Most ERP systems contain some type of accounts receivable module, but they are not always a very robust system. Often times, they leave a lot to be desired. This isn’t exactly the type of tool you want to be managing one of the most important assets in your business. Accounts receivable relates directly to the amount of cash flow you receive and helps your business to continue to grow. For this reason, businesses needed a more efficient tool to manage their accounts receivable and automated accounts receivable software was born.
Accounts receivable software has come a long way from its inception. With the advent of the cloud, it has become a more affordable tool that even small and mid-sized businesses can take advantage of. More features have become available in most accounts receivable software, which has created more benefits for those using the software.
In this whitepaper, we are going to take a look at what exactly accounts receivable software is, where it came from, what features exist in the software and how users of accounts receivable software are seeing benefits and a return on investment.
WHAT IS ACCOUNTS RECEIVABLE SOFTWARE?
Accounts receivable is the money owed to a company after they have giving a customer a product or service. The company has a right to collect this money and the money will contribute to the company’s cash flow, which will help improve the business’ working capital.
For example, Company A is a manufacturer of bicycles. Company B is a bicycle shop. Company B will purchase 12 bikes at $200 a bike from Company A to sell in their shop. Company A now has $2,400 in accounts receivable from Company B.
The problem with accounts receivable, especially in a B2B situation where products and services are being extended on credit, is the risk of never getting paid what you are owed. For this reason, businesses that offer lines of credit for their products or services should carefully vet their prospects before making them a customer.
For this reason, many businesses are turning to accounts receivable software. Accounts receivable software automates the process of collecting on overdue accounts. It can prioritize a collector’s day, telling them exactly which accounts to account. It can even contact accounts for the collector, by sending out automated email with past due notices or a link to pay in a customer payment portal.
Companies often see their days sales outstanding decrease when using accounts receivable software. The automation allows companies to focus on the most important accounts, ensuring the risk of not collecting on their accounts receivable stays low.
THE HISTORY OF ACCOUNTS RECEIVABLE SOFTWARE
Accounts receivable has been an option for businesses to purchase and increase cash flow for longer than it even had a name. Of course, the methods have changed and refined throughout history, but it has long been an option for a company to purchase goods and pay for them flexibly later. We’re going to take a look back in history at where and when accounts receivable was founded and how it has evolved to become what we know it as today in an automated accounts receivable software format.
The founders of accounts receivable, the Mesopotamians created a form of factoring similar to what we use today, by allowing businesses to purchase goods and pay later. The first official rules of accounts receivable were made available in the Code of Hammurabi.
Accounts receivable takes shape in England and becomes a more popular business route in the clothing industry. Clothing items coming to England were often traveling far distances and the transporters would have had to wait to get paid once the delivery was made. With the introduction of accounts receivable financing, the transporters were able to get paid a portion of the pay immediately, which covered costs for equipment and supplies.
The colonists of the “New World” used accounts receivable in order to make a living off of the available raw materials they have discovered. The colonists would ship tobacco, fur, cotton and timber back to England. The colonists would offer cash advances based on the strength of the customers’ accounts receivable.
Thanks to the industrial revolution, accounts receivable financing became even more popular. Extenders of credit began looking at the “credit-worthiness” of a customer.
Industries like textiles, garment and transportation started using accounts receivable as a major source of their financing. They began using factoring as a way to continue to purchase their raw materials. Accounts receivable financing allowed them to deal with long sales cycles when transportation and distribution of goods was not yet quite reliable.
Some U.S. banks begin offering accounts receivable factoring options, as opposed to just a business to business model. Factoring reaches a volume of $2.5 billion in 1948.
Since banks joined the factoring business, interest rates began to climb exceedingly high and regulations tightened. As a result, private accounts receivable factoring companies started to grow.
ERP systems and business software created modules within their software that allowed for automation of some of the accounts receivable process. This was the beginning of using software to manage accounts receivable.
Software developers noticed a gap in the accounts receivable modules that existed within ERP and business software. Developers started to create software that allowed collectors to get rid of their manual processes, such as highlighters and aging reports. Lockstep Collect was developed in 2008, with prioritized workflows, automated email and accounts receivable analytic tools.
