Accounts receivable automation – the basics: What it is and the problems it solves for businesses

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  1. Introduction
  2. What is accounts receivable?
  3. What is accounts receivable automation?
  4. How does accounts receivable automation work?
  5. How accounts receivable automation helps businesses
  6. How Stripe Invoicing enables accounts receivable automation

Accounts receivable (AR) is a fundamental component of a business's financial operations. However, it has historically been inefficient, prone to human error and capable of draining resources. As more tech-powered solutions for these issues emerge, automating accounts receivable has gone from a beneficial feature to an operational necessity for businesses. Automation in accounts receivable can transform a cumbersome, time-consuming process into a streamlined and more accurate operation: 87% of businesses with accounts receivable automation report improvements in overall process speed, while 75% report that automation helps them to provide better customer experiences, according to the B2B Payments Innovation Readiness Playbook.

Understanding accounts receivable automation and its benefits has become a key issue for businesses that want to modernise their operations. Below, we'll examine what accounts receivable automation is, how it works, what benefits it holds for businesses and how Stripe Invoicing empowers this shift.

What's in this article?

  • What is accounts receivable?
  • What is accounts receivable automation?
  • How does accounts receivable automation work?
  • How accounts receivable automation helps businesses
  • How Stripe Invoicing enables accounts receivable automation

What is accounts receivable?

Accounts receivable refers to a business's outstanding invoices or the money that customers owe the business. This financial term, represented by a line item on a business's balance sheet, indicates the total amount due from customers for products delivered or services rendered but not yet paid for. When a business provides a product or service and allows the customer to pay later, the amount that the customer owes is recorded as accounts receivable.

What is accounts receivable automation?

Accounts receivable automation refers to using technology to automate a variety of tasks and processes involved in managing the money owed to a business by its customers. This encompasses a range of activities, such as generating invoices, sending payment reminders, reconciling incoming payments and producing financial reports related to receivables. These solutions, which use machine-learning algorithms, cloud computing and data analytics, simplify processes while introducing a level of adaptability and scalability that has previously been difficult – or impossible – to achieve.

How does accounts receivable automation work?

Accounts receivable automation uses technology to manage, track and facilitate the activities associated with this important business area. The different components of accounts receivable automation include:

  • Invoice generation and distribution: Automated software can create invoices using data from other business systems, such as order management or customer relationship management (CRM) platforms. Once the invoice has been generated, the system can send it directly to the customer via email or another electronic method, eliminating the need for printing and posting.

  • Payment tracking and reconciliation: As payments come in, an automated system can match them against the appropriate invoices. This eliminates the manual work required to enter payment data and ensures that the accounts receivable ledger is up to date. Many systems can be integrated with banks to download transaction details, making reconciliation even easier.

  • Payment reminders: Businesses can set up automated reminders to notify customers about upcoming due dates or overdue invoices. Businesses can schedule these customisable reminders at appropriate intervals – for example, 7, 15 or 30 days after the invoice date.

  • Reporting and analytics: Automation software usually comes with built-in reporting tools. These tools can generate a variety of reports that help businesses to monitor the status of their receivables, such as ageing reports that show how long invoices have been outstanding for. This type of real-time analytics can offer businesses important insights into customer payment behaviour.

  • Credit management: Some advanced systems can assess the creditworthiness of customers by integrating with credit rating agencies or using machine-learning algorithms. This helps businesses to manage risk when providing credit terms to new or existing customers.

  • Compliance and recordkeeping: Automated systems can assist with maintaining records in compliance with industry regulations and accounting standards. This is particularly useful for businesses that need to adhere to stringent reporting requirements.

  • Integration: Most AR automation solutions are designed to be integrated with other software applications, such as accounting systems. This ensures data consistency across multiple functions within the business.

How accounts receivable automation helps businesses

Accounts receivable automation can offer businesses transformative benefits, including cost savings and improved customer relationships. Here are some of the benefits:

  • Speeds up the invoicing process: Imagine a wholesale business that typically deals with hundreds of transactions each day. Generating invoices manually for each transaction would be time-consuming and prone to errors. An automated system can pull data quickly from the sales database and generate accurate invoices instantaneously. This expedited invoicing process leads to faster payments, in turn improving the business's liquidity. According to the B2B Payments Innovation Readiness Playbook, businesses that handle more than 20,000 invoices per month and use high levels of automated tools receive payment in 55 days on average, compared with businesses that have little or no automation, which receive payment in an average of 78 days.

