AR Automation Software: What it Is, How it Helps, and How to Choose the Best Solution

accounts receivable automation software

Last Updated April 10, 2024

It’s easy to get lost in the pile when it comes to tracking invoices and remembering how much money your customers owe you after providing them with your services. If you don’t keep a close eye on this aspect of your business finances, you may lose money, and your business could suffer the consequences. That’s what makes it so surprising that only 17% of small business owners have chosen to automate their accounts receivable processes by investing in AR management software.

Every successful business owner has an effective accounts receivable management gameplan. For many of those business owners, that begins with automating processes wherever possible.

But what exactly can AR automation software do? What are its limitations? And how do you choose between the plethora of software options at your disposal? Continue reading to find out the answers to these important questions.

What Is AR Automation Software and What Are its Capabilities?

Accounts receivable automation software (or AR management software) exists to automate every receivables-related task possible for businesses, such as invoice automation.

Some specific examples of what AR automation software can do include:

  • Evaluate a customer’s (or potential customer’s) creditworthiness and further credit monitoring.
  • Quickly create and send invoices electronically.
  • Track the status and progress on outstanding invoice payments.
  • Send automated collections emails and reminders.
  • Offer easy one-click payment options to customers through self-billing and self-service portals.
  • Payment reconciliation.
  • Provide general assistance with overseeing and managing the money customers owe businesses.

These capabilities might vary slightly based on the software you choose to purchase, but you should expect the majority of options available to offer these types of features.

AR automation software is a tried-and-true solution to effectively managing collections, as small businesses that automate at least 50% of their AR have seen an overall 32% reduction in DSO.

How AR Automation Software Can Help Your Business

In a greater sense, an AR management solution that automates collections allows business owners to forget about handling tedious, manual bookkeeping tasks and instead allow the automated software of their choice to do the work for them.

Experts such as Kruze Consulting CFO Blake Rutledge, claim that new business owners need to understand that AR management can no longer be a manual process, especially when accounts start growing and sales increase. 

“You can totally start with doing it offline, but once you reach a certain number of customers, it is just not feasible to maintain an Excel spreadsheet with all of your customers and all of your invoices,” said Rutledge. “There are so many products out there and so many platforms that make that process easy that there’s no point in trying to reinvent the wheel.”

Automating accounts receivable processes has proven to improve DSO, reduce bad debt reserves, and increase chances of on-time payment by 38%.

Below are several general benefits AR automation software can offer your business:

Improved Cash Flow

AR management software gives you a better chance to collect funds faster. And collecting funds in a timelier manner will ultimately increase your overall cash flow, allowing you to expand, adapt, and continue to innovate. You’ll be able to invest your money into advanced technology, payoff debt, compensate your employees, and fund expansion, if desired.

Enhanced Efficiency

If your AR is managed well, this is bound to trickle down into other areas of your business. With an esteemed AR management solution, you can start streamlining and automating your processes while continuing to reach your internal objectives. The quicker and more straightforward the method, the more efficient your company will be.

Plus, automating all of your collections processes reduces manual labor. This will allow you and your employees to dedicate less time to tedious accounting work and more time to sales-driven projects.

Reduced Chances for Human Error

Even the most experienced accountants make errors every now and then. No matter how small, these errors can prove costly. Sometimes, they might also require an extensive amount of manual reconciliation efforts.

By choosing to invest in AR management software, the chances of accounting errors are reduced drastically. Barring a manual entry error, you won’t have to worry about spending precious time searching for potential mistakes.

Better Quality

With an AR management system in place, you can be confident knowing you can use your funds to improve your products and services. This will only lead to better quality and more satisfied customers, which in turn, can result in boosted sales and an excellent reputation (which is truly a gift that keeps on giving).

Save Money

No one wants to waste money, especially these days. But when you fail to follow up on that invoice that was a week late, or if you forget to track an important bill amount or many other common AR mistakes, you risk losing funds. AR management software, while it typically requires an initial and/or monthly investment, can greatly payoff as it helps you avoid these damaging errors and save money that can be put back into your business.

What to Look for in an AR Automation Software

Many company issues stem from a lack of quality AR management. However, there is hope for those who have suffered the aftereffects of lousy AR organization and implementation. You don’t have to continue on the same old ineffective path. Make a step toward positive change today and find the right AR management solution for you.

Below are a few things you should consider before going all-in on AR management software.

Cloud Utilization

In today’s world, you can have the entire world wide web at your fingertips. Now, you can also access any information from anywhere, thanks to the cloud. Make sure to opt for an AR tool that includes cloud-based technology, so you can quickly obtain the data you need, even on the go.

Predictive Analytics

Data is extremely valuable, as it offers insights into what’s working for your business and what’s not. It’s important to seek AR management software that gives you comprehensive analytics so you can track your progress over time and make improvements as needed.


Managing accounts receivable is a time-consuming task requiring attention to detail and a stressful amount of tracking. Why continue doing this tedious, administrative work when you don’t have to? The best AR management tools offer automation for tasks like creating and sending invoices and following up on overdue payments.

