An efficient accounts receivable process is essential for keeping cash flowing throughout the business, allowing you to fulfill your own debt obligations while fueling future growth.
The process also has to be streamlined, though, because time is money. The vast majority of small and even mid-sized companies can’t justify hiring a full-time accounting employee, which means this task often falls on someone else’s plate.
You’ve probably heard about the benefits of AR automation - but how does it compare to standard AR processes? You’ve come to the right place. We’ll compare and contrast accounts receivable automation vs traditional manual processes here in this guide.
The differences are clear. Traditional accounts receivable processes are time-consuming and prone to human errors. In contrast, a billing automation system can help you get paid faster with less work and stress, reconciling every payment in your AR system for unparalleled precision.
Learn more about the differences below and how to automate accounts receivable yourself with the help of InvoiceSherpa. We’ve developed the best automated invoice processing software to help you streamline your AR processes with ease!
Before we compare and contrast accounts receivable automation vs traditional manual processes, we want to take a step back and explain why this is such an important part of financial management.
It’s essential for any business, but especially for smaller companies that rely so heavily on a tight cash flow cycle. Accounts receivable (AR) represents the outstanding invoices or money owed by clients for goods or services provided but not yet paid for.
Without a steady inflow of cash from receivables, even profitable businesses can struggle to meet their financial obligations, such as payroll, vendor payments, and operational expenses.
This is actually how cash flow problems usually start, which is why keeping your AR processes so efficient is important. It ensures invoices are issued promptly, payments are collected on time, and any outstanding balances are tracked meticulously.
It also involves following up on late payments, handling disputes, and reconciling accounts regularly to maintain accurate financial records. These are all key aspects of getting paid in a timely manner.
We have guides on how to calculate accounts receivable and even accounts receivable forecasting if you’d like to learn more about the basics. For now, let’s narrow our focus to comparing accounts receivable automation vs traditional manual processes below.
Now, what is AR automation software? This is a type of technology that takes a lot of the manual processes associated with accounts receivable out of your hands. This includes sending invoices, follow-ups, reconciliation, and more.
Learn more about some of the traditional accounts receivable challenges and how automation can help below, including whether or not it’s worth investing in the best AR automation software.
Traditional manual AR processes need human intervention at every step. Invoices are manually generated, often using spreadsheets or word processing tools.
Employees are then responsible for tracking outstanding invoices, sending reminders, following up on late payments, and manually reconciling accounts when payments are received.
As you may already realize, this approach is time-consuming and prone to errors. Manual entry can lead to discrepancies, missed payments, and delays in cash flow. Managing AR manually requires more staff too, increasing operational costs.
Perhaps most importantly, manual processes lack the advanced reporting and analytics capabilities that come with automation. This means your business might miss out on valuable insights that could improve cash flow management and overall financial health.
On the other hand, AR automation involves the use of software solutions to manage the entire AR process - from invoicing to payment collection, reconciliation, and reporting.
This eliminates much of the manual labor involved in AR management so you can streamline operations and leave your team to focus on more strategic tasks. So, how does it work?
Invoices are generated automatically based on completed work or delivered products, and reminders are sent out at predefined intervals. Payments can be tracked in real-time, and the system can even apply late fees automatically.
AR reconciliation, a traditionally tedious task, is also automated. Payments are matched against outstanding invoices accurately and promptly so you don’t have to lift a finger. Better yet, you don’t have to deal with the headache of untangling the mess of mismatches later on!
Many AR automation tools can integrate with accounting software and customer relationship management (CRM) systems to create a more integrated business. These software solutions also generate detailed reports and analytics to help you push your business forward.
In case you’re not already seeing the benefits of accounts receivable automation compared to traditional processes, let us be very clear - this is one of the best decisions you can make.
It dramatically reduces the time and effort required to manage AR, freeing up employees to focus on more strategic and value-added tasks. This doesn’t just mean your team is more productive, but they’re more fulfilled since they’re working on things that align with their skills.
Another key benefit of automation is accuracy. The risk of human error is lower when leveraging technology, which is less prone to making mistakes. You can trust invoices are generated correctly, payments are tracked accurately, and accounts are reconciled without discrepancies.