  • Reduces errors and increases accuracy: If a software-as-a-service (SaaS) business bills its clients based on usage metrics in a manual setup, the billing team would have to extract these metrics from the service logs. This process can be time-consuming and leaves room for human error. Accounts receivable automation software can be integrated with the service logs, pulling the exact metrics needed for billing automatically, thereby boosting accuracy.

  • Automates follow-ups and payment reminders: A construction firm may have a mix of short-term and long-term projects, each with different billing milestones. Remembering to send reminders for each milestone could be an administrative burden for employees. An automated system can be programmed to send payment reminders at predetermined intervals, such as a week before the payment due date or immediately after a milestone has been reached, thereby taking the burden off the accounting team.

  • Improves cash management through real-time analytics: Many subscription-based online platforms would benefit from a better understanding of their customers' payment behaviours. Automated systems can produce real-time analytics which can reveal certain trends, such as the percentage of late payments, the frequency of disputes and general payment timelines. Armed with this data, decision-makers can put together well-thought-out financial strategies.

  • Enhances customer relationship management: Imagine a publishing house with individual and corporate subscribers. Automated billing allows for personalised invoicing, where individual customers might receive a simplified invoice, while corporate clients receive the detailed breakdowns that they need for their internal accounting processes. Tailoring the invoicing process can improve the customer experience, making it more likely that customers will return.

  • Strengthens compliance and recordkeeping: For healthcare providers, adhering to regulatory standards, such as the Data Protection Act, is a major concern. Automated accounts receivable systems can ease the compliance burden by ensuring that all transactions are recorded in a format that complies with relevant regulations.

  • Allows for easy integration with other systems: A manufacturing business may have separate systems for inventory, procurement and customer management. AR automation software can be integrated with all of these systems, centralising data and simplifying cross-departmental coordination.

Accounts receivable automation brings accuracy, efficiency and key advantages to businesses across many different sectors. Whether a business is looking for faster billing, stronger compliance or more insightful analytics, automation serves as an effective solution for managing accounts receivable complexities.

How Stripe Invoicing enables accounts receivable automation

Choosing an automated accounts receivable solution is an important decision, one that requires a thoughtful analysis of your business needs and a comparison of the available options. Stripe Invoicing is a customisable solution that enables AR automation for a wide range of businesses. Here's an overview of what Stripe Invoicing offers:

  • Faster global payments: Timely payments are a cornerstone for any business and delays can disrupt operations. Stripe Invoicing is mobile-responsive, optimising access across devices. Most Stripe invoices are settled in less than three days, suggesting that users can expect quicker returns on their billings.

  • Ease of use: The thought of generating and sending out invoices can be overwhelming. Stripe makes the initiation process easy – with no need for coding, users can design, personalise and dispatch a digital or PDF invoice swiftly. This simplifies the billing process, particularly for those who aren't tech-savvy.

  • Configurable for various needs: Different businesses have different needs and Stripe provides a customisable invoicing platform to address this. Whether the payment in question is a recurring or a one-off payment, the system provides flexibility through a variety of different methods, such as card transfers. Users can also incorporate additional details, such as discounts and tax rates, making the system adaptable to diverse use cases.

  • Scalability: As a business grows, Stripe's invoicing system adapts alongside it. With application programming interfaces (APIs) designed to modify invoicing processes and features such as email reminders, businesses can adjust the platform to accommodate expanding operational needs.

  • Multilingual and multi-currency support: By supporting more than 25 languages and with the ability to handle over 135 currencies, Stripe Invoicing ensures that users are equipped to address a global market. It also adjusts payment methods based on a customer's location. This international support makes cross-border transactions much smoother.

  • Streamlined operations: Stripe's invoicing tool helps businesses to achieve operational efficiency. Users can manage invoices, view comprehensive reports and execute various tasks, such as marking invoices as paid, directly from the Dashboard. By automating several accounts receivable tasks and providing a space for customers to manage their invoices, businesses can minimise manual intervention, while also saving time and resources.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy or currency of the information in the article. You should seek the advice of a competent lawyer or accountant who is licenced to practice in your jurisdiction for advice on your particular situation.

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