For finance teams, collecting payments isn’t just about sending invoices and waiting for checks to roll in.

On the whole, accounts receivable is a complex process that has long been plagued by manual tasks, payment delays, customer disputes, and repetitive data entry that only becomes increasingly painful over time as a business grows.

To truly streamline your order-to-cash process, improve cash flow, and create better customer experiences, you need an accounts receivable automation solution that goes beyond the basics.

In this comprehensive guide, we’ll walk you through what accounts receivable automation really means, where it shines, where it can fall short, and how AI-driven platforms like Fazeshift can transform the way your receivables are managed.

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Key Takeaways:

• Accounts receivable automation is more than just invoicing. While many tools automate simple tasks like invoice generation and reminders, a truly effective solution should streamline the entire O2C cycle, from credit checks and payment reminders to dispute resolution and cash application.
• AI supercharges automation. AI enables smarter and faster decisions to be made across accounts receivable processes, such as payment matching, customer outreach, and exception handling.
• Customization and control matter in accounts receivable automation. Some tools take a one-size-fits-all approach, which may not always be suitable for your team’s workflows. Platforms like Fazeshift offer automation controls and approval workflows so your team only needs to step in when it matters the most.
• Implementing automation shouldn’t be a burden for your business. Deploying accounts receivable automation doesn’t have to mean reworking all your systems. Look for tools like Fazeshift that integrate with your existing systems to avoid costly disruptions.

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What’s Accounts Receivable Automation?

Loosely speaking, accounts receivable automation refers to the manual tasks and processes that these teams can now complete with the help of a software system or tool.

This process of automating how businesses collect payments from their customers includes generating invoices, sending payment reminders, processing payments, managing records, and cash application, where incoming payments are matched to open invoices.

However, it’s worth pointing out that an effective accounts receivable automation solution should streamline the entire order-to-cash, or O2C, process, which starts when a customer places an order and ends when a payment is received and recorded.

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What Are Some Limitations of Accounts Receivable Automation?

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Software systems and tools can automate a lot of tasks and processes for your teams, but the level of it can vary based on your organization’s workflows and what you’re using to get work done.

For instance, Fazeshift can automatically send out payment reminders and dunning letters at specific times — as well as collect remittance advice, share certain documents with customers upon request, and respond to payment disputes — but there may be times when it may be better your team to step in and work with a customer.

Case in point: you may want a manager to review and approve payment plan terms that a customer requested or handle negotiations on a sensitive account. For cases like these that require your team’s oversight, it’s paramount to find a solution like Fazeshift that has automation controls so you can create approval workflows and see who approved or carried out certain actions along the way.        

Alternatively, the type and amount of automatable work can also be limited by the software solution that you’re using.

Some software solutions may try to steer you toward a desired automation path that works well for them, but would require a significant overhaul of your existing tools and processes.

As an example, a proposal to automate the cash application process could be to only accept debit, credit, and virtual card payments from your customers. By definition, this proposal would automate the cash application process for your company, and some customers may be fine with it, but there are likely others who prefer or need to pay by physical check, ACH, or wire transfer.

In other cases, software solutions may be limited by what they can automate.  

Software solutions, for example, can automate the payment reminder process for your team, but not all include built-in, auto-escalation features.

Within Fazeshift, you can create payment workflows that automatically copy specific team members in payment reminders, forward it to other teams, create tasks within our platform, or send notifications to internal communications tools so your team can take action when invoices become overdue and aren’t paid over time. As a part of this collections workflow, Fazeshift even gives you the ability to shut off a customer’s account.

Choosing the best accounts receivable automation software isn’t easy, and there’s a lot of options out there, so taking a pragmatic approach to the evaluation and selection process will help you find a solution that doesn’t require overhauling your existing tools or systems.

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How Does Accounts Receivable Automation Work?

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Every organization operates and builds out their workflows a little differently, but the key goals and objectives for any accounts receivable team is the same.

In a nutshell, every accounts receivable team is tasked with managing credit extended to customers, invoicing them, collecting payments, reconciling outstanding invoices with open balances, and reporting the status of it all so finance and accounting teams can take action.

