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4 ways automation makes managing receivables easier

Here are four key functionalities the right AR Automation Software can handle for receivable management process requiring little-to-none human intervention:

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1. Invoicing

Usually, staff members draft each invoice based on customer orders or service delivery records. They need to cross-check details like pricing, quantities, and terms, often switching between different documents or systems. Once created, these invoices are sent out individually, either via email or physical mail, and then manually tracked for payment. Imagine doing that for every purchase on credit your business has. It is unscalable.

Automation in invoicing involves systems that automatically generate invoices from order or service data, ensuring accuracy and consistency. These systems can also schedule and send invoices electronically, track their status, and -what we are going to see in the next point- send reminders for due payments, significantly reducing the administrative burden.

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2. Collections

Without automation, this process requires staff to manually prioritize accounts, draft individual reminders, and often engage in follow-up communications, which can be time-consuming and inconsistent.

The right automated system will let you create comprehensive communication sequences in minutes, using dynamic message templates that are automatically personalized for each client, which are then sent through their preferred channel, and at the best possible time to collect a payment. Yeah, you heard right. Thanks to AI, automated AR systems are able to analyze client behavior and estimate when is the best time to send payment notices and reminders to have the highest conversion rate possible.

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3. Disputes

Manually handling disputes typically involves sifting through transaction records, communication logs, and invoice details to understand the nature of the dispute. This process is often slow, requiring extensive back-and-forth communication with the customer to gather information and resolve the issue.

Automation tools can quickly flag discrepancies or disputed transactions, pulling together all relevant data for review. They facilitate faster communication with customers through integrated messaging systems and provide a clear audit trail, leading to quicker and more efficient dispute resolution.

4. Payments

In a manual setting, handling payments involves multiple challenges for both the business and its clients. Clients often face limited, inconvenient payment options and rigid payment plans, which can create friction and delay payments. On the business side, staff must manually process diverse payment methods like checks, bank transfers, and card payments, and then they need to reconcile each payment with its corresponding invoice, a task that's prone to errors and inefficiencies, especially with high transaction volumes.

Thanks to its digital nature, automation can easily streamline this process for both parties. This process introduces several advanced features that significantly enhance both efficiency and client satisfaction:

• Custom Payment Links: Automated systems can generate and send secure payment links directly to clients. These links simplify the payment process, allowing clients to pay instantly with a few clicks.
• Mobile Payments: With the rise of mobile technology, offering mobile payment options caters to the growing preference for on-the-go transactions. This can accelerate payment times and improve the overall client experience.
• Self-Service Payment Portal: A self-service portal empowers clients to manage their payments independently. They can set up personalized payment plans, choose their preferred payment methods, and activate automated recurring payments, giving them control and flexibility.
• Auto-Reconciliation: Automated reconciliation features ensure that all payments are accurately recorded and reconciled in the financial records. This streamlines the end-of-period accounting processes, providing accurate financial insights and improving the overall financial management of the business.

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Next Steps

Now that you are aware of how managing receivables can be 100X easier with automation, it’s time to find the right software solution to help you achieve it. Check out our top pick of AR automation tools here.

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Managing Receivables FAQs

Who handles receivables?

The responsibility of managing accounts receivable typically falls to a specialized department within a company, often referred to as the accounts receivable department. This department is usually led by a manager or supervisor who specializes in accounts receivable, ensuring efficient and accurate handling of this crucial financial function.

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What is the role of a receivables manager?

An accounts receivable manager plays a pivotal role in a company's financial health. They are in charge of overseeing the entire process of collecting payments from customers. Their duties extend beyond managing invoices and handling missed payments; they also supervise the accounts receivable team, conduct credit checks, negotiate with clients regarding non-payments, prepare financial forecasts, maintain accurate records of invoices, bills, and deposits, and ensure that invoicing and collection procedures are both efficient and legally compliant.

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What are the 4 functions of accounts receivable?

The four core functions of accounts receivable encompass: establishing and managing credit terms and limits for customers, continuously monitoring and assessing the creditworthiness of customers, issuing invoices to customers for goods or services provided, and actively pursuing the collection of overdue accounts to ensure timely payments.

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What is the AR cycle?

The AR cycle, or accounts receivable cycle, is a comprehensive process that involves managing a company's accounts receivable from start to finish. This cycle includes several key stages: setting and managing credit terms and limits for customers, monitoring their creditworthiness, issuing invoices, following up on late payments, and diligently collecting overdue accounts to maintain a healthy cash flow.

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Is a receivable a debit or credit?

In accounting terms, a receivable is classified as an asset account. Therefore, it is recorded as a debit in the company's accounting records. This reflects the expectation of receiving payment, which is an asset to the company.