Customer Payment Portal

Depending on the size of your business, you may also want to consider a payment portal for your clients. This will give them a safe and secure place to pay and offers you the chance to keep all your payment data in a single location for maximum efficiency and ease of access.

Artificial Intelligence (AI)

By now, you’ve probably heard a lot about artificial intelligence and how awesome it is. Over time, software with AI will learn how you do things and your preferences, saving you more time and giving you more control over your company finances. This advanced technology can also help reduce common human errors, ensuring the highest level of accuracy.

Best AR Automation Software

The best AR automation software might fall in the eye of the beholder, as different solutions offer different features and pricing plans. For instance, a startup that’s low on working capital might not be able to as easily afford a solution that a more established business can.

Thankfully, even the best AR management solutions are affordable. We’ve listed our favorite options below, with most of them offering pricing plans starting at under $50/month.

AR Automation Software Price Why?
QuickBooks $30, $60, $90, or $200/month (pricing tiers) Most comprehensive with the best overall reputation
FreshBooks $19, $33, or $60/month (pricing tiers) User-friendly with a reliable mobile app
BILL $45, $55, or $79/month (pricing tiers) Tailored for SMBs
Billtrust Quote-based Credit reporting and monitoring capabilities
Xero $15, $42, or $78/month (pricing tiers) – early plan starts at $3.75/month SMB and startup-friendly with scalable pricing plans
Quadient Quote-based Unique, in-depth reporting and analytics features

As a business owner, you’ll likely want to explore your options rather than settling on the first AR management solution you look into. Ask others in your industry for their recommendations, obtain quotes, and talk to different representatives to get a sense of which is the best fit for your business.

Other Tips to Optimize Your Accounts Receivable Methods

There are plenty of things you can do to start improving your approach to AR and see improvements in your company. Here are just a few simple ways to successfully optimize your AR strategy and start seeing positive outcomes:

1. Agree on the Customer Payment Plan Early
Being proactive about your AR approach is an essential step in optimizing it. Sit down with your client and discuss the payment process as soon as possible. This way, you’ll have a plan in place immediately, giving you a step ahead on your AR (and probably eliminating future headaches).

2. Follow Up Quickly on Past-Due Invoices
The longer you go without following up, the longer it will take for you to receive what you’re owed. That’s money that should be in your bank but isn’t, and you should pursue it with all diligence. Following up on past-due invoices quickly (as soon as the first day past the due date) will significantly improve your chances of collecting your payment.

3. Stay on Top of Customer Data
It’s essential to have the correct customer data and make changes as they occur, as you want the right people to receive them. All changes should be tracked and switched out in your spreadsheet or whatever tool you’re using to store information. Some examples of these changes are new credit card numbers, change of address, new leadership taking over, different email addresses or phone numbers, etc.

4. Institute a Standardized Billing Procedure
Many problems can arise during the billing process, which can lead to frustrated customers and employees. How you send bills and invoices needs to be 100% correct in all areas, detailed, consistent, and produced quickly. Remember that your company needs to clearly see the product or service being paid and how much the payment will be, just as much as your customers.

5. Strictly Use Electronic Payment, Billing, and Invoicing
Nowadays, people don’t want a bunch of paper bills filling up their mailbox. Paying, billing, and invoicing electronically is a much easier method for both the customer and your company. The more clients who pay with credit cards, the fewer physical bills, invoices, and checks will be involved.

6. Consistently Monitor Your AR
How are you supposed to determine your AR system’s problem if you don’t frequently examine it? It’s important to recognize issues and then take a look at your current methods to see what can be improved upon. Don’t let your company’s AR slip under your radar, as the sooner you find the problem, the sooner you can find the solution.

Bonus Tip: Try Invoice Factoring

Sometimes, no matter how hard you try, you still can’t get certain customers to pay promptly. For small businesses especially, this can create significant cash flow challenges.

If long payment terms of slow-paying customers have caused cash flow problems, one solution is invoice factoring. This alternative financing option is tailored for business owners who need a quick working capital boost without having to submit collateral or take on debt.

You might be wondering, how can I be provided funds without having to add to my list of liabilities? The answer is simple: factoring is not a loan. Instead, it’s the process of selling your outstanding invoices to a third-party factoring company. The factoring company (also known as a “factor”) simply purchases your outstanding AR at a discounted rate.

Once you choose a factoring company to work with and sign a factoring agreement, you allow them to oversee and manage aspects your accounts receivable, such as collections.

The process is simple. Once you invoice a customer, your factoring company immediately advances 80-90% of the value of each invoice. The factoring company then assumes collection responsibility. Whenever your customer pays the factor, the remaining value of the invoice is released to your company, minus a small factoring fee.

If you’re hoping to grow or expand your business and you need a more reliable source of funds, factoring can be a great solution. Otherwise, relying on customer payment habits to dictate your cash flow can be risky.

Avoid Costly Mistakes with an Effective AR Automation Solution

As a business owner, it’s unwise to deprioritize accounts receivable processes. It’s an integral aspect of your company that requires your attention. However, it doesn’t have to be challenging to manage. With an effective AR management solution, you can start seeing significant results that will benefit you, your company, and your valued customers.