Here are examples of how Fazeshift’s AI agents can drive accounts receivable automation, as well as optimize and streamline every step of your O2C process:

• Credit management: When a customer wants to buy goods or services on credit and pay for it later, Fazeshift’s credit agent can access their credit report, transfer that information into your ERP, and even set credit limits or holds that can be reviewed and approved by a designated team member.
• Invoicing: As soon as a contract is signed, Fazeshift’s customer billing agent can automatically turn it into a customizable invoice and either send it out to a customer by email or upload to their accounts payable portal.
• Payment collection: Fazeshift’s customer payments agent can either create a custom self-serve portal for your customers to view and pay invoices, as well as update billing information. Fazeshift’s email agent also makes it easy to automatically send out customizable dunning letters to customers, request certain documents from customers to speed up the collections process, share documents as email attachments upon request, and pause communications when your team wants to step in and work with customers. Fazeshift even has a payment dispute agent who can manage communications with a customer and route recommendations to the right person on your team for approval.
• Reconciliation: Once a customer sends you a payment, Fazeshift automatically analyzes the submitted information, kicks off the cash application process, and flags any exceptions that may require additional review from your team. However, Fazeshift is also designed to handle complex and nuanced payment situations, including parent-child relationships. As an example, Fazeshift can automatically send an email and ask a customer to provide remittance advice, if one isn’t detected with their payment and it appears that a single payment is being used to pay multiple invoices.
• Reporting: Fazeshift’s interactive dashboards provide finance and accounting teams with a live, interactive view of your aging schedule, dunning letters, and more to ensure that teams are on top of invoices in the queue.

Accounts receivable automation seems straightforward enough, but it’s actually quite broad in practice and doesn’t always mean automating the entire O2C process.

In some cases, software solutions only automate specific workflows or tasks, such as invoice creation, payment reminders, and cash application, and are either limited in scope or not very customizable.

Some software tools, for instance, may claim to automate the dunning process for your team, but their proposed solution consists of a few outreach emails with little to no personalization or customization options, much less the ability to use your own email domain name.

Other solutions may also take a one-size-fits-all approach to automation that may do the job but isn’t robust enough to handle a wide range of common edge cases, which are often flagged as exceptions for manual handling by your team.

Fazeshift takes a slightly different approach to end-to-end accounts receivable automation by seamlessly stitching targeted, AI-powered solutions together that are robust enough to solve every step of your O2C process.    

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How Does Accounts Receivable Automation Help Businesses?

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Accounts receivable automation helps businesses streamline the way customer invoices and payments are managed, processed, and transmitted.

Since businesses can send out invoices and collect payments faster, automation enables accounts receivable teams to see a significant improvement in their cash flow and a reduction in the amount of errors that must be corrected or resolved.

When implemented alongside best practices for improving accounts receivable collection periods, automation can foster stronger relationships with customers and ensure that finance and accounting teams have the auditable data they need for accurate financial reporting.  

As far as quantifiable outcomes go, an effective accounts receivable automation solution can cut your organization’s DSO, or days sales outstanding, which measures how long it takes to collect a payment after an invoice is issued, and accounts receivable turnover, which evaluates how well payments are collected from customers who buy goods or services on credit.

For example, accounts receivable teams that use Fazeshift see at least a 50 percent drop in DSO, 10 times faster payment posting, and an overall 90 percent drop in costs.

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What Are the Benefits of AR Automation?

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Accounts receivable automation plays a critical role in helping businesses modernize their finance operations, especially as they scale.

Traditionally, accounts receivable teams relied on a patchwork of manual tasks to create invoices, send payment reminders, track collections, reconcile payments, and follow up on disputes. The problem is that all of this manual work can be time consuming, prone to errors, and difficult to manage efficiently at scale.

With the right automation tools in place, your company can reduce the operational burden placed on finance teams, improve overall cash flow, create a seamless customer experience, and gain real-time visibility into key financial metrics.

