Accounts receivable (AR) is considered one of the most significant functions of a business. When customers pay for their purchases on credit, the AR department is responsible for receiving, collecting, and controlling these payments. Without such critical payments, your company will not be able to operate further. Automation of accounts receivable is becoming an integral part of business development. It reduces the time and money spent on manual work and eliminates possible calculation errors, faster processing and provides insights for better decision-making.
Due to the Mordor Intelligence LLP report, the global accounts receivable automation market was valued at € 1,9 million in 2021, and it is projected to be worth € 3,9 million by 2027 while registering a CAGR of 12.11% from 2022 to 2027.
In this article, we will discuss what accounts receivable means, what processes make it up, what IDP is, and how this technology helps automate accounts receivable. We will also explore how you can implement the Graip.ai IDP product into accounts receivable for efficient improvement.
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What are accounts receivable?
Accounts receivable is the amount of money that customers owe to a business for provided services and goods but not yet paid for by customers. AR is listed as a current asset on the company balance sheet. To summarise, any amount of money owed by customers for purchases made on credit is AR.
The meaning of accounts payable is close to accounts receivable. The difference is that instead of money to be received as in accounts payable, they are money owed. If you are interested in accounts payable processes, read more information in our previous article. You can analyse the strength of a business AR with the accounts receivable turnover ratio or days sales outstanding. Your analytics can complete a turnover ratio analysis to have an expectation of when the company actually receives AR.
For instance, the process of AR is well demonstrated by a gas company that bills its clients after the clients receive the gas. The gas company must record accounts receivable to update its invoice data as this company waits for its clients to pay their bills.
The largest number of companies operate by providing a portion of their sales to be on credit. Occasionally, companies suggest this credit to frequent clients that receive periodic invoices. This route allows clients to protect themselves from problems. They may be caused by physically making payments as each transaction occurs. In another case, companies monotonously suggest to all of their customers the option of paying as soon as they receive the service.
What processes are included in accounts receivable?
Accounts receivable refers to unpaid invoices that a company has, or to the money that customers owe to the company. This term refers to accounts that a company has the right to receive because it has already provided goods or services. Accounts receivable, or receivable, represents a line of credit extended by a company. AR has terms that require payments due within a short period. This period typically varies from a few days to a fiscal or a calendar year.
Businesses usually record accounts receivable as assets on their balance sheet. They make this entry because there is a legal obligation for the customer to pay the debt. They are considered a liquid asset because they can be used as collateral to secure a loan to help meet short-term obligations. It is important to mention that receivables are part of a company working capital. Moreover, accounts receivable refers to current assets. It means that the account balance is due from the debtor in one year or less. In this case, if a company has account receivables, it means that it has made a sale on credit, but has not yet received money from the buyer. Many companies use accounts receivable ageing schedules to control the status and well-being of AR. The basic accounts receivable processes follow these main steps:
- Invoice processing — invoices are received and processed by a company.
- Payment processing — payments are matched to invoices.
- Reconciliation — a summary of activities is shown: invoices generated, payments received, and adjustment.
What is intelligent document processing?
Intelligent document processing (IDP) is an advanced software solution. It can capture, transform, and process your company data from documents, such as emails, text, PDF, Word, or even scanned files. With these advanced solutions, data can be analysed, categorised, transformed, and exported to external systems like SAP, Microsoft Dynamics 365, and Salesforce. As a result, you will receive a fully automated end-to-end AR process.
IDP solutions can work with different types of documents:
- Structured documents — predefined documents with a set layout, like a tax form.
- Unstructured documents — free-form documents like a memo or a business contract.
- Semi-structured documents — such kinds of documents can combine free-form and fixed structures.
IDP solutions have a wide variety of applications performing different business functions across different industries. Frequent IDP use cases are document processing in financial services, complaints processing in the healthcare industry, and delivery tracking in the supply chain industry. Here you can read about the most frequent IDP use cases in our practice: insurance and logistics services.
How to optimise accounts receivable with IDP?
Accounts receivable automation is becoming an integral part of businesses. It helps companies save money and time and improve efficiency. Poor receivable operations impact credit chores, corporate borrowing, liquidity management, corporate sales reporting, and sales commissions. Moreover, ineffective accounts receivable processes make it difficult to understand the present financial situation of an organisation.
