Accounts Receivable (AR) and Accounts Payable (AP) are two very fundamental components of any business’ financial operations. However managing AR and AP can be a time-consuming and error-prone process when done manually. With software that can automate the entirety your AR/AP processes, you can change the handling of your company’s workflow, from invoice generation and delivery to payment processing and reconciliation—all at once.
Accounts Receivable (AR) vs. Accounts Payable (AP)
AR refers to the money that a business is owed by its customers for products or services delivered but not yet paid for. Because it represents the income a company expects to receive in the near future, AR is an asset on a company’s balance sheet. Common use cases of AR include invoices issued to customers, outstanding payments and pending sales receipts.
Now, flip the scenario above and you get Accounts Payable. AP represents the short-term debts that a business must pay off to its suppliers, vendors or creditors for goods received, services provided and other obligations. It encompasses all unpaid invoices and commitments the company is responsible for. Because the business owes money, AP is a liability on the company’s balance sheet.
What is AR/AP automation?
AR/AP automation is the use of technology and software solutions to optimize the processes of managing outstanding invoices, payments and other financial transactions. Automation also streamlines repetitive tasks (data entry, approval workflows, reporting, etc.), reduces errors and provides real-time visibility into financial transactions.
Here are some common use cases for AR/AP automation:
AR
- Electronic invoicing
- Instead of manually creating a new invoice for every transaction, a business can use AR automation software to generate electronic invoices and send them to customers via email. Digital invoices can also be set to recur and send on particular dates.
- Automatic payment reminders
- AR automation systems can send automated payment reminders to customers when invoices are approaching their due dates. For instance, a SaaS company may use automated reminders to prompt customers to renew their subscriptions before expiration.
AP
- Approval workflows
- AP automation software streamlines the approval process by automating the routing of invoices to the appropriate personnel for review and approval.
- Reporting and analytics
- AP automation software also provides accurate reporting and analytics tools that offer insights into spending patterns, vendor performance and cash flow projections.
How To Start With AR/AP Automation
Both AR and AP processes can benefit significantly from automation, but how does one get started? Here’s a quick breakdown of the steps you can take to start:
AR
- Select AR automation software
- Data integration
- Connect your AR software to your accounting system and other relevant data sources, such as customer databases
- Customer information setup
- Include information like contact details, billing preferences, and payment methods
- Invoice generation
- Automate the creation and sending of invoices based on predefined schedules or triggered by specific events
- Payment processing
- Enable electronic payment options to allow customers to pay invoices online, and integrate with payment gateways to streamline the payments process
- Automatic reminders
- Set up automatic reminders or follow-up emails for upcoming and/or overdue payments
- Reconciliation
- Automate by matching received payments with corresponding invoices
- Data, reporting and analytics
- Make use of the built-in reporting and analytics features to gain insight into your AR performance and cash flow
AP
- Select AP automation software
- Data integration
- Integrate the AP software with your accounting system, vendor databases and expense tracking tools
- Vendor setup
- Include information like contact details, billing preferences, and payment methods
- Invoice receipt and scanning
- Implement an automated system for electronic invoice receipt and scanning to digitize paper invoices
- Invoice approval workflow
- Set up an automated workflow, which may include routing invoices to the relevant departments or individuals for authorization
- Automatic payments
- Schedule payments based on due dates or approval status
- Expense tracking
- Capture and categorize employee expenses
- Reconciliation
- Automatically reconcile payments made with invoices and track outstanding liabilities
- Data, reporting and analytics
- Make use of the built-in reporting and analytics features to monitor AP performance, cash flow and vendor relationships