Here are some of the most impactful ways that accounts receivable automation can benefit your organization:

• Less manual work and errors: Automation replaces tedious and repetitive manual tasks, such as entering data into an ERP, creating invoices, and reconciling payments, so your accounts receivable team can actually focus their time and effort on high-value tasks.
• Pleasant payment experiences for customers: Automated, yet customizable communication channels, such as accepting payments through self-service portals and sending invoices or payments by email, provide a frictionless way for customers to pay on time and interact with your accounts receivable teams.
• Improved cash flow: Sending out invoices and payment reminders quickly, as well as bolstering collections workflows, ensures that your business is paid faster. When this happens, your organization has better cash flow and a lower DSO, which is a key indicator of good financial health.
• Better scalability over time: As your business grows, automation enables accounts receivable teams to handle a higher volume of transactions without the need to deal with the operational complexity that goes along with it or hire more people.
• Actionable insights and built-in transparency: Real-time dashboards and automated reporting give your finance and accounting teams better visibility into aging accounts, a company’s cash position, and the number of outstanding invoices.
• Fewer delays and customer disputes: By automatically detecting discrepancies, requesting remittance advice, and escalating issues to the right team members, accounts receivable automation can get disputes resolved quickly and smooth out the payment process.

When taken together, accounts receivable automation doesn’t just accelerate the collections process — it can help your finance and accounting teams become more strategic, efficient, and responsive.

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What Are Some Drawbacks of AR Automation?

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Accounts receivable automation offers significant advantages, but there are some common objections that are worth noting.

While these challenges don’t necessarily outweigh the benefits, they can impact the effectiveness of the solution if not addressed properly:

‍Upfront Costs and Implementation Time‍

Deploying AR automation software can require a substantial initial investment in the form of money and time. The setup process, especially for complex systems that integrate with ERPs or CRMs, can be resource-intensive and may require external support.

Just so you know: Since Fazeshift has a wide range of robust integrations with a wide range of systems that you’re already using, the goal is to get automation up and running for your team within 30 days.

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Integration Challenges

Not all automation tools have seamless integrations with your existing systems. Poor integrations can create data silos, duplicate records, or broken workflows that require manual intervention.

Just so you know: Fazeshift has dozens of integrations with a wide range of CRMs, ERPs, payment platforms, email systems, online banking portals, internal communication tools, billing platforms, portal systems, and internal data systems.

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Limited Customization Options

Some solutions offer a one-size-fits-all approach to automation that lacks flexibility. Businesses with unique billing structures, approval workflows, or customer communication requirements may find that out-of-the-box tools can’t easily be tailored to fit their needs.

Just so you know: Fazeshift enables your team to automate and customize every step of your auditable order-to-cash process, from running credit checks and generating invoices to sending dunning letters and matching incoming payments to open invoices.

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Relying on Automation Too Much

Automation without human oversight can lead to issues being missed, such as nuanced customer disputes or exceptions that don’t fit into standard workflows. A lack of human-in-the-loop processes can result in poor customer experiences or delayed dispute resolutions.

Just so you know: Fazeshift has automation controls in place that enable your team to see what data was used by AI, how it was interpreted, why a decision was made, what actions are recommended, and who approved actions.

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Data Accuracy and Quality Issues

Accounts receivable automation is heavily reliant on clean and accurate customer data. If data is incomplete, outdated, or inconsistent, an automation solution can generate incorrect invoices, apply payments to the wrong customer accounts, or trigger inappropriate communications.

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Cybersecurity and Compliance Risks

Automation solutions that handle sensitive customer and financial data must comply with certain regulations, such as GDPR and SOC 2. Poorly secured automation tools can be cybersecurity risks, especially when they’re integrated with email or payment systems.

Just so you know: Fazeshift complies with SOC 2 Type 1 and 2, as well as GDPR and PCI.

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Change Management and Adoption Woes

Transitioning to an automated accounts receivable process can be disruptive, especially for teams who are used to manual workflows. Without proper training and change management initiatives in place, there may be resistance from staff or inconsistent use of the new system.

