Top 7 strategies to reduce accounts receivables

As a fast-growing Business, collecting timely payments and maintaining a healthy cash flow is easier said than done.

Introducing Account Receivable (AR) automation ─A study by PYMNTS showed that companies automating more than 50% of their AR processes reported a 32% reduction in Days Sales Outstanding (DSO), which translates to getting paid 19 days faster. 

Incorporating AR automation into your finance strategies helps you attain good business results and keep DSO low.

Smart finance strategies make collecting payments smoother and help build better customer relationships. A recent survey showed that, on average, businesses waste an estimated 216 million hours doing promotional calls to customers who have already paid.

So the big question is — how can we use AR automation and other smart finance strategies to get payments faster, maintain a healthy state of liquidity, and improve business relationships? 

This blog post will help you understand the top 7 strategies to reduce AR. 

What is AR automation?

AR automation enables businesses to send out bills, remind people to pay, keep track of who has paid, and update records. 

Using AR automation also means fewer mistakes because the software does everything. This is important for keeping DSO as short as possible.‍

What is DSO?

Days Sales Outstanding (DSO) measures how long a business needs to collect outstanding customer payments. A high DSO indicates greater delays in collecting payments, which restricts cash flow and financial stability. Reducing DSO results in better cash flow.

Challenges with manual AR process and how AR automation helps

Traditional AR processes, which rely heavily on paper invoices, entering data manually, and sending reminders through mail or email, come with several challenges. These methods are prone to mistakes, require a lot of staff time, and can slow down payment collection. 

This inefficiency often increases DSO, restricting a company's cash flow. The issue becomes pronounced during busy times when there are many invoices to handle, making it challenging to match payments to invoices efficiently.

By adopting AR automation, businesses can create and send invoices electronically, monitor invoice statuses, and automate sending out payment reminders. This approach ensures invoices are issued quickly and gives customers more ways to pay easily, helping speed up the entire payment process.

Rule of 10 in AR automation

The "rule of 10" in AR automation concerns how the cost and effort to fix a mistake in the accounts receivable process go up the later the error is found. Here's how it works:

• Finding errors early: If you spot a mistake early on, like when you're first processing an invoice, fixing it is usually quick and inexpensive. You might need to update some information on the invoice before sending it off.
• After the invoice is sent: If you notice the mistake only after it has been sent to the customer, correcting it will become arduous and expensive. Now, you must correct the invoice and tell the customer about the mistake and the fix.
• After payment is delayed: If an error is discovered after it has caused a payment delay, things get even more complex. The cost of fixing the error now might include a late fee, higher communication effort with the customer, and a dent in the customer’s trust and happiness.
• Effects on cash flow: Mistakes that slow the AR process can affect a business's cash flow. Delays in spotting and correcting invoice errors mean payment delays, making it difficult for the business to run smoothly.

Using AR automation helps avoid these problems. It ensures invoices are correct the first time, communicates with customers promptly, and tracks payments efficiently. This helps keep cash flowing smoothly by keeping DSO low and customers happy by making billing reliable and error-free.

So, the "rule of 10" shows why accuracy and efficiency are so important at every step of the accounts receivable process. It is a big reason why it is smart to use automation proactively to prevent costly corrections and delays. 

7 strategies for AR automation

Efficiency, accuracy, and cash flow optimization drive finance teams to seek AR automation, streamlining processes and minimizing errors. Here are seven strategies for you to consider:

1. Track your KPI  

KPIs help you understand how well your AR processes are working. For example, tracking metrics like how long it takes to get paid DSO or how much cash you collect each week or month gives you important insights—observing for things like invoice mistakes or when customers spend more than they should help you fix problems early. 

Using KPIs wisely ensures your AR automation runs smoothly and keeps your finances in good shape.

2. Use incentives & discounts to speed up the cash flow

Establishing payment conditions that include incentives or discounts for early payments can serve as effective motivators.

AR software can facilitate this process by creating customer portals and providing easy access to payment information and redressal options. Implementing upfront payment discounts through such platforms can incentivize early payments and improve overall cash flow. 

3. Integrate AI-powered collections management

AI-driven collection management tools allow you to optimize AR management through predictive analytics and personalized strategies. 

