The CIO’s Guide to Accounts Receivable Software

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When implementing accounts receivable software, it’s important the CIO is involved in the decision-making process. Here's what CIOs, and those outside of finance should know when evaluating AR solutions.

The CIO’s Guide to Accounts Receivable Software

In high-performing organizations, IT leaders are always on the hunt for innovative solutions that will improve operational efficiency and accelerate company growth.

Because of its critical importance for maintaining healthy cash flow, the accounts receivable (AR) function is a prime candidate for this type of digital transformation. But without a deep understanding of AR and the challenges AR professionals face on a daily basis, knowing what functionality to consider and what solutions to evaluate can be challenging for executives outside of the finance organization.

In this blog, we’ll provide a crash course in AR for CIOs. For IT executives looking into accounts receivable software solutions, we’ll explain what accounts receivable is, what are some recurring challenges faced when managing AR, how accounts receivable automation software can address these challenges, and how to choose the best AR software.

What is accounts receivable?

In the simplest of definitions, accounts receivable is any money that your customers owe you for past purchases of goods or services.

One way to think of AR is as a line of credit. The company supplying goods or services extends this credit to their customers with terms specifying when payments are due and includes other details such as sales discounts or charges for late fees. Accounts receivable is considered a current asset on your balance sheet because it can be easily turned into cash. Trade receivables are the same as accounts receivable and either term may be used interchangeably.

What are recurring challenges of managing accounts receivable?

Offering goods and services on terms is highly advantageous for suppliers. It allows them to establish greater customer loyalty by offering the ability to transact in good faith, paving the way for future sales. Suppliers can also generally sell more goods or services to more customers than if they were to just accept cash. And, under the accrual basis of accounting—where companies pay expenses before the associated cash is received—suppliers receive further gains from recognizing revenue at the time a credit sale is made, even if they haven’t yet collected the cash from their customer.

As you can imagine, despite these and other benefits, parting with goods or delivering services on the promise of payment in the future presents challenges. Here are four common challenges AR teams face:

  1. Customers don’t pay on time, or within the agreed upon terms
  2. Errors in invoices lead to customer disputes and withheld payments
  3. Payments and payment remittance details take time to match, resulting in trapped cash
  4. Maintaining happy and healthy relationships with customers when disputes arise or there are issues with payment

Unless the right AR software solution is in place, AR operations can often be time-consuming and frustrating for team members and clients. Processes based on legacy systems or manual efforts can be ineffective and disconnected which leads to a lack of visibility into the status of accounts and cash flow.

Thankfully, there’s accounts receivable software that can help solve these challenges. For example, solutions that focus on automating common AR tasks empower finance teams to be more productive and efficient, removing stress and giving them back the time they need to accomplish meaningful work that gets cash in the door.

How does accounts receivable automation solve these challenges?

Accounts receivable automation is exactly what the name implies. It enables companies who rely on manual AR management to increase operational efficiency by automating the mundane tasks plaguing their daily work cycles. AR automation software takes on the tasks your team has determined to be most important—or tedious—to enable them to meet business objectives. This might mean automating invoice creation and delivery, or proactively sending supporting documents and payment reminders to customers.

Some AR automation solutions provide end-customers with a portal where they can log in to make payments and view their invoices. By giving customers their own payment portal, your finance team can be more in-tune with customers’ needs and payment behaviors. For example, with check usage in steady decline, it’s important for suppliers to accept alternative forms of payment, like credit card and ACH. Payment portals allow you to offer multiple payment options.

Beyond driving efficiencies, AR software also arms your team with data and visibility into your customers’ payment history in real time. With this insight, your finance team can tailor their collections and communications approach. They can incentivize customers to pay faster with more personalized sales discounts and engage them about late payments only when necessary.

Accounts receivable software also eliminates the cash application challenges of accepting multiple payment types by allowing you to accept them all from one place and automatically reconciling each payment with open receivables.

What’s after automation?

Automating traditionally time-intensive tasks like invoicing and automatically applying payments to the right account is great, but it still leaves your team with a major time suck: managing disputes. Without an easy way to collaborate with customers, resolving disputes can be difficult—even under the best of circumstances and with the best customers.

With legacy AR tools and processes, fully understanding customer concerns often requires finance teams to play detective—tracking down why a customer made a partial payment on an invoice, for example. A customer-centric accounts receivable software solution empowers suppliers to collaborate with their customers to answer questions and avoid miscommunications. Removing friction and improving how you interact with your customers can significantly impact the billing and payment experience you deliver.

Important note: Not every accounts receivable platform takes this approach, so it’s critical to consider this early on when doing your research.

What does an automated AR workflow look like?

You’ve now read some of the benefits accounts receivable software can have for your business, but you’re probably wondering what an automated AR workflow looks like in practice. In our blog The Accounts Receivable System Flowchart of the Future we answer this question in depth, describing the complexity of traditional accounts receivable workflows and how they can be improved using AR automation. In the flowcharts below, it’s clear to see how implementing the right automation platform drives efficiencies and helps you access your cash.

Traditional Accounts Receivable Systems Flowchart
Without accounts receivable software, the order-to-cash cycle is long and has your team going in circles to find out the status of open receivables.
Accounts Receivable Systems Flowchart of the Future
With accounts receivable software, the order-to-cash cycle is much shorter and what used to be tedious tasks are completed automatically.

Key integrations to consider

With most of your business’ operations flowing through your ERP, it’s critical that your AR solution integrates with your ERP system to reflect the status of your customers’ payments and accounts automatically. Integrating your systems helps your team get the most value from AR automation and maintain data reliability, as they can leverage all the customer data and organizational structures that already exist in the ERP.

Selecting a vendor that has deep pre-built connectors for your ERP will make for a quick and smooth implementation process. For system integrations and customization not already on the table, communicate your business’ needs in your initial talks with potential vendors to see how their team can support that additional layer of personalization.

How to choose the best solution for your business needs

Now that you have a clearer idea of what accounts receivable involves and the challenges to solve for, you might be wondering, “How do I find the AR software that’s right for my business?”

In our blog, The Buyer’s Guide to Selecting Accounts Receivable Automation Software, we share insights to help you better evaluate AR software vendors and make an informed purchase decision. You’ll learn what you should think about before you start to research, how to manage your search once you’ve begun, and discover best practices you can adopt for the highest chance of success after implementation. We’ve even added a simple checklist you can download to help you compare your shortlist of vendors.

To effectively support your finance team in selecting accounts receivable software, it’s important that you understand the accounting process, the common challenges your team faces, and the role automation plays in addressing those challenges. When evaluating AR solutions, focus on the vendor who will be the best partner for your organization as you navigate an increasingly digital marketplace and changing buyer expectations.