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Limited Handling of Edge Cases

Some automation tools struggle with complex or unusual scenarios, such as partial payments, parent-child account relationships, or customized payment terms. In the end, these use cases are often flagged as exceptions and require manual handling, which can slow down the cash application process.

Just so you know: Fazeshift’s cash application process is designed for complex and nuanced workflows, so it’s equipped to handle partial payments, parent-child company relationships, and unique payment terms.

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Understanding these potential drawbacks can help you plan more effectively, choose the right solution, and design workflows that balance automation with human oversight.

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What AR Processes Can Businesses Automate?

Businesses can automate a wide range of accounts receivable processes to reduce manual workload, speed up collections, and improve accuracy.

Here’s a detailed break down of key accounts receivable processes that are commonly automated at each step in the O2C process:

Credit Management

• ‍Customer credit checks: Automatically pull credit reports from third-party providers.‍
• Credit approvals: Route requests to specific team members for review and set credit limits or holds.‍
• Monitoring credit risk: Continuously evaluate a customer’s creditworthiness and flag changes in risk level.

Invoicing

• ‍Invoice generation: Automatically create invoices from contracts or sales orders.‍
• Invoice customization: Include customer-specific details like tax rates, currencies, and terms.‍
• Invoice delivery: Send invoices via email or upload them directly to customers' accounts payable portals.

Payment Processing

• ‍Self-service portals: Allow customers to view, download, and pay invoices online.‍
• Payment reminders: Schedule and send payment notifications at specific times and pause communications when a team member has to step in to review, approve, or otherwise handle negotiations.‍
• Recurring payments: Set up automatic billing for subscription- or installment-based services.

Collections Management

• ‍Dunning letters: Automate the way payment reminders, past-due notices, and follow-up emails are sent based on how overdue they are.‍
• Escalation workflows: Trigger internal alerts and escalate accounts to other teams once they reach certain overdue thresholds.‍
• Customer communications: Use AI-powered tools to automate and personalize outreach and manage requests or inquiries.  

Dispute Management

• ‍Routing and resolution: Assign disputes to the right team member, open cases, and suggest resolution steps or templates for response.‍
• Status tracking: Monitor open disputes and automate reminders or status updates.

Cash Application

• ‍Payment matching: Automatically match incoming payments to open invoices using remittance data, customer history, or AI algorithms.‍
• Exception handling: Flag unmatched payments or discrepancies for manual review.‍
• Remittance collection: Ask customers to submit remittance advice when payment information is missing or unclear.

Reconciliation

• ‍Import bank statements: Automatically import and analyze bank transaction files.‍
• Account reconciliation: Match incoming payments to AR ledgers and flag anomalies.‍
• Audit trails: Maintain a complete record of transactions and adjustments for compliance purposes.

‍Reporting and Analytics

• ‍Aging reports: Generate real-time schedules with account drill-down capabilities.  ‍
• Collections performance: Monitor DSO and cash inflow trends.

Automating these processes not only improves speed and accuracy but also allows finance teams to focus on strategy, analysis, and improving customer relationships.

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Top Features of Accounts Receivable Automation Software

When you’re evaluating accounts receivable automation vendors, it’s critical to determine whether a solution truly aligns with your business needs, current challenges, and long-term goals.

With the right features in place, accounts receivable automation can help you streamline the entire O2C process, reduce manual work, accelerate collections, and provide better visibility into your organization’s receivables.

Here’s a list of key features that you should look for in every step of your O2C process:  

Credit Management Automation

• Pull customer credit data from third-party bureaus
• Automate credit scoring, approvals, and limit assignments
• Monitor changes in customer creditworthiness over time

Invoice Automation

• Generate invoices based on contracts, including those for usage-based pricing cases
• Create customizable templates for different customer segments
• Automatically send invoices via email or customer portals

Payment Reminder and Dunning Notice Automation

• Automated, rule-based reminders for upcoming and overdue payments
• Customizable dunning letter templates with various tones that can be sent at specific times
• Ability to pause or escalate communications based on customer behavior
• Support for sending communications from your company’s domain
• Trigger emails, internal tasks, or status changes based on customer behavior or account activity