For instance, with Flo AI, Spendflo's procurement co-pilot, you can streamline procurement, approval (or denial), contract renewal, and viewing upcoming contracts directly from Slack. 

These tools forecast payment likelihood by analyzing historical payment data, customer interactions, and external factors and recommend tailored collection approaches. 

Automation of routine collection tasks and focused efforts on high-priority accounts improve collections efficiency and cash flow.

4. Integrate billing systems

When considering the adoption of accounts receivable software, prioritize seamless integration with existing tech infrastructure to avoid potential disruptions and additional expenses. This involves carefully assessing potential AR automation tools to ensure compatibility with current systems. 

Seamless integration allows for automatically syncing invoices, payments, and credit notes, reducing manual effort and possible errors. You gain real-time visibility into customer subscriptions and usage by synchronizing data across billing and SaaS platforms, facilitating precise forecasting and strategic decision-making. 

When evaluating AR automation tools, consider how well they sync with your current platforms. Gradual implementation of new functionality eases the transition for AR teams, minimizing disruption to daily operations and maximizing productivity.

5. Make the payment process smart and seamless 

Offering customers a seamless payment experience is crucial for optimizing the invoice-to-cash cycle. This involves enhancing the payment process by providing flexibility and convenience through multiple payment options. 

Integrated payment gateways within billing and receivables software can facilitate this by allowing customers to pay directly from reminder emails. Additionally, utilizing negotiation services provided by platforms like Spendflo can optimize SaaS stack prices, increasing audience reach and conversion rates.

Addressing payment disputes promptly is essential to preventing collection delays and minimizing their impact on DSO. Effective dispute resolution requires monitoring and managing disputes efficiently using AR software solutions. 

These systems track, manage, and resolve disputes quickly, ensuring minimal impact on collections processes. By resolving disputes efficiently, businesses maintain positive customer relationships and avoid potential escalations that could prolong the collections cycle.

6. Strengthen customer relations

Implementing a systematic approach to communicating with customers is critical for successful collections. Automated dunning processes segment customers based on payment behaviors and engage them through personalized communication channels. 

By identifying failed payments early and providing timely reminders, businesses reduce the risk of overdue accounts and improve overall collections performance. Proactive engagement also allows companies to address customer concerns promptly, fostering trust and loyalty.

Benefits of AR automation

Automating a company's AR process brings many benefits:

Cost Savings and Efficiency

AR automation saves money by boosting productivity, reducing staff time on data entry, and minimizing uncollectible accounts due to more accurate invoicing.

Automation Elevates Processes 

Automating AR enhances productivity and accuracy. Digital templates expedite invoice generation, and online delivery accelerates invoice distribution to customers.

Error Reduction 

Manual invoicing is repetitive and error-prone. AR automation reduces errors by automatically populating customer data and product details.

Optimized Cash Flow and Insights 

AR automation maximizes cash collection speed and enhances forecasting by providing more reliable collection patterns through improved reporting, which is vital for finance strategies.

Reduced Days Sales Outstanding (DSO) 

AR automation reduces DSO by promptly sending invoices and customizing them with relevant customer information, leading to faster approvals and payments.

Strengthening Customer Relationships 

Timely and accurate AR processes build trust with customers and simplify payment procedures, reducing processing costs for customers' accounts payable teams, which aligns with finance strategies.

Consistency for Financial Alignment 

An automated AR system ensures consistency across the order-to-cash (OTC) cycle, maintaining alignment with finance strategies and providing insights for better decision-making.

Data-Driven Decisions 

Automation provides real-time visibility into AR data, eliminating the confusion of manual spreadsheets and ensuring everyone has up-to-date information for customer interactions, supporting finance strategies.

Top 5 tools for AR automation

Here are the five top cloud-based AR automation software options and their main advantages so you can choose the one that best suits your needs.

1. Chargebee

Chargebee simplifies billing and managing subscriptions for SaaS companies, making it easy to handle payments similar to Stripe, especially for recurring charges. 

Its standout feature, Chargebee Retention, assists in spotting and lowering the risk of losing subscribers, which would otherwise be a complex task requiring careful analysis of detailed data. The tool handles invoicing, taxes, accounting, managing customers, and other related billing activities.

