How to improve the accounts receivable process (2023)

Accounts Receivable (AR) is money owed by a business to customers who have been billed for products or services that have been received but not yet paid for. The accounts receivable process includes all the steps involved in collecting the money owed in a timely manner, starting with sending invoices to customers. Whether the task falls to a few individuals or a large team, effective and efficient AR capabilities are essential for all businesses to maintain healthy cash flow, customer relationships and business operations. Automation is key to speeding up the AR process and freeing employees from many tedious and time-consuming tasks that reduce a company's ability to collect what it owes. The first step towards a more automated AR future is to map current processes with AR automation flowcharts.

What is the Accounts Payable Automation Flowchart?

AR Automation Flowchart is a visualization of a company's AR process, created to automate as many manual tasks as possible. It begins by documenting and researching how AR is processed, detailing every step from selling to processing payment. The flowchart helps companies better understand the resources needed to complete each step and where automation can be applied to streamline the process. It also highlights where improvements can be made in the AR process of invoicing, collecting, depositing and reconciling client funds.

Although it can vary from company to company, a common AR automation flow chart looks like this:

central points

  • Traditional AR lifecycles include many manual touch points and inefficiencies.
  • Creating an AR automation flowchart is one of the most important steps in determining which parts of a process can be automated.
  • AR automation can turn critical accounting tasks into strategic business functions.
  • It also improves cash flow, one of the key indicators of a company's financial health.

Accounts Receivable Automation Flowchart Explained

Buy now, pay later: Businesses and consumers have used credit cards to pay for goods and services since the introduction of Diners Club in 1950. The money a buyer owes a seller after purchasing and delivering a good or service is calledreceivables, and expires within the specified time frame. Sales companies, such as equipment suppliers, issue invoices and work to collect funds before they are due. This not only helps ensure stable cash flow and sufficient working capital, it also strengthens customer and investor relationships.

From a bird's eye view, the AR process seems relatively straightforward. But in accounting departments, especially for fast-growing organizations with hundreds or thousands of customers, this task can quickly become overwhelming, especially when handled manually, resulting in higher costs and a greater risk of error.

By creating an accounts receivable automation flowchart, organizations map every step of the accounts receivable process, from first sale to payment reconciliation. This exercise enables companies to identify time-consuming, labor-intensive and potentially error-prone workflow steps and discover where automation can be implemented to increase productivity and reduce costs.

Steps in the flow chart for automating debtors

The AR function's primary responsibility is to invoice customers in a timely manner and then follow up on collections. Although there may be some differences, the AR process follows a similar workflow in most organizations. By specifying process steps in flowchart form, companies can visualize where automation can replace repetitive manual tasks.

Below are typical steps included in an accounts receivable automation flowchart, including how automation can help speed up the process.

  1. make a deal.

    The AR process begins with selling a product or service on credit. If a customer agrees to purchase a product or service on a regular basis, the AR department can set up a billing schedule to ensure that invoices are generated and sent regularly.

  2. New customer data is added to the platform.

    When a business sells to a new customer, it collects certain data from the customer, such as their billing address and payment information. Once data is captured, it can be automatically extracted in subsequent invoices.

  3. Generate invoices and send them electronically.

    After confirming that the goods or services have been delivered, invoicing is the first step in collecting payment for the sale. An invoice describes what the customer has purchased, the amount owed, and the date of payment. Create and distribute automaticallye-billThis important step in the AR process will be accelerated.

  4. Several invoices are automatically merged.

    When customers purchase multiple products and/or services, it may be more convenient and organized for them to receive a single itemized consolidated invoice. This step is prone to errors if handled manually, especially if the sale is done in different parts of the organization. However, task automation removes the heavy lifting.

  5. Payments are received electronically.

    The ultimate goal of AR is to collect outstanding balances on or before the due date. Make it easy for customers to pay their bills by offering electronic payment options such as ACH and wire transfers or by accepting credit cards, increasing the likelihood of on-time payments and speeding up the transaction process.

  6. File claims and collect payments.

    Customers with overdue bills may need to insist on paying their bills. So-called reminder letters and late payment notices can be sent automatically to remind customers of arrears. Other escalations, such as phone calls, third-party collections or, in the worst case scenario, legal action to secure money owed to the company. Ultimately, if collection efforts are unsuccessful, invoices are considered uncollectible and written off as bad debt.

  7. The payment is deducted automatically.

    Most companies accept various payment methods, including paper checks. However, direct debit automatically withdraws money from the customer's bank account when payment is due. This speeds up cash flow by ensuring that invoices are paid on time and that paper checks are processed more efficiently and securely.

  8. Payment confirmed.

    The final step in the AR workflow is to process the customer's payment. Here, automation can help streamline the process and eliminate manual entry errors.