Self-Service Portals for Customers

• View, download, and pay invoices online
• Update billing or payment information
• Submit remittance advice or dispute a charge

Dispute and Collections Automation

• Track payment disputes
• Task routing for internal teams and customizable escalation workflows
• Communication history for audit and compliance purposes

Cash Application and Payment Matching

• Automatically match incoming payments to open invoices using AI, built-in rules, or remittance information
• Ability to handle partial payments, overpayments, and single payments for multiple invoices (or the other way around)
• Identify and flag exceptions for manual review

ERP and Accounting System Integration

• Frictionless syncs with your ERP, CRM, or general ledger system
• Real-time updates to invoices, payments, and account balances across systems‍

Interactive Dashboards and Reporting

• Real-time aging reports and cash flow insights
• Drill-down insights for invoice, customer, and team member performance

Security and Compliance Requirements

• Role-based access control and audit trails for actions made
• Encryption and secure data-handling practices
• Support for regulatory compliance, such as GDPR and SOC 2

Choosing AR automation software with these features ensures that your finance team is working faster and smarter with the tools they need to reduce risk, increase cash flow, and deliver a better experience for customers.

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How to Implement Accounts Receivable Automation

Implementing accounts receivable automation requires a thoughtful and phased approach to ensure it aligns with your existing processes, integrates with your systems, and delivers measurable improvements.

Before you go out and search for the best accounts receivable automation software, your finance and accounting teams should do a little homework so there’s clarity around what’s needed. Getting your accounts receivable team prepared for automation is also critical so there are no snags or delays in the implementation process later on down the line.

Here are few quick steps that can help your organization prepare for a vendor search:

Assess Your Current AR Process

• ‍Map out workflows: Document how invoices are created, sent, collected, and reconciled today.‍
• Identify bottlenecks: Look for manual tasks, frequent errors, or delays.‍
• Evaluate metrics: Review mission-critical KPIs like days sales outstanding (DSO), dispute rates, collections effectiveness index (CEI).

Solidify Your Goals and Requirements

• ‍Decide what success should look like. For instance, your organization may want to reduce DSO by 15 percent, improve accuracy, and automate 80 percent of collections.‍
• Identify those must-have features. As an example, your teams may need a specific ERP integration, want a custom payment portal for customers, or automate the way dunning letters are written and sent to customers.‍
• Involve stakeholders across finance, IT, and accounting to gather input.

Prepare Your Data and Systems

• Clean and validate customer data, payment histories, and open AR balances.
• Ensure your ERP or accounting system is ready to integrate and has APIs available.
• Define data flows between systems by mapping out who owns what and where the source of truth lies.

Once your organization’s vendor search has actually started, here are a few quick tips to keep in mind during sales conversations and the evaluation process:

• Evaluate vendors based on features, scalability, integration capabilities, and industry fit.
• Ask for demos, customer references, and documentation on implementation and support.
• Ensure the software supports your O2C complexity, including exceptions and dispute handling.

Even after you select an account receivable automation vendor, there’s still a little bit of legwork that your teams must do to get everything up and running and ensure that everything runs smoothly over time.

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Here’s a brief rundown of what you can expect after an automation vendor has been selected:

Design and Configure Workflows

• Set up invoicing schedules, dunning rules, dispute handling paths, and escalation points.
• Customize communication templates, including invoices, reminders, and payment notices, with your branding.
• Establish business rules for credit approvals, payment matching, and exception handling.

Get Your Team Up to Speed

• Provide training for accounts receivable staff on how to use the platform, interpret dashboards, and manage exceptions.
• Ensure that any customer-facing teams understand how automation affects their communication.
• Create documentation or standard operating procedures (SOPs) for handling those edge cases that aren’t fully automated.

Roll Out Automation in Phases

• Automate a subset of customers or workflows to test performance and catch issues.
• Monitor adoption, resolve integration or data issues, and gather feedback from users.
• Scale gradually to full automation across accounts receivable.

Monitor and Measure Results

• Track KPIs like DSO, invoice accuracy, payment turnaround, and dispute resolution time.
• Use analytics and dashboards to identify trends and areas for further improvement.
• Refine workflows, communication timing, and automation rules based on performance data.

