How to Automate Accounts Receivable Within Your Business
Automating accounts payable (AP) tends to be an easier endeavor than automating accounts receivable (AR). With the former, your system is in charge of executing payments and accounting for completed orders. It’s a little harder to put automated tools in charge of chasing clients around for late payments.
That said, these systems do exist, and they often come with more features than finance teams might expect. In this guide, we’ll explain what AR automation is, which parts of the receivables cycle can be automated, and how businesses can determine whether their automation strategy is actually doing any good. We’ll also take a look at a piece of AR software that comes with a wide range of other banking features: Slash.¹ With Slash, users can automate ACH debits, receivable tracking, and reconciliation while syncing those actions with their accounting apps.
Key Takeaways
- Automation doesn’t change the AR cycle itself, only how much manual intervention sits between the steps.
- Modern systems can automate dunning, which is the process of following up on unpaid invoices via email or reminder.
- Dunning shouldn’t run uniformly. High-value accounts and unusual circumstances should come with a route that escalates to a person rather than one that generates another templated reminder.
- With a good cash application strategy, you won’t spend time chasing customers who’ve already paid but whose payments haven’t been applied yet.
What is Accounts Receivable Automation?
Accounts receivable automation is the act of using software to manage tasks associated with the money that customers owe your business. Some of those tasks include creating invoices, monitoring due dates, sending reminders, matching payments, updating the receivables ledger, and generating reports.
Overall, the basic AR cycle doesn’t change. Your business still provides the product/service, issues an invoice, collects payment, and reconciles the transaction. Automation simply changes how much manual intervention is required between those events. Instead of asking an employee to move information from one system to another, the software can take charge by using predefined rules and integrations. Lots of today’s tools can also pull billing information directly from CRM systems.
The most time-consuming parts are usually the handoffs. Customer data has to translate to an accurate invoice, overdue accounts need to be followed up on, and completed transactions need to reach the general ledger. When you manage these workflows manually, it’s easy to mess them up.
Automation software speeds those handoffs up and keeps them more precise by working through connected systems. When a customer buys your product, an invoice can be generated and sent instantly. An approaching due date can trigger a reminder that a team member doesn’t have to remember to send. A bank transaction can be matched to an open balance, and the resulting status change can sync to the accounting platform without someone having to type it all in.
A well-designed AR automation system can provide a live view of outstanding balances and reduce the administrative work required to collect them. It can also shorten days sales outstanding, improve forecasting, and give customers a more consistent payment experience. If you use Slash, the process also becomes easier for your clients. Slash accepts payments via ACH, wire, cards, and stablecoins, which means customers don’t have to struggle to find an accepted rail.⁴
What Aspects of Accounts Receivable Can Be Automated?
AR automation can cover most of the invoice-to-cash cycle, though the level of automation varies by platform. Some products mostly concentrate on invoicing and reminders, while more advanced systems can connect collections, payment processing, cash application, reporting, and accounting. Here’s a look at some of the main things you can automate:
Generating and sending invoices
The receivables process almost always starts with an invoice. Automation software can fill out customer details, quantities, prices, taxes, discounts, and payment terms without anyone having to transcribe them by hand. Once a sale or billing date meets the required conditions, the platform creates the invoice automatically. Slash’s invoices can be custom-branded and sent with specific payment instructions.
From there, the invoice can be delivered by email, customer portal, or another supported channel. You might set recurring invoices to run on a schedule, or perhaps usage-based bills that grow based on a certain activity. Once the customer receives their invoice, the payment clock begins. According to data from BillTrust, AR automation can improve payment speed by 40%.
Invoice matching
Automation tools can compare billing data with sales orders, contracts, purchase orders, delivery records, or project milestones to make sure the invoice matches the sale. This is where things like mismatched quantities and duplications can be caught before anything’s sent out.
Matching is just as important after the payment. AR automation platforms can often use the amount, customer, invoice number, and remittance data to identify the correct open balance. Straightforward matches post automatically, while any uncertain cases can be addressed by an employee who handles invoice management and knows more about the context.
Payment tracking and dunning
Once an invoice is sent, specialized software can track whether it’s open, viewed, partially paid, due soon, or overdue. Some platforms can also manage dunning, which is a name for the process of following up on unpaid invoices. Typically, a business might send a friendly reminder several days before the due date, another notice when payment becomes late, and a more direct message after a defined period. Most systems allow businesses to schedule reminders, and some can even prioritize certain accounts based on their payment history and account value.
While automation can make follow-ups consistent, it shouldn’t make them robotic. High-value customers and unusual circumstances might be better served with a personal response. It’s a good idea to set up workflows that escalate those cases to a person rather than treating all cases in the exact same way.
Cash application
Cash application is the process of connecting an incoming payment with the correct customer and invoice, then updating the balance. It can become especially tricky when customers make mistakes like combining several invoices into one payment or paying only part of a balance.
Automated cash application tools can collect information from bank feeds and processors, then use matching rules to compare that data with open receivables. The clear matches post automatically, while exceptions can move into a review queue. As a result, you get a more accurate picture of your available cash and customer balances. This also prevents collection staff from contacting customers who’ve already paid but whose payments haven’t yet been applied.
Handoff to accounting integrations
You can use AR tools to automatically collect everything from invoice status to refunds, but you won’t save too much time if none of them flow into your accounting or enterprise resource planning (ERP) system. Re-entering those details manually wastes time and can lead to mistakes that don’t have to happen.