Features:

• Subscription management
• Automated invoicing and billing
• Customizable billing cycles
• Tons of subscription models
• Revenue recognition and reporting
• Integrations with payment gateways and accounting software

Pros:

• Extensive customization options
• Robust analytics and reporting tools
• Seamless integration with popular business tools

Cons:

• It can be complex to set up and navigate
• Pricing can be steep for smaller businesses

For pricing, contact Chargebee support 

2. NetSuite

NetSuite, an Oracle company, offers a cloud-based enterprise resource planning (ERP) solution that integrates financials, CRM, and e-commerce functionalities. It is renowned for providing comprehensive business management features with real-time data visibility across the organization.

Features:

• CRM and e-commerce integration
• Handles invoicing, accounting, and financial planning
• Third-party integration for better workflow
• Manages sales processes and customer interactions 
• Provides insights through analytics and reporting capabilities
• Customizable invoicing for specific business needs
• Supply chain and inventory management
• Business intelligence and analytics

Pros:

• Comprehensive and integrated business solution
• Real-time visibility into business operations
• Highly scalable for growing businesses

Cons:

• Relatively high cost of implementation
• Complexities in customization and learning curve

For pricing, contact NetSuite support 

3. QuickBooks

QuickBooks is market-leading accounting software from Intuit designed for small—to medium-sized businesses. It aids in bookkeeping, invoicing, expense tracking, payroll management, check printing, receipt organization, and data import from Excel spreadsheets. 

With QuickBooks, you can easily handle accounting tasks, automate invoicing, expedite payments with online billing, and keep accurate financial records. Its bank feeds feature also helps manage documents efficiently.

Features:

• Accounting and bookkeeping
• Invoicing and payment processing
• Payroll and compliance management
• Comprehensive financial tracking and reporting
• Real-time overview of business operations
• Easy transfer of information in and out of the system
• Monitoring and management of expenses
• Handling employee payroll
• Managing and tracking sales tax obligations
• Financial reporting and insights

Pros:

• Intuitive and easy to use
• Extensive ecosystem of third-party integrations
• Affordable pricing for small businesses

Cons:

• Limited customization options for larger businesses
• Some features require higher-tier plans

For pricing, contact QuickBooks support 

4. Xero

Xero is a cloud-based accounting software known for its simplicity, real-time financial reporting, and strong collaboration features. It is designed for small to medium-sized businesses and offers a comprehensive set of tools for financial management.

Features:

• Real-time financial reporting
• Automated bank feeds and reconciliation
• Payroll and project management
• Integration with numerous third-party apps
• Manage and track purchase orders
• Create and manage quotes 
• Handle sales tax calculations

Pros:

• User-friendly interface
• Store and access files securely
• Keep track of projects
• Connect your bank for seamless transactions
• Strong mobile support
• Continuous feature updates and improvements

Cons:

• Payroll is not available in all regions
• It can be challenging for users with no accounting background

For pricing, contact Xero support 

5. FreshBooks

FreshBooks is an accounting software specifically designed for freelancers, solopreneurs, and small business owners, and is known for its user-friendly interface. It emphasizes ease of use, efficiency in invoicing and billing, and effective time tracking.

Features:

• Customizable and automated recurring invoicing
• Expense tracking and project management in real-time
• Set automatic late payment reminders and fees
• Gain business insights through intuitive reports and dashboards
• Client and team collaboration tools

Pros:

• Simple and intuitive design
• Generate and send professional estimates
• Access and work on any device – computer, tablet, or mobile
• Excellent customer support
• Effective time tracking and project management features

Cons:

• Less suitable for larger businesses
• Limited inventory management features

For pricing, contact FreshBooks support 

Use the best AR automation tool and boost your finance strategies

AR automation can make a difference in how a company handles its sales and gets paid. It can help with things like getting money faster, spending less, making customers happier, and keeping things safe. 

However, only some AR automation systems do all these things well, mainly because they focus on only certain parts of the sales process.

SaaS buying and optimization platform Spendflo covers everything from sending invoices to handling payments and ensuring everything follows the rules. This helps companies get money quicker, be ready to grow or invest, get complete visibility on their stack, and automate SaaS procurement for up to 30% savings.

With better tools and real-time data, you can make smarter decisions and manage your sales process better. 

Get a free saving analysis from us today to learn more about it!