Implementing AR automation is a strategic shift in how your finance team operates. By putting in a little work to make it happen at each step along the way, accounts receivable automation can reduce manual work, strengthen cash flow, and improve your customer relationships.

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What Role Does AI Play in Accounts Receivable Automation?

AI plays a pivotal role in accounts receivable automation by going beyond basic task automation to bring intelligence, adaptability, and predictive capabilities to the entire O2C process for your accounts receivable team.

Here's a few ways that AI can supercharge specific accounts receivable workflows:

Intelligent Data Extraction and Processing

Beyond traditional OCR, AI can automatically extract key information from invoices, remittance advice, emails, and other unstructured documents. Apart from reducing manual data entry errors, this automated process can speed up the invoice generation and cash application process, as well as process a variety of formats from different customers.

Intelligent Invoice-Payment Matching

AI algorithms analyze patterns and historical data during the cash application process to accurately match incoming payments to open invoices, even when remittance information is incomplete or payments are made in bulk. Fully automating this process minimizes the amount of exceptions, such as parent-child relationships or split payments, that must be handled by your team.

Automated and Personalized Communications

AI-powered email agents — like those offered by Fazeshift — can draft and send dunning letters, payment reminders, or dispute resolution emails. More important, AI can adjust the tone, content, and timing of the outreach emails based on a customer’s behavior and payment history. Along with increasing the likelihood that payments will be made on time, automating communications can save your team time and create a pleasant experience for your customers.

Dispute and Exception Handling

AI can detect potential disputes, categorize them, and make recommendations to resolve the issue or route these customers to the right team member. When this sensitive process is automated, disputes are resolved faster and less potential revenue is lost.

Continuous Learning and Improvement

Accounts receivable workflows and processes are designed to improve over time, since AI can learn from any changes made by accounts receivable teams, customer responses, and payment patterns. Doing this improves the accuracy of predictions over time and enables your process to seamlessly adapt to changes in customer behaviors and market conditions.

Intelligent Workflow Automation

With the proper automation controls in place, AI can recommend or trigger the next best action in a process, such as suggesting a credit limit adjustment, pausing reminders during a dispute, or escalating a high-risk account for further review. When time is of the essence or there’s high risk involved, automating actions or fast-tracking them for review reduces decision-making delays and keeps your accounts receivable operations agile and responsive.

AI brings precision, adaptability, and intelligence to the entire O2C process, which enables finance teams to collect cash more efficiently, reduce risk, and deliver a better customer experience.

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Turn to Fazeshift for End-to-End Accounts Receivable Automation

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True accounts receivable automation is about working faster and smarter.

When done right, automation can transform your finance operations from reactive to strategic, but the key lies in choosing a solution that can fit your current workflows, scale with your business, and adapt to edge cases.

Fazeshift’s AI-powered platform is built with this flexibility in mind by providing your team with the tools they need to stay ahead of payments, reduce risk, and build stronger customer relationships.

As you explore accounts receivable automation, look beyond the buzzwords and focus on what truly moves the needle: cash flow, control, and customer experience.

Ready to get started? Schedule a demo with the Fazeshift team and see how our AI-powered platform can help you streamline your entire O2C process, cut DSO in half, and give your finance team the visibility and control they need without overhauling your existing systems.

Don’t settle for good enough — insist on results you can see.

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Accounts Receivable Automation FAQs

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How does accounts receivable automation work with ERP systems and electronic invoicing?

Accounts receivable automation is designed to enhance, not replace, what your ERP can do.

By integrating directly with an ERP and automating invoicing, payment tracking, and reconciliation, accounts receivable automation tools like Fazeshift eliminate manual bottlenecks so your team can focus on strategic, high-value tasks.

Seamless data syncs with your ERP

AR automation software connects directly with an ERP system, such as NetSuite, SAP, or Microsoft Dynamics, to sync key financial data in real time, including customer account details, general ledger entries, open invoices, payment statuses, sales orders, and contracts.

