Small and mid size businesses need quick order to cash cycles. The efficiency in account receivables is of utmost importance. With so much dependency on this aspect, smooth and swift processing of the incoming payments become critical for success and business growth. In this article, we will discuss the possible benefits of implementing of artificial intelligence (AI) to automate the accounts receivable process for the organisation.
Before going in-depth, we need to understand how business language can be interpreted by machine learning. The related concept is called Natural Language Processing (NLP) which is explained below.
What is Natural Language Processing
Natural Language Processing ( NLP ) is a variety of AI where an application is made capable to process a natural language text input and process it to complete the given direction in text or the application is capable to take an action based on the provided natural language text. Lately voice input command processing has been successfully added as part of this technology.
Conventional workflow for accounts receivable and their clearance
Conventionally the workflow for accounts clearance initiates at generation of outstanding invoices and completes at closure of these invoices in the ERP system. Major steps involved in this process are as follows.
- Outstanding invoices is generated and communicated to the client
- Client initiates a financial transaction with a bank towards the payment of the invoice
- Sometimes, client shares the transaction details (cheque or wire transfer details) with the organisation
- Bank shares the transaction details on successful credit of funds
- Employee in the organisation match and verifies outstanding invoice against the client with respect to the transaction details and closes the invoice as paid
In this conventional method there are multiple points where time and effort needs to be invested just to verify the already known and documented details. The result of such effort is that manual cost for processing on the already deserved receivables increases, impacting the profit margin of the business. Any change in the process that helps an organisation to reduce this effort and time will directly proportional to increase in the profit margins for the business.
Account Receivables using Artificial Intelligence (AI)
At this point an automation system can be helpful and to automate the system NLP can be employed, to automate steps where there is any communication made regarding a payment transaction from the client and / or from the bank. Based upon these two communications a business organisation confirms the amount received and proceeds to disperse it for other processes like payments and acquisition. With NLP employed following would be the steps of workflow for the accounts receivable
- Outstanding invoices is generated and served to the client
- Client initiates a financial transactions with a bank towards the invoice
- Client shares the instrument details (cheque or wire transfer details) with the organisation
- AI based application differentiates financial related mails from other mails
- Application identifies invoice from ERP system based upon instrument details provided by the client about the payment made
- Application lists invoice in queue for clearance
- Bank shares the transaction details on successful completion of the transaction
- NLP based application differentiates financial mails
- Application identifies invoice and customer based upon instrument details provided by bank about the transaction details
- Process the invoice in queue for clearance in ERP system
- Employee verifies invoice closure against payment
Benefits of automatic AR clearing using AI
With NLP automation implemented for the AR process the organisation immediately sees the following benefits.
Higher Level of Automation – This not only reduce the dependency on highly trained human resources, but also disassociates the accounting team size with the revenue of the company.
Reduction in Days Sales Outstanding – Due to automation of the process, the application can execute the invoice and payment matching. This can bring in huge amount of reduction in days sales outstanding (DSO) and lay a solid foundation for financial supply chain.
Increased Visibility – With improvement of cash application, the organization has a better insight and can plan the operations and strategic investments in an optimum fashion.