But if you’re struggling to figure out how to get invoices paid faster because a slow cash flow cycle is harming your business, this is reason alone to switch to an automated system: you’ll start getting paid faster!
Automated reminders and the ability to offer multiple payment options make it easier for clients to pay on time, reducing days sales outstanding (DSO) and enhancing the business’s financial stability.
Plus, you’ll get real-time data on outstanding invoices, payment trends, and client behaviors. This clarity into your company’s finances is invaluable.
Now, you might be wondering about the accounts receivable automation solution costs, and more specifically, if it’s worth the investment or not. The answer is absolutely!
We’ll just use our accounts receivable automation software as an example. It starts at $41 per month after the free trial, and is basically like having your own dedicated employee managing the AR process.
Just compare that to the cost of hiring a full-time employee, or even outsourcing to accounts receivable management services. It’s a fraction of the price.
Sure, your needs might scale up a bit and at a certain point it might make sense to upgrade to a more comprehensive solution, like our small business plan ($83/month) or enterprise plan ($166/month). Even still, you’re saving money in the long run.
Think about how much time you’re saving from traditional manual processes, the peace of mind you’re enjoying, and how much faster you’re getting invoices cleared up. What price could you possibly put on all this?
In comparing accounts receivable automation vs traditional manual processes, it’s clear that this is worth investing in. if you’re ready to get started, InvoiceSherpa is eager to help you take control of your financial management with the #1 solution on the market.
InvoiceSherpa has helped countless small and mid-sized businesses harness the power of automation, in turn reducing days sales outstanding (DSO) by up to 20%, past due deliverables by up to 25%, and bad debt reserves by up to 15%.
You gain access to a myriad of features, from the ability to set up recurring payments to scheduling automated payment reminder emails or text messages.
Your clients get their own dedicated portal to view outstanding invoices and make payments on their own terms, since we support payments through credit card, ACH, or bank transfer.
The whole solution is designed to make paying easier for customers - which in turn, accelerates your cash flow cycle. But of course you’ll also enjoy how much easier the software makes your life, too!
It integrates with accounting platforms like QuickBooks, Xero, and Clio. Other integrations include PayPal, Stripe, and more. This means you can connect your entire business for a comprehensive approach to financial management.
Plus, getting started with the accounts receivable automation best practices is easy. It takes just a few clicks, we’ll walk you through your next steps below.
The first step in setting up InvoiceSherpa is to sync it with your existing accounting software. This seamless process synchronizes all your financial data, providing a real-time view of your accounts receivable.
Whether you use QuickBooks, Xero, or another platform, InvoiceSherpa will automatically pull in your customer data, invoices, and payment history.
Then, you can start customizing your invoice templates to align with your brand. That includes logos, payment terms, invoice late fee wording, you name it. We have templates to guide you through this if necessary:
This is also a good time to schedule payment reminders - you can customize the wording and dictate when and where you want these reminders to be sent out. A good rule of thumb is three days before the due date, on the due date, and a few days after.
If you offer recurring services, set up automatic payments within InvoiceSherpa so you can charge clients automatically on a scheduled basis, reducing the risk of late payments and ensuring a steady cash flow.
After your system is set up, regularly monitor the performance of your AR processes using InvoiceSherpa's reporting and analytics tools. These tools provide insights into payment trends, outstanding invoices, and overall cash flow.
You can explore other accounts receivable automation use cases in our blog, and find more accounting tips like when to send a demand for payment letter, maximum late fees by state, unbilled receivables, how to send an invoice to collections, why cash is important to a business, and more.
Otherwise, it’s time to get set up with accounts receivable automation through InvoiceSherpa today!
We hope this comparison of accounts receivable automation vs traditional manual processes has left you with a clear understanding of the advantages of automation.
In summary, you can spend less time managing AR, reduce stress, minimize errors, and get paid faster - all while saving money! Making the switch is a no-brainer.
So, what are you waiting for? Experience the benefits of AR automation firsthand with InvoiceSherpa. Simplify invoicing and payment collection through our software today.
Posted on September 3, 2024
