Processes are tough to change, especially when they have been employed for a long time. Companies are hesitant to adapt because they want to resist change. Your organization might still be using spreadsheets and manually collecting AR (Account Receivable). If you’re still running campaigns and making payments by email, then you’re passing up a more efficient approach that might save millions for your company.

You may be thinking why you should give up something that is already in use for a long time. This is where you need to draw out your list of advantages and disadvantages. You will be able to decide whether to convert to an automated AR solution once you learn how much manual AR costs you. 

Costs of manual AR processing

The costs of manual AR processing can be divided into five groups-

Interest cost- You must pay a tiny amount of interest throughout the life of the debt when borrowing funds from outside sources for working capital needs.

Bad debts- When your creditors fail to make payments despite repeated warnings, you write them off as bad debts. Bad debts are expenses that a company has to pay.

Administrative costs- Manual AR processing necessitates a significant amount of human engagement. Employees devote time to updating records, calling customers, emailing invoices, and maintaining spreadsheets that could be automated. Administrative expenditures are accounted for by paying personnel for such tedious duties.

Opportunity costs- These are costs incurred when a company is unable to capitalize on prospects due to a lack of cash. These could include corporate expansion, the development of a new product, wage increases, and much more.

Other costs- These costs are associated with manual processing of your account receivables. This includes the inability to provide discounts, levying late fees, performing bookkeeping processes, and so on.

Read more: Automation And Artificial Intelligence In Accounts Receivable Management – Role And Impact

How automated AR tools can help you reduce expenses

Solving scalability issues as the business grows

As your business grows, you begin to provide more credit-based services. This results in more bills and more staff involved in their processing. Administrative, bookkeeping and staffing costs keep on increasing when you handle more invoices and collect more money by the due date.

An AR solution allows you to link with your ERP to access data needed for automation. This decreases collection costs because your collections crew does not need to be scaled linearly as your business and invoices increase. It also saves time by removing the need for manual data entry.

AR tools eliminate human errors

Humans can make mistakes, but it is your obligation as an AR manager to prevent it. The routine task of collecting money frequently impairs judgment, resulting in inaccurate forecasting, Customer and payment bucket prioritization fails. As a result, there is an excess of unpaid payments. Such manual AR errors have a negative influence on your collections. An AR automation tool can help make better predictions based on the payment behavior of diverse clients.

Prevention from slow collections and increase in bad debts

Bad debts are a major cost for any company. Every credit transaction involves the risk of non-payment. Installing a proactive credit management system can assist in the elimination or reduction of bad debts. AR automation can help you enhance productivity and speed up payments. Manual entries and follow-ups take time, and there’s always the chance of missing a deadline, which means your receivables will now necessitate more effort to collect. As a result, they are finally written off as bad debts.

Better customer service

Traditional AR processing requires a large amount of data storage, which can hinder the quick reference process. While dealing with customer inquiries and pursuing down invoices, your collections team is missing out on real-time access to the status of paid invoices. All of this puts customer service at risk. Contracts may also be terminated as a result of this. An automated AR procedure would inform you of the status of any account with a single click. Once the instructions are specified, it will send emails as needed until payment is received.

Accurate cash flow predictions

Working capital is required to maintain the continuity of your firm. This is primarily due to receivables, which are classified as current assets. Every invoice raised for a credit sale may or may not generate revenue. Spreadsheets make predicting how much cash is expected and how much of it is available extremely impossible. In contrast, an automated tool can assist you in swiftly locating charts and infographics to forecast your cash flows.

Why do you need a competent AR automation tool?

A competent AR (Accounts Receivable) automation tool is essential for several reasons, such as

Increased efficiency: AR automation tools streamline and automate time-consuming manual tasks of the accounts receivable process. , the tool improves overall efficiency, allowing your finance team to focus on other strategic activities by automating tasks such as invoice generation, payment reminders, data entry, and so on.

Time and cost savings: Manual AR processes often require time and effort, leading to increased labor costs. An automation tool eliminates the need for manual data entry, reduces errors, and speeds up the entire AR workflow. This results in time and cost savings, enabling your team to accomplish more in less time.

Faster payments and cash flow: AR automation tools can maintain faster payment cycles. They send automated payment reminders, notifications, and online payment options to customers, reducing delays in receiving payments. This improves cash flow management and helps maintain a healthy financial position for your business.

Real-time insights and reporting: Competent AR automation tools offer advanced reporting and analytics capabilities. They provide real-time visibility into the status of invoices, outstanding payments, aging reports, and customer trends. These insights enable proactive decision-making, improved financial planning, and better customer relationship management.

Integration with accounting systems: A competent AR automation tool seamlessly integrates with your existing accounting systems, such as ERP (Enterprise Resource Planning) or CRM (Customer Relationship Management) software. This integration ensures data consistency, eliminates manual data transfers, and provides a holistic view of financial information across systems.

A competent AR automation tool streamlines processes saves time and costs, improves accuracy, accelerates cash flow, provides real-time insights, integrates with existing systems, and more. These benefits make it an essential tool for efficient and effective account receivable management.

Conclusion

In this blog, we explore the need for a competent AR automation tool by analyzing the costs of manual AR processing and the benefits provided by automation. Manual AR processes sustain various costs, including interest, bad debts, administrative expenses, opportunity costs, and other associated costs. These costs can be reduced or eliminated through the implementation of an AR automation tool.

It also highlights how an AR automation tool can help reduce expenses and solve scalability issues as businesses grow. It emphasizes the elimination of human errors in forecasting, customer prioritization, and payment tracking, leading to more accurate predictions and improved collections. Additionally, the blog discusses how automation prevents slow collections, increases bad debts, and enhances customer service by providing real-time access to payment statuses and improving communication.

The blog concludes that a competent AR automation tool is essential for improving efficiency, saving time and costs, accelerating cash flow, providing real-time insights, integrating with accounting systems, and enhancing overall account receivable management.