Accounts receivable automation: what it covers and where to start

Accounts receivable is a chain of small jobs. Each one can be automated to a different degree.

Invoicing

Software can create invoices from a sale, a timesheet or a recurring schedule, number them, and email them. Most accounting systems do this already. The gain is fewer typos and invoices that go out on the day the work is done, not at the end of the month.

Reminders

Scheduled emails before and after the due date are the most common form of AR automation. QuickBooks Online, for example, lets you schedule up to three email reminders, up to 90 days before or after the due date. Our guide to payment reminder email templates covers what those emails should say.

Cash application

Cash application means matching an incoming payment to the invoice it pays. When a customer pays three invoices in one transfer with no reference, someone has to work out which ones. Software can suggest or make those matches from bank feeds and remittance details. For a small business with a few dozen payments a month, your accounting system's bank matching is often enough.

Credit

Credit automation covers collecting a credit application, checking a new customer before you extend terms, and watching existing customers for risk. It matters most for businesses that sell on credit to many new customers.

Reporting

An accounts receivable aging report that updates itself, and a view of days sales outstanding over time, are easy wins. The point is to see problems weekly, not when cash runs short.

Collections follow-up

This is everything after the first reminder: reading what the customer writes back, chasing the right contact, tracking a promised payment date, and escalating when nothing happens. It is the most time-consuming part of AR for most small businesses, and the hardest to automate well, because it depends on what the customer actually says.

Some parts of AR are judgement, not process.

• Disputes. When a customer says the work was not done as agreed, the answer is a conversation, not another reminder. Good software stops chasing and hands it to a person. See our guide to invoice disputes.
• Relationship decisions. Whether to push a long-standing customer or give them room is a business decision.
• Exceptions. A partial payment with no explanation, a customer who has changed hands, a contract with unusual terms. Software can flag these. Someone still decides.
• Bad data. Automation sends the wrong email faster if the contact or due date is wrong.

A tool that claims to handle all of this with no person involved should prompt careful questions.

For named tools in each group, see our comparison of AR automation software. For the reminder step alone, see payment reminder software.

Start where the hours go. For most service businesses with no dedicated credit controller, that order looks like this.

1. Invoicing on time. If invoices go out late, everything after them is late too. Use your accounting software's recurring and scheduled invoices.
2. Reminders. Switch on the reminders your accounting software already has. A short schedule around the due date catches customers who simply forgot.
3. Collections follow-up. Once reminders are running, the work moves to replies: "can you resend it", "we need a PO number", "we'll pay on the 15th". If those replies are piling up, this is the next thing to automate.
4. Reporting. A weekly aging view tells you whether the first three steps are working.
5. Cash application and credit. Worth automating when payment volume or new-customer volume makes manual work slow. Many small businesses never reach that point.

A simple test: list the AR tasks you did last week and how long each took. Automate the longest one that follows a clear pattern.

Work through this before you buy anything.

• Every customer has a current billing contact and email address in your accounting system.
• Invoices carry correct due dates and payment terms, such as net 30.
• Customers who need a purchase order number get one on the invoice.
• You know which customers should never receive an automated message without a person checking first.
• Payments are recorded promptly, so nobody gets chased for money already paid.
• You have agreed wording for reminders, from polite to firm.
• Someone owns disputes and exceptions, and knows they do.
• You can say how much time AR takes each week now, so you can tell whether automation helped.

If more than two of these are unchecked, fix the data first. Automation on top of bad contact records sends confident emails to the wrong people.