Dashboards facilitate data analysis and forecasting

Just like a car's dashboard provides all the relevant information a driver needs to drive efficiently,augmented reality boardDisplay key information about your company's receivables and cash flow in the form of metrics and key performance indicators (KPIs). This performance data is most useful in real time and also shows how well the company is progressing towards its goals.

The KPIs to be included on the dashboard are “Days of sale (DSO).This accounting ratio measures the average number of days it takes a company to collect payments on credit sales. The lower the DSO, the faster the payout. Tracking and analyzing this data as part of an AR dashboard allows key business stakeholders to visualize the company's financial health and inform decision-making.

AR aging is another important metric to track. The aging report categorizes outstanding receivables based on how old the invoice is (typically 30, 60, and 90 days), and has a separate column for invoices that are more than 90 days past due. Monitoring accounts receivable aging helps accounting and finance teams manage accounts receivable risk: the longer an invoice is outstanding, the less likely it will be collected, potentially leading to write-offs that impact cash flow and profits.

Other KPIs includeDebtors, an accounting metric that quantifies the effectiveness of accounts receivable, productivity statistics such as bills per AR employee, and the percentage of AR that ends up as a bad debtor.

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How to improve the accounts receivable process (2)

Automate your AR workflows with NetSuite

Companies mapping their AR workflows can identify several steps that can be automated using modern accounting software such asNetSuite Receivables.The cloud-based solution handles many time-consuming manual AR tasks, such as invoice generation, payment processing and account reconciliation, so accounting teams have more time to focus on higher-value work. NetSuite Accounts Debitable also simplifies the payment process for customers, increases the likelihood that they will pay their invoices on time or even faster, and improves the customer experience. In addition, NetSuite Accounts Payable can help reduce a company's DSO by automatically issuing dunning and collection notices and making more informed decisions through advanced analytics and AR reporting.

Effective and efficient AR features are essential for businesses to maintain a healthy cash flow. Traditional AR processes include many manual touch points, which slow down the process and lead to errors. Creating an AR automation flow chart allows businesses to identify areas of inefficiency that can be improved through automation. AR workflow automation can empower accounting teams to transform a basic and sometimes arduous accounting task into a strategic business function.

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Debitorautomatisering Flowchart FAQ

What are the steps in the collection process?

Collection refers to a company's efforts to get money owed by customers. In many companies there is an accounts receivable department that handles incoming payments. The AR collection process consists of several steps, including invoicing, claims, collection and reconciliation of payments.

What is the difference between invoicing and invoicing?

The terms "invoicing" and "invoicing" are often used interchangeably to describe the document and process by which a business requests payment for the sale of goods or services. However, invoicing is a broader term, whereas invoicing specifically refers to an invoice or delivery of an invoice.

What is the difference between bills and receivables?

Invoicing (or invoicing) is a task in the accounts receivable workflow that includes generating invoices for goods and services purchased on credit, collecting payments from customers, and reconciling accounts receivable with the company's general ledger. The accounts receivable function may also be responsible for other tasks, such as producing monthly financial and management reports or assisting with financial analysis. In organizations with more limited AR capabilities, the accounts receivable department may be called the billing department.

What is accounts receivable automation?

Many tasks involved in AR involve repetitive, low-level work. Historically, accounting teams have done this manually, spending most of their workdays collecting customer data, generating invoices, and passively managing late payments and unresponsive customers. However, this approach left accounting teams little time to proactively improve collections and increase cash flow. AR automation takes such tedious work off the AR team's plate by using modern accounting software that automates common AR tasks. AR automation increases the effectiveness and efficiency of AR workflows, reduces the incidence of human error, and frees accounting teams to focus on higher-level tasks.

What is the debtor workflow?

Accounts receivable workflow refers to the step-by-step process by which a business invoices and collects money for products or services sold on credit to customers. Issues related to late or non-paying customers from customers can negatively impact growth and even a company's ability to function, which is why creating an effective AR workflow is critical. Companies looking to simplify and optimize their AR capabilities can start by creating an AR automation flowchart to visualize, improve, and ultimately automate this workflow.

What are the steps in accounts receivable management?

These steps vary from company to company, but generally the accounts receivable process begins after the credit sale is completed. The steps they typically follow are collecting customer master data, generating and delivering invoices, consolidating multiple invoices, collecting payments, claims and collections, paying deposits and reconciling payments.

What is the AR acquisition process like?

This step of the accounts receivable process focuses on collecting payments for credit sales. That includes sending recurring payment reminders, late payment notices, and when all else fails, escalation to receive payments.


How to improve the accounts receivable process? ›

Most articles will tell you that the biggest challenges for accounts receivable (AR) departments are things like late payments and excessively high days sales outstanding (DSO).

