Accounts Receivable Challenges and How Automation Helps

• Reading Time: 6 Minutes
• Published: July 30, 2022
• Last Updated: March 5, 2025

Accounts receivable play an essential role in managing the business cash flow. Accounts receivable come into existence when the business makes credit sales. It is a long and complex process that must be taken care of diligently and accurately. A business faces many accounts receivable challenges, but they can be overcome by taking some crucial steps. Businesses can hire an in-house expert or outsource to accounts receivable services providers to ensure a successful accounts receivable process. Whether an in-house expert or an outsourced firm, they use automation for efficient processing. Automation replaces the human resource with a digital resource for repetitive activities and frees them up for the tasks where human help is required. Let us learn more about accounts receivable challenges and how automation helps.

What is the accounts receivable process?

Accounts receivable refers to the amount customer is yet to pay to the business for the goods and services offered. It is the amount due to the business for the credit purchases made by the customers. Accounts receivable come under current assets on the Balance Sheet.

The accounts receivable process involves managing the entire process, starting from the sale to the customer to the final payment made by the customer. It is a step-by-step to track, record, and collect the debts on time. A business can manage the accounts receivable process using accounting software and ERP or outsourced accounts receivable services. Since it is an important function that directly affects the business’s cash flow, it must be handled diligently, and thus it is necessary to choose the right method to manage the process.

What are the main steps of an accounts receivable process?

Accounts receivable processing involves some step-by-step activities to make it accurate and successful. The main accounts receivable process steps followed by accountants or accounts receivable services providers include:

• • Establish credit practices-

In order to make credit sales, a business must develop some efficient credit practices to be followed. It includes determining the customers’ creditworthiness and whether credit sales must be made to them. Also, the business must establish some terms and conditions for credit sales.

• • Invoice customers-

Once the credit practices are established and credit sales are made, the second step is to invoice the customers. An invoice is a document given to the customers and includes all the details of the goods and services sold, the amount to be paid, and the payment due date. Instead of physical invoices, as prepared earlier, businesses now produce electronic invoices, which are convenient and less expensive.

• • Track receivables and due payments-

When the invoices have been issued, a business must keep track of the receivables and their due dates. Proper tracking ensures timely payments and recording of the proceeds. It helps to keep real-time information on the business cash flow and amounts due.

• Accounts receivable accounting-

It involves sending payment reminders to the customers and accurately recording the payments received and bad debts. Proper accounting of the amount received, the amount still due, and the invoices that turned into bad debts is crucial for successful accounts receivable processing.

RPA and ERP in Accounts receivable management

As manual accounting has become outdated, businesses now depend on automation. A business can use the automation themselves or take assistance from outsourced accounts receivable services providers. A business can choose between accounting software and ERP. Accounting software doesn’t cover every business function; a business must use different software for different accounting functions.

An ERP software integrates accounting data from different functions in one database. It prevents businesses from the burden of using numerous different software and eases the entire process. ERP software like NetSuite accounting allows businesses to record all the data in one place, prepare statements and reports, and make financial decisions. ERP is a step above accounting software, and the technology one step ahead of ERP is RPA.

RPA (Robotic Process Automation) is a technology that enhances the benefits of an ERP system. It manages the pre-determined repetitive accounting activities. RPA helps reduce the error risks and enhances the speed and accuracy of the data. This technology acts as the bridge between modern ERP and futuristic business planning. The introduction of RPA or AI in ERP helps businesses free their human resources to be used for other important business activities.

What are the main accounts receivable challenges?

Managing the accounts receivable is vital to maintaining a stable cash flow. However, the complication of the process and numerous steps involved in it leave room for error. The accounts receivable process faces many challenges in making it successful. The accounts receivable services providers help overcome these challenges and make the process smoother. Following are the main accounts receivable processing challenges that a firm faces:

• High-risk customers- Checking and determining the customer’s creditworthiness is difficult and must be done carefully. Before a business confirms credit sales, it checks the customer’s creditworthiness to ensure they can pay in the future. If this process isn’t properly managed, it can lead to bad debts. Customers with bad credit records are always a high risk for the business.
• Bad accounts receivable data- Bad data is a business’s biggest challenge while accounting for accounts receivable. It can arise for many reasons, such as inaccurate recording, missing invoices, etc. This issue usually becomes prominent when the business uses manual processing or inefficient personnel.
• Poor reporting and analytics- Poor reporting is the beginning point of financial analysis, budgeting, and forecasting issues. When the data is inaccurately recorded, or invoices are missing, it leads to wrong cash flow and other financial statements. Wrong statements result in poor reporting and thus bad decision-making.
• Incorrect payment allocation- Incorrect payment allocation means the wrong posting of the payments received by the business. The wrong transaction messes with the entire financial statement as they are prepared based on the transactions recorded during bookkeeping. It also results in inaccurate cash flow collection.
• Missed follow-ups- Once credit sales are made, invoices issued, and due dates are set, the business must make follow-ups with the customers and remind them of payments. Missing follow-ups can cause late payments or non-payments, resulting in bad debts for the business.

How does automation help?

Automation brings in digital resources to manage the different accounting activities. Besides just freeing human resources, there are some other benefits of automation. Following are the benefits of accounting automation that help in improving the accounts receivable process:

(i) Fast-track payments- When human resources manage the payment process, it is time-consuming as it involves many steps. Using the accounting automation technologies like NetSuite accounting helps make the accounts receivable payment process faster, smoother, and more accurate.

(ii) Reduced chances of errors- Digital processing also reduces the chances of errors that are much higher in the case of human resources. The data is recorded in the software from the beginning, after which it tracks every related transaction and accurately completes the process from sales to payment.

(iii) Saves time- One of the biggest benefits of using accounting automation is time-saving. It reduces the time-consuming process of recording and tracking every receivable manually.

(iv) Reduced payment processing cost- Manual processing requires personnel and tools to manage the accounts receivable payment process, which increases the processing cost. Automating the process helps reduce these costs by reducing the need for numerous equipment and personnel and making the process faster.

(v) Standardized processes- Having a fixed standard process for accounts receivable processing helps make the process smoother and more accurate. It also helps reduce the risk of error. Using software like NetSuite accounting helps standardize the process and enhances the reliability of the financial statements.

Manual accounts receivable processing is a thing of the past as it has many shortcomings that affect the accuracy and reliability of the business’s financial statements and reports. That is why businesses now prefer accounting automation. Whether the process is managed in-house or outsourced to an accounts receivable services provider, knowing the process’s challenges and solutions automation provides is always beneficial.

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