The limits of AR automation – Building the case for managed services


Accounts Receivable automation has been increasingly adopted by businesses as a way to streamline their financial processes and optimize their cash flow. With the rise of digital transformation initiatives, financial leaders are looking for ways to automate their Accounts Receivable (AR) systems using advanced technologies such as automation, artificial intelligence (AI), and machine learning (ML). 

Many similar technologies are already in use for accounts payable (AP) departments, such as algorithms and AI to automate the processing of invoices received. The significant reduction in invoice processing costs has driven AP automation uptake faster than AR automation initially, but automation solutions for AR are now fast becoming a must-have for many more reasons than just efficiency gains. 

The benefits of AR automation are numerous, including improved cash flow, increased efficiency, reduced DSO (days sales outstanding), improved customer experience, and better visibility into and control over working capital. That’s probably why, according to a 2020 survey by and American Express, 60% of businesses are preparing to automate their AR systems, and many are already on this journey.  

However, while automation can greatly streamline the AR process, the journey of getting to the desired level of automation can prove daunting for many businesses. 

Dangers of DIY Automation 

One of the biggest problems is that most businesses take a Do It Yourself (DIY) approach to automation, leaning on a technology provider and their internal resources to deploy, configure, and manage the solution. 

Setting out to upgrade or expand their existing technology to achieve incremental improvements in operational performance and cash flow seems straightforward enough. But, most businesses don’t have the capital budget, IT resources, or departmental bandwidth required to evaluate, purchase, implement, and manage an end-to-end AR solution. 

One of the main challenges of implementing AR automation in-house is the time-consuming nature of the process. This can include tasks such as setting up workflows, templates, and dashboards, as well as integrating with other systems such as ERP and supply chain management. Integrating an AR solution with your ERP and other legacy systems can be tricky, to say nothing of the complexity of connecting AR systems with the AP platforms that your customers use. 

Another challenge of in-house AR automation is the cost. Implementing a comprehensive end-to-end AR management system can be expensive, requiring investments in hardware, software, and skilled staff to manage it all and keep it updated. 

While a DIY approach to AR automation can yield efficiency improvements and reduce a company’s staffing requirements, it won’t eliminate them. The labor crunch has business leaders asking whether they should get bogged down with recruiting, managing, and training staff for back-office functions that do not directly relate to the company’s core business. 

It’s no surprise that, despite the survey stats cited above, more businesses might want to avoid the headache of automating AR on their own.  

By contrast, working with a managed service provider can significantly reduce the time and resources required to implement AR automation. Managed service providers can also reduce costs by aggregating resources and providing access to cloud-based solutions. 

Managed Services for AR Automation 

Once upon a time business leaders recoiled at the idea of outsourcing any responsibility to third parties. But in a world where 94% of enterprises use cloud services, such as Amazon Web Services or Microsoft Azure, the attachment to DIY and keeping everything in-house has been broken for all but the very smallest and most traditional of businesses. 

It’s not just IT platforms where businesses leverage external expertise. Professional services to support back-office functions, such as accounts receivable and accounts payable are firmly on the agenda – with 85% of companies engaging or planning to engage a managed service provider to guide their cash flow optimization efforts according to this study by Forrester. 

Managed services refer to the outsourcing of some or all of a company’s AR processes to a third-party provider. This provider can help with tasks such as onboarding, follow-up, notifications, payment processing, and customer payment management. By working with a managed service provider, companies can take advantage of specialized expertise and technology without having to invest in expensive upgrades or hire additional staff. 

Managed service providers also provide specialized knowledge in areas such as pricing, user experience, and optimization. They can provide use cases, white papers, and webinars on best practices for AR automation, as well as real-time metrics and visualization tools to track performance. Additionally, managed service providers can help with customer relationship management, reducing late payments and improving the customer payment experience. 

In addition to these benefits, managed service providers can also provide mobile apps and self-service portals for end users, further streamlining the receivables process. By taking advantage of these services, companies can focus on core business initiatives while leaving the day-to-day AR functions to the experts.  

Managed service providers go beyond automation and take on the responsibility and risk of extending credit and collecting receivables from a seller’s customers, with guaranteed AR outcomes. Managed service providers can guarantee the payment of invoices within a specified number of days, to a supplier’s payment terms. This guarantee of payment is funded and non-recourse, meaning a business can achieve cash flow certainty based on the value of its revenue bookings. Suppliers don’t have to restrict their credit policies to work with a managed service provider. 

The value of receiving payment sooner, for all invoices, is felt as a direct and immediate reduction in DSO. The working capital liberated as a result of this can be used to fund growth, with a very small percentage being used to pay for the managed service offering that has enabled the liberating of this working capital. 

It’s tempting to think that the non-recourse and on-time payment guarantees might require managed service providers to use a brute force approach to collect payment from a seller’s customers. But that doesn’t need to be the case. Managed service providers act as an extension of a seller’s staff and leverage a combination of subject matter experts, funding, and advanced technology to automate the entire AR lifecycle for businesses. If anything, this approach tends to enhance the customer experience for buyers, as they receive timely notifications in their preferred format, as well as statements, dunnings, and even direct calls from expert collections specialists who can politely request payment, address queries, and identify any genuine reasons for delayed payment as part of one seamless process. 

In conclusion, while AR automation offers significant benefits to companies, there are limits to what it can achieve. The cost and resource commitments for a typical AR automation project can be uncomfortably high for many businesses, but a self-funding solution is available in the form of AR as a managed service.  

Working with a managed service provider can help companies overcome these limits and take advantage of specialized expertise and technology without the costly investment in time and resources required for in-house automation. By working with a managed service provider, companies can swiftly and cost-effectively optimise their AR processes to improve cash flow, customer experience, and overall financial performance. 

You can find a deeper evaluation of this topic in our Beyond Automation: The Case for Accounts Receivable Managed Services white paper.