What should we do to improve your accounts receivable? ›

Follow these tips to improve accounts receivable collection in your business.
  1. Systemize Invoicing and Payment. ...
  2. Develop a New Collection Strategy. ...
  3. Ensure a Quality Customer Experience. ...
  4. Align Your Team on AR Collection. ...
  5. Prioritize Your Collection Efforts. ...
  6. Offer Discounts and Payment Installment.
Jun 5, 2023

What are the two basic ways to maintain accounts receivable? ›

15 Tips to Manage Accounts Receivable
  • Check credit on potential clients. ...
  • Establish how long you can wait to get paid. ...
  • Stick to your credit policy. ...
  • List payment terms. ...
  • Offer payment plans. ...
  • Track payments. ...
  • Add late payment fees. ...
  • Bill regularly.

How can I manage my accounts receivable better to help with my cash flow? ›

Here are several actions you can take to help your business run smoothly:
  1. Evaluate Credit Terms. Credit terms are generally set as due upon receipt or due in a number of days, such as net 15 or net 30. ...
  2. Invoice Promptly. ...
  3. Monitor Accounts Receivable. ...
  4. Use a Collections Agency. ...
  5. Automate Accounts Receivable.
May 3, 2021

How could a business improve management of its accounts receivable turnover? ›

5 Tips to Improve Your Accounts Receivable (AR) Turnover Ratio
  1. Invoice regularly and accurately. ...
  2. Always state payment terms. ...
  3. Offer multiple ways to pay. ...
  4. Set follow-up reminders. ...
  5. Consider offering discounts for cash and prepayments.
Mar 17, 2021

What kind of things can a company do to improve receivables? ›

8 Best Practices to Improve your Accounts Receivable Management
  • Use Electronic Billing & Online Payments. ...
  • Use the Right KPIs. ...
  • Outline Clear Billing Procedures. ...
  • Set Credit & Collection Policies — and Stick to Them. ...
  • Collect Payments Proactively. ...
  • Set up Automations. ...
  • Make Payments Easy for Customers.
Jun 5, 2023

What is the biggest problem with accounts receivable? ›

Most articles will tell you that the biggest challenges for accounts receivable (AR) departments are things like late payments and excessively high days sales outstanding (DSO).

What are the 4 functions of accounts receivable? ›

A typical Accounts Receivable job description should include, but not be limited to:
  • Maintaining the billing system.
  • Generating invoices and account statements.
  • Performing account reconciliations.
  • Maintaining accounts receivable files and records.
  • Producing monthly financial and management reports.

What is the AR management process? ›

Some critical aspects of AR processes are:
  • Invoicing.
  • Payment follow-ups.
  • Setting credit and payment terms.
  • Debt collection.
  • Matching payments with outstanding invoices.
  • Resolving payment disputes.
May 16, 2023

What is the main responsibility of accounts receivable? ›

Accounts receivable duties include ensuring accuracy and efficiency of operations, processing and monitoring incoming payments, and securing revenue by verifying and posting receipts.

How do you keep accounts receivable low? ›

Approach #1: Pushing Customers to Pay On Time
  1. Incentivize early payments, and penalize late payers. ...
  2. Investigate prospective customers thoroughly. ...
  3. Report customers to credit bureaus. ...
  4. Revoke credit terms. ...
  5. Use a business credit card. ...
  6. Get a line of credit. ...
  7. Factor or finance AR invoices. ...
  8. Require a deposit.
Aug 24, 2022

Why is effective managing of accounts receivable important? ›

Good receivables management will directly contribute to your businesses' profit due to its ability to reduce bad debt. The benefits include a better cash flow and higher availability of liquidity for your business's investments and acquisitions.

What is the most likely cause of the decrease in accounts receivable turnover? ›

Low receivable turnover may be caused by a loose or nonexistent credit policy, an inadequate collections function, and/or a large proportion of customers having financial difficulties. It is also quite likely that a low turnover level indicates an excessive amount of bad debt.

What is the importance of accounts receivable and how can businesses improve their collections? ›

Accounts receivable is the lifeblood of a business's cash flow. It helps with cash flow management by telling you which clients owe you money and how much. This lets you discern whether your cash account accurately reflects your current financial standing.

What is important in accounts receivable? ›

The three main elements of managing accounts receivables are – invoicing, monitoring, and collections. Any business should ensure that these steps are checked while carrying out its business and other functions to provide a stable future.

How do you fix negative accounts receivable? ›

Logging a regular payment before the goods or services are delivered creates a negative accounts receivable. The prepayment should be first recorded as a credit to a liability account to remedy the situation. The prepayment amount should be debited once the goods or services are delivered and the invoice is sent.


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