This tight integration eliminates manual data entry, reduces errors, and ensures that your ERP always reflects the latest activity, whether it's a newly issued invoice, a payment collected, or a dispute resolved.

Generating and sending invoices automatically

Once a contract or sales order is finalized, an accounts receivable automation platform like Fazeshift can automatically generate an invoice using data pulled from an ERP and customize fields, such as tax rates, currencies, and payment terms. These automation platforms can then send invoices to customers electronically by email, EDI connections, or your customer’s accounts payable portal. By using electronic invoices, often known as e-invoices, customers can get these documents and make payments quickly through self-serve portals or embedded payment options.

Automated payment matching and reconciliation

When a payment is received, accounts receivable automation tools can automatically match it to open invoices using remittance data or AI logic based on past payment behaviors, post the payment status back to the ERP, and set aside exceptions for your team to review. This workflow speeds up the cash application process and ensures that financial records in your ERP are accurate and up to date.

Real-time visibility and reporting

Because an accounts receivable automation tool is exchanging data with your ERP often, finance teams can monitor aging invoices, track customer balances, view DSO trends, and export reports or dashboards from either system.

Integrating AR automation with your ERP creates a seamless, end-to-end workflow that accelerates collections, improves data accuracy, and gives your finance team full control and visibility without adding more complexity to the equation.

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What’s an example of how accounts receivable works in practice?

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Company A signs a contract with Company B for a 12-month software subscription for $25,000.

Once a contract is signed, Company B generates an invoice for $25,000 that’s due in 30 days.

This invoice, which includes company details, billing terms, payment instructions, and any taxes that must be paid, is sent to Company A by email and uploaded to their accounts payable portal.

If payment doesn’t arrive within 20 days, Company B’s accounts receivable automation tool is set up to automatically send a payment reminder to Company A. If a payment hasn’t been received within 30 days, a dunning letter is automatically sent.

Company A makes a payment via ACH transfer 14 days after an invoice is issued.

Company B’s accounts receivable automation system receives a notification and automatically matches Company A’s payment to their open invoice.  

Once the payment is verified, the automation tool updates Company B’s ERP in real time to mark the invoice as paid, adjust Company A’s running accounts receivable balance, and mark the payment as income in Company B’s general ledger.

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Why is accounts receivable management so important?

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Effective accounts receivable management is critical because it has a direct impact on your company’s cash flow, financial stability, and relationships with customers.

Simply put, accounts receivable represents money you've earned but haven’t collected yet. Inefficient accounts receivable management results in delayed payments, a restricted cash flow, and at worst, struggles to cover operating expenses.

If your accounts receivable team isn’t following up with customers on overdue payments or conducting proper credit checks, unpaid invoices can ultimately turn into bad debt for your organization. With the right accounts receivable management practices in place, your team can flag high-risk accounts early and institute safeguards to minimize risk.

Key performance indicators, including days sales outstanding and accounts receivable turnover  ratio, are typically tied to how well receivables are managed, collected, and converted into cash when customers make a payment. If your team’s DSO is high, this suggests that you’re waiting too long to collect payments and could be flagged as a potential risk by investors or lenders.

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What’s the purpose of accounts receivable software?

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Accounts receivable software is designed to manage and automate specific manual workflows that make up your O2C process, from credit checks to cash application.

Broadly speaking, accounts receivable software eliminates repetitive, error-prone tasks, such as creating invoices, sending them out, tracking due dates, sending payment reminders or dunning letters, and applying payments to open invoices.

By speeding up invoice delivery, payment collection, and dispute resolution, accounts receivable automation software can help you get paid faster, reduce days sales outstanding, and improve working capital.

Accounts receivable automation software can also help businesses scale effectively over time, since this growth often results in higher invoice volumes, more customers, and more complex payment arrangements. More specifically, accounts receivable software can help growing businesses manage parent-child account structures, automate recurring billing, and flag and route exceptions for manual review.

Some accounts receivable platforms like Fazeshift include real-time dashboards and reporting features that provide finance teams with key insights on outstanding balances, customer payment behaviors, cash inflows, and aging reports so they can make more informed decisions.