With accounting integrations, your system can send completed transactions to the correct customer account and ledger category as soon as they’re ready to go. Slash connects with QuickBooks Online, Sage Intacct, Xero, and NetSuite more deeply than some systems do. That’s because data moves both ways; the accounting system supplies invoice data, while Slash can return payment updates.
The standard in finance
Slash goes above with better controls, better rewards, and better support for your business.
How to Track the Success of Accounts Receivable Automation
Before implementing AR automation, it’s smart to record a baseline for the metrics that matter to your business. After you launch, compare those results over a long period of time to see how much of a difference your new software made. Some of the factors you can measure include:
- Days sales outstanding (DSO): The average number of days required to collect payment after a sale. A decline in that number generally indicates that your invoices are being delivered, followed up on, and paid more quickly.
- Invoice aging: The percentage and dollar value of invoices that are current, 1–30 days late, 31–90 days late, and 90+ days late. Ideally, balances would start shifting towards the newer ends of those ranges.
- On-time payment rate: The share of invoices paid by their due dates. This can help show whether reminders and easier payment options are actually influencing the behavior of your customers.
- Touchless processing rate: The percentage of invoices or payments completed without manual intervention. While you’ll always have exceptions, you’ll want this percentage to be near or above 90%.
- Cash application match rate: The percentage of incoming payments matched automatically. A rising rate can indicate better integrations and cleaner remittance data, while a high exception rate might show that you have problems with a certain configuration.
- Cost and time per invoice: The cash and hours it takes to create, deliver, collect, reconcile, and record each invoice. At the end of the day, this can determine exactly what automation is saving your team.
Some of these metrics are best measured together. For example, a lower DSO paired with a rising dispute rate could mean that reminder workflows are too aggressive or invoices are being sent before the data is ready.
Businesses should also account for the risks of automation. If your source data is messy, you’ll start auto-generating incorrect invoices before you can catch the issue. Additionally, an underdeveloped dunning sequence could send a reminder to someone with an active dispute or a long-standing customer who’s already arranged new terms.
It’s wise to keep human review in place for sensitive accounts and unusual payment situations. You’ll also want to plan and test your integrations, then train your employees on the ins-and-outs of how they work and what they can expect the automation to fast-track. AR automation software doesn’t manage everything all by itself, and your team should know that.
Automate Your Accounts Receivable Process With Slash
With Slash, you don’t just get a platform that can automate your accounts receivable. Slash is built to streamline your AR, AP, corporate card management, working capital financing, and more.
Slash is an all-in-one business banking platform, which means all your financial tools live under one roof. When you bring your accounts receivable workflows alongside your banking and payments, you can get greater visibility into your outstanding invoices and incoming cash without having to rely on a bunch of different tools.
Users can generate and send branded invoices that include instructions and an embedded payment link directly from their Slash dashboard. Once an invoice is sent, teams can track its status in real time, from draft and sent to paid or overdue. Slash also automates ACH collection; customers can connect a business bank account and authorize a debit to occur at a preset time or trigger, and an authorized auto-pull can also be initiated when sending an invoice.
Here’s what else Slash users get:
- High-yield treasury: Earn up to 4.02% annualized yield on idle funds with money market investments from BlackRock and Morgan Stanley, managed directly within your Slash account.⁶
- The Slash Visa® Platinum Card: The Slash Card is a corporate charge card that allows you to set customizable spending controls and issue unlimited virtual cards for handling team expenses, vendor payments, subscriptions, and more. Users can also earn up to 2% cash back on eligible business purchases.
- Working capital financing: Access short-term financing with flexible 30-, 60-, or 90-day repayment terms to help bridge cash flow gaps.⁵
- Native cryptocurrency support: Send and receive USD-pegged stablecoins USDC and USDT across 15 supported blockchains for faster, lower-cost global payments.⁴
- Diverse payment rails: Slash supports a wide range of payment methods, including card spend, global ACH, international wire transfers to over 180 countries via SWIFT, and real-time domestic payments through RTP and FedNow.
Apply in less than 10 minutes today
Join the 10,000+ businesses already using Slash.
FAQs
What is invoice matching?
Invoice matching is the act of checking that an invoice agrees with the underlying record by comparing it against the sales order, contract, purchase order, or project milestone before it goes out. You’ll also see this term used in accounts payable, where a “three-way match” means lining up a purchase order, a receiving document, and a vendor invoice, so expect most search results to describe it from the buyer’s side. On the receivables side it serves the same purpose in reverse, catching mismatched quantities, duplicate bills, and amounts that don’t reflect what was actually delivered before a customer has a reason to dispute them.
A Complete Guide to Invoice Matching
What is DSO, and what counts as a good number?
Days sales outstanding measures the average time between making a sale and collecting payment. It’s typically calculated as AR divided by total credit sales for a period, multiplied by the number of days in that period. There isn’t exactly a universal benchmark, since the only meaningful comparison is against your own payment terms. A DSO of 45 on net-30 terms means you’re collecting about 15 days late on average.
What is Days Sales Outstanding? How to Measure and Improve Collections
What should I do before automating accounts receivable?
Before using accounts receivable automation software, your customer data should be addressed first. That means clarifying correct legal names, billing addresses, and the right contact for each customer. Payment terms also need to be set correctly per customer rather than defaulting everyone to the same window, since automated dunning will otherwise chase accounts that negotiated longer terms. Lastly, take a look through your tax settings to make sure all the correct forms and data are in place.
Read more from us
