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4 min read

Why Accounts Receivable (AR) Automation is so Difficult

Do you wonder if getting paid is worth the time and expense?


· Manual accounts payable processing adds expense, friction and a shortened cash flow cycle to small business operations

· Pain points include the many-to-many relationship between receivable accounts and customer accounts, and the inefficiencies inherent in physical — or even currently constructed digital — transfers of value.

Eligible Receivers

Accounts Receivable should be this simple: Your company finishes a job. You send your client an invoice. Within a reasonable period of time you receive the money due. But reality intercedes.

Most organizations big enough to have AR pain points find them aggravated by their own charts of accounts. It’s not just one business account that accepts deposits — it’s multiple. So the relationship between customers and AR accounts is many-to-many rather than many-to-one, which just complicates everything.

Then, of course, is the inconvenience of living in a physical world where paper checks are still ubiquitous. But even if both your organization and its customers have moved on to digital transfers of value, there are still holds, delays and other inefficiencies.

A widely cited 2016 study by alternative lender Fundbox estimates that there are, at any given time, $825bn of invoices from small businesses as yet unpaid in the U.S. If so, that would be about $84,000 per small business or, put another way, 5% of America’s total economic activity. Only one-fifth of that AR money isn’t due at the moment. Problem is, the other four-fifths is late.

Keeping Receivables from Becoming Collections

It’s truly mind-boggling how hands-on AR still is. Even companies that make their money by designing and implementing process automation systems send invoices manually. Maybe we just like hitting those “0” and “,” keys; and yet there’s a price. It costs between $16 and $22 to draw up and send a physical invoice, according to a Express study. (For comparison’s sake, it costs the customers another $10 per invoice on their side.) The added expense, of course, doesn’t capture all the friction points involved in manual AR.

So maybe it’s more a matter of inefficiency than cost. But then again, what is inefficiency but a nettle of costs that haven’t been quantified yet?

When a check comes in, figuring out which customer account should be credited and which deposit account it should go into is frequently a manual — that is, time-consuming and error-prone — process. Thanks to big data and machine learning and platforms like Scrypt AI, the technology now exists to accurately predict the correct deposit account and match it to the correct customer account. This application of predictive analytics has the added benefit of smoothing out credit and payment reconciliation.

AI-assisted automation can likewise remove barriers from the actual deposit process, enabling the generation of image cash letters, or ICLs. These pull together images from multiple checks, whether they be physical, PDF or in some other image format. ICLs then use magnetic ink character recognition codes to confirm the checks’ provenance and flattens them all into one file, ready for immediate deposit to the bank via automated clearing house.

The COVID-19 pandemic, incidentally, provided a burning platform for banks to adopt AR automation because it “has created significant disruptions to the financial services industry, such as liquidity and limited access to credit,” according to Mordor Intelligence. “An [AR] automation solutions integrates various technologies, such as automation, AI, and Machine Learning, throughout the credit cycle, which significantly helps the banks and financial institutions emerge out of the crisis.​”

Putting Paid To It

AR Automation is a large but fragmented market. While there are such massive players as SAP and Oracle in the mix, there are also plenty of mid-market and emerging companies that bring their own expertise.

Estimated global revenues were $1.9 billion in 2020, and are expected to double by 2026. It’s not happening by accident. Companies are finding value in it.

“[I]t helps organizations reduce costs, time, and increases efficiency,” according to Mordor. “Poor receivables processes impact credit decisions, corporate borrowing, liquidity management, reporting of corporate sales, and commissions to sales staff. … By accelerating invoice delivery, this solution allows customers to reduce days sales outstanding and processing costs, while simultaneously enhancing business efficiency.”

The true innovation in AR Automation does not derive from a simple “robotic process automation” approach, but from leveraging machine learning and cloud analytics to accurately digitize the check, predict the correct deposit account, perform account reconciliation, and immediately effectuate the bank deposit. Scrypt AI provides a modern industry-leading solution to AR Automation with these exact capabilities.