On a related note, it’s important to point out that some solutions only automate a portion of the process while Fazeshift can automate the entire end-to-end process for accounts receivable teams.

Regardless of what or how much of your O2C process is automated, the end goal is to ensure that your finance and accounting teams can collect payments faster, create a pleasant experience for customers, and spend more of their time on high-value tasks that actually require their attention.

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What does an accounts receivable workflow typically look like?

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An accounts receivable workflow typically starts when a customer places an order and ends when a payment for it is collected, applied, and recorded. The goal of this workflow is to ensure that invoices are accurate, collections are prompt, and reconciliation is seamless.

Here’s a general step-by-step outline of what a typical accounts receivable workflow looks like for many organizations:

Order and Credit Approval

• A customer places an order
• A credit check is run on the customer
• Credit terms or limits are set or confirmed

Invoice Creation and Delivery

• An invoice is created based on the customer’s signed contract
• The invoice is reviewed and approved before it’s sent to the customer by email or their accounts payable portal.

Payment Tracking and Reminders

• Due dates for each invoice are tracked, and payment reminders or dunning letters are sent based on a specific timeframe and rules. For instance, a payment reminder can go out 7 days after an invoice is issued, while a dunning letter can go out 3 days after the invoice is due.

Payment Collection

• Customers make a payment by wire transfer, check, credit card or ACH, which is deposited into a company’s bank account or payment platform.

Cash Application and Reconciliation

• Incoming payments are matched to an open invoice using remittance details provided by a customer, AI, or predefined rules within a software system.
• Unmatched payments or other exceptions, such as partial payments or a single payment for multiple invoices, are flagged as exceptions for further review.
• Transactions are recorded in a company’s ERP or accounting system.

Payment Disputes

• If a customer files an invoice dispute due to overbilling or an incorrect product, a ticket or other workflow is triggered.
• The accounts receivable team resolves the issue, adjusts the invoice, or escalates it for another team to resolve.

Having a clear and robust billing and collections workflow in place will ensure that your company is paid promptly for services or goods and makes it easy to address any number of situations that may crop up along the way.  

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What are some accounts receivable best practices to follow?

Regardless of what kind of accounts receivable automation you have, there are some general best practices that any finance team should follow to ensure you’re extending credit appropriately, getting paid quickly, and handling issues in a timely and unified way.

• ‍Establish clear credit policies: Clearly define who qualifies for credit, how much, and under what terms. Set credit limits and timelines based on credit risk assessments, and ensure these policies are communicated clearly to customers during your onboarding process.‍
• Send accurate invoices promptly: Ensure that invoices are issued as soon as goods or services are delivered. Your invoices should always be clear, accurate, and itemized with all of the necessary payment details, including when it’s due and when an invoice was issued.‍
• Make it easy for customers to pay your invoices: If you haven’t done so already, consider accepting a broad range of payment methods, including ACH, checks, wire transfers, digital wallets, or credit or debit cards.‍
• Follow up on outstanding invoices: As a payment reminder best practice, send reminders at regularly scheduled intervals before and after due dates. Escalate follow-ups with customers based on how overdue an invoice is.‍
• Handle disputes promptly: Investigate and resolve billing disputes or errors as soon as possible. Document resolutions for transparency and future reference. ‍
• Train your accounts receivable team: Institutional knowledge shouldn’t be lost when someone is sick, on vacation, or leaving the company. Provide your team with ongoing training opportunities on collections and communicating with customers. Be sure they’re always informed on your company’s credit policies and financial goals.‍
• Review your customer’s credit regularly: Get ahead of bad debt risks by reassessing credit limits for customers who are growing or even struggling. Monitor changes in payment behaviors or credit scores and make any adjustments accordingly and quickly. ‍
• Establish clear and consistent collections practices: Document your escalation process, from reminders to follow-ups and even collections agency referrals. When issues pop up, your accounts receivable team should know what to do.

By following these best practices, your business can maintain a healthier cash flow, reduce risk, and build stronger, more reliable relationships with customers.

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