For example, automated invoicing helps to avoid manual errors and reduce time on repetitive tasks such as filling and scanning invoices. You can utilise this time for more important strategic tasks in your organisation. Automated AR processes help reduce costs and make businesses more profitable.
There are some typical use cases of IDP in account receivable processes:
- Invoice processing
Invoice automation allows you to create and operate a complex routine of invoice functions. You can increase invoice efficiency by reducing manual errors and time spent on monotonous processes. - Payment processing
This stage includes the process of matching payments to invoices. It refers to invoices comparison with supporting documents to verify that the information is correct prior to payment. - Collection management
By automatically extracting data from customer communication channels, such as email, organisations can identify overdue accounts and take appropriate actions to collect payments. - Compliance management
IDP can also help organisations comply with regulatory requirements related to AR processes. By automatically extracting and storing data related to customer transactions, organisations can easily produce reports and audit trails for compliance purposes. - Solutions with additional functionality
Solutions that have additional functionality for building analytics can help you get insights into financial information in real time and make the right financial decisions on time. - Reconciliation
This stage is the most essential in the whole automating AR process. An automated reconciliation report provides you to match the sub-ledger with the general ledger and show a summary of activity. It automatically includes invoices generated, payments received, and adjustments.
How to implement the IDP solution of Graip.AI into accounts receivable?
Graip.AI is a solution for automatic data recognition and classification. It can be applied to different types of documents including PDF, Exel, Word, email, and even scanned files. The solution is based on machine-learning mechanisms. They provide Graip.AI to independently determine the type, number, and date of the document, as well as other details.
To automate AR, you can implement the Graip.AI solution in your accounting process. Graip.AI optimises various use cases depending on your company’s needs and sector.
- Invoice and receipts processing.
Your AR department receives invoices or receipts in various formats and sends them to the Graip.AI system. There is an instant process of intelligent key information extraction using ML technology. At the end of this process, your accountant can verify and approve the extraction result or make the required changes. Our ML model will keep these changes for future learning and more effective interactions. If there are business needs, Graip.AI can automatically fill with predefined data custom fields based on custom business logic. At the verification stage, your accountant can correct the fields. In the end, extracted and verified data can be automatically transferred to any integrated 3-rd party accounting system via API or downloaded in any applicable format. Among 3-rd party systems can be SAP, Salesforce, Microsoft Dynamics 365, and etc. - Automatic reconciliation processes.
In the Griffin Technology case study, they say that manual accounting closing took 30 days before launching the processes of automatic reconciliation. Previous generation AS-IS processes include much manual and error-prone work. Accountants have to manually collect digital and paper documents. There can be checks, receipts, and bank statements. Then they type data manually into the accounting or ERP systems. During this work, they have to check each record for errors.
The Graip.AI solution provides your accounting department to avoid manual error-prone work. Graip.AI reads paper or digital data and automatically validates errors.The process includes the following steps: document uploading, data extraction, matching, and reconciliation. In the third step, the extracted data is matched against the relevant customer account in the accounting system. It helps to identify discrepancies, such as invoices that have been paid or are past due, and allows for quicker resolution. Exception handling applies in cases where there is a mismatch or discrepancy. The Graip.AI flags it as an exception and sends an alert to the relevant department or team. It allows for quicker resolution and reduces the risk of disputes or delays. In the end, Graip.AI provides reports and analytics on the reconciliation process. It helps management to identify trends, monitor performance, and make data-driven decisions. - Mapping to GL accounts.
Graip.AI allows users to download processed results with links to GL accounts to automate categorisation based on captured fields. Once the data is extracted, the Graip.AI maps the transaction to the appropriate GL account based on predefined rules and business logic. The solution can automatically upload the transaction data into the organisation’s accounting system.
Conclusion
Automation of accounts receivable has a significant impact on business processes and their effectiveness. Automation of document-based processes leads to multiple benefits, such as faster data sharing, processing cost reduction, fewer manual errors, high customisation, optimised manual processes, and overtime improvements.
Furthermore, the rise of cloud-based AR automation solutions along with the growth of these solutions’ adoption among small and medium-sized companies are expected to create incomparable opportunities for the market.