Thanks to increased cloud technology, it is even easier for small and mid-sized businesses to offer credit extensions without the use of a bank. Cloud-based accounts receivable management software allow companies to man the accounts receivable department at a lower cost, while offering more services.
THE FEATURES OF ACCOUNTS RECEIVABLE SOFTWARE
Accounts receivable software can vary depending on the size of the company, the package size that you choose and what you’re looking to accomplish by using it. However, there are some key features of accounts receivable software that every system should be able to do. Without these features, you will be forced to do a lot of manual tasks, which won’t aid in your ultimate goal of becoming more focused and efficient in your accounts receivable process.
Below are the features that every truly automated accounts receivable system should have.
In the daily life of a collector, who really has time to send an email to every single customer to remind them to pay their bill? Not many. With an automated email feature, you have the ability to simply set up who should receive an email one time, create the email template and then let the accounts receivable software do the rest of the work.
ONLINE BILL PAY
One of the easiest manual tasks to offload is data input when a customer pays. Whether that is when a customer sends in a check, or when they call in to read off their credit card numbers, wouldn’t it be easier if they could self-serve their payments? Most accounts receivable software systems should have an online bill pay feature that allows customers to open a personalized payment portal where they can look at open invoices and make payments immediately.
INVOICE DISPUTE MANAGEMENT
Invoice disputes are a huge hurdle to getting paid on time. The longer an invoice sits in dispute, the less chance you will have on collecting the full amount. Your accounts receivable software should have a feature that automatically escalates disputes to the correct person handling them. Additionally, it should keep track of disputes to tell you which ones are occurring most often so you can be proactive about the problem.
PHONE CALL MANAGEMENT
Making phone calls to customers are one of the most important tasks a collector can do. A phone call is the most common way to get a customer to take action and actually make a payment. Using accounts receivable software with a phone call management feature allows you to record and transcribe these phone calls directly from within the application. Customers can also reach a prerecorded menu to find out what their balance is, how many open invoices they have and more.
Accounts receivable inherently has a lot of documents that need to be managed. You have statements, invoices, purchase orders and other documents that your customers need in order to even consider making a payment on their invoice. Your accounts receivable software should have a feature that can manage your documents and attach them to your automated emails.
THE BENEFITS OF USING ACCOUNTS RECEIVABLE SOFTWARE
The many features that automate manual accounts receivable tasks will be taken off the plate of collectors when using accounts receivable software. By doing this, accounts receivable software allows collectors to stay focused on their most important tasks. Instead of working with their hands, they are able to work with their brains. Working smarter, not harder.
The benefits of using accounts receivable vary from time and money saved to having more confidence in your accounts receivable team. Below are a few of those benefits of accounts receivable software.
GET PAID 20 PERCENT FASTER
According to PayStream Advisors, using an accounts receivable software can help an organization get paid 20 percent faster. When your collectors are no longer sending out mindless email after mindless email, inputting data from the ERP system into a spreadsheet or copying down credit card numbers from customers, they are able to improve their collection strategy and begin creating a collection system that works to get them paid faster.
Users of automated accounts receivable software have reported saving up to 600 hours of accounts receivable time. Consider the amount of time it takes to send an email. First, you have to gather a list of those that need to receive a past due notice, welcome letter or invoice. Then, you need to find out the customer’s specific information and gather any supporting documents. Finally, you craft the email and send it out. This can take about 5 minutes of time. If you have just 100 customers who need an email sent to them, this is an entire day’s work. By allowing accounts receivable software to send out these emails for you, you’re saving an enormous amount of time.
With a prioritized workflow in accounts receivable software, collectors are able to find out exactly what they need to do as soon as they log in. The software will alert them to all accounts that are overdue, accounts that have a dispute, any new emails and messages from customers and let them know which accounts they need to start for the day. By prioritizing the workflow for the collector, less time is spent organizing and more time is spent collecting.
VISIBILITY & TRANSPARENCY
If a collector goes out of town for vacation or is home sick, your collections efforts shouldn’t come to a halt. With automated accounts receivable software, the collections emails will continue to go out. If someone else needs to take over the accounts for a week, they can see exactly who was contacted recently and where they are at in the collections process.