Manual Reconciliation vs Accounts Receivable

While the benefits of automating accounts payable are gaining significant recognition among finance professionals, with over 54% of companies worldwide now reporting using an automated accounts payable system as at least part of their workflow, accounts receivable is still a vastly overlooked process. An account receivable is a legally enforceable claim for payment held by a business for goods supplied and/or services rendered that customers have ordered but not yet paid for. It’s been reported that only 36% of medium-sized enterprises nowadays automate some or all of their receivables; however, a staggering 1 in 5 companies still rely on a manual process. Since receivables directly link to revenue, an inefficient, inaccurate, and error-prone process can lead to profit loss and cash flow issues further down the line and is not something that should be overlooked. While not as widely popular among tech vendors and fintechs, receivables is a key financial process that can be automated beyond just syncing your bank statements (known as bank feeds) to your accounting tool; it can be a fully touchless process from start to finish. But how does it work?

Before diving into the intricacies of automated receivables, let’s take a minute to understand the cumbersome process of manually reconciling accounts receivable and the many steps it involves - at each step, something can go wrong, making manual handling incredibly inefficient and error-prone.

Preparation of accounts receivable ledger: This means compiling documentation that includes customer balances, issued invoices, and received payments. Bank statements for the period will be required to cross-reference the payments.

The general ledger is used to classify and track accounts receivable.

Any additional receipts of received payments may be needed to support the process - receipts, card statements, checks

You also need to take into account any adjustments made on the customer accounts - e.g., any credits incurred from previous periods

Verifying invoices: This step involves checking open and unpaid invoices in the accounting tool and ensuring that each invoice was issued correctly - dates, amounts, customer details, and terms of payment.

Matching: Now you need to go through each invoice and find the corresponding payment, matching it using customer name, amount, reference number, or any other identifier. If there are partial payments, this should be noted and reflected in the accounting tool. In the process of doing this, you may discover payments that cannot be matched to an invoice.

Solving discrepancies and communicating with customers: Any overpayments or underpayments on invoices or customer accounts need to be recorded in the accounting tool and communicated to the customer accordingly. At this stage, you will also want to apply any discounts or credits.

Payment chasing: Receivables are what keeps businesses running, so it’s important to chase missing or late payments. It’s important however to follow-up only on the invoices that are definitely unpaid as any mistake on that front can strain a relationship with a client.

This process is usually repeated on a monthly basis and can take around 40 hours in a medium-sized business, and can take even longer if major issues or discrepancies are found. Bear in mind too that as your business grows and you acquire new customers, especially when scaling overseas and you start receiving revenue in multiple currencies to different accounts, the complexity increases, so the time will inevitably increase as well. At this stage, dealing with receivables at month’s end may take over a full working week that could have been better spent on strategic activities such as forecasting, planning, and further expansion.

With automated receivables, the process is handled automatically from start to finish. The first step is to integrate your receivables tool with your accounting platform - match your customer and account details, and from there, the process does not require manual intervention. The accounts receivable process includes stages such as customer onboarding, invoicing, and collections, ensuring timely payments and maintaining healthy cash flow. Here’s how it works step by step:

You issue an invoice from your accounting platform or your receivables tool. These are automatically synced and appear in both systems, meaning that an open invoice appears in the receivables ledger. In the invoice, you detail the due date, line items, the amount, and the terms of payment, e.g., early payment discount or deposit needing to be paid by a certain date.

You assign which bank account or sub-account you want to be paid into for better visibility of your revenue and faster reconciliation.

The invoice is sent to the customer - most receivables tools will enable that functionality to track whether or not the invoice was viewed or was actually paid.

Once payment is received to your account, the software will automatically recognize it, match the payment to the invoice, and reconcile it in your accounting tool as fully or partially paid. Automated reconciliation improves efficiency and accuracy by leveraging technology to streamline data comparison and reconciliation. It can also support payments for multiple invoices, which can be very challenging manually if references do not fit within the bank description field.

Should the invoice not be paid by the due date, the receivables tool will send the customer an automatic follow-up to ensure that you’re not missing out on revenue or chasing overdue payments. Following up on outstanding invoices is crucial for maintaining liquidity and financial stability.

Without a doubt, there will be occasional situations that will require manual intervention, such as applying a special discount, processing a refund, dealing with issues related to duplicate invoices, or back-and-forth with clients who have not paid for an extended period. Nonetheless, even with those exceptional cases, an automated receivables process can save you around 40% of manual work - this is down from 40 hours a month to 24 hours a month!

Apart from time savings, automated receivables bring some additional benefits. The benefits of automated accounts receivable include:

Improved accuracy: With less human intervention, you can expect fewer errors in data entry and matching.

Real-time visibility: Because automated receivables run matching and reconciliation in the background all the time, you get constant, up-to-date access to financial information, enabling better cash flow management and decision-making.

Scalability: Automated systems can handle growing transaction volumes efficiently, eliminating the need to hire additional staff as your invoice numbers increase. This scalability not only saves money but also ensures smoother operations as your business grows.

Our comprehensive financial operations and payments platform empowers finance teams and professionals to take charge of their day-to-day tasks by automating receivables and focusing on strategy and growth. Fyorin offers a complete suite of accounting and finance automations from accounts payable, expense management, and now also receivables that integrate seamlessly with major accounting tools and ERPs such as Sage, Microsoft Dynamics, Netsuite, Xero, QuickBooks, and Zoho Books.

Fyorin's automated accounts receivable let you:

Send invoices and payment requests directly from the platform or the accounting platform for one-off and recurring payments

Collect payments in over 220 currencies

Offer Payers a dashboard of all outstanding invoices, which allows the Payer to pay single or multiple invoices

Payers can connect their bank account and save it as a payment source for a quicker payment experience

Automatically send payment reminders for overdue invoices

Reconcile automatically and post receipts directly in your accounting tool of choice

Ready to streamline your receivables? Register with us by emailing [email protected] or book a demo.

Fyorin’s Automated Payables allow you to:

Centralise all bills in one place and match them with the right suppliers in your contacts to automatically create a payment, without manual data entry.

Amend the payment amount to pay the deposit or make a partial payment. Our system will automatically create a new payment for the remaining account and mark the bill as partially paid.

Automatically reconcile paid bills in your accounting platform thanks to the two-way-sync.

Easily switch the bank account to send payments to avoid delays and failed payments.

Merge full or partial bills for the same supplier into one payment to save money and reduce manual work while our system correctly posts it in your accounting tool against all matching bills.

Create deep links from Fyorin directly into the bill in the accounting platform for easier navigation between the two systems.

What does it mean to do accounts receivable?

Doing accounts receivable means tracking and managing money owed to your business by customers and clients for goods or services provided on credit. The process includes issuing invoices, recording payments, and looking after a timely collection of outstanding balances.

What are the 3 stages of reconciliation?

In accounts receivable, the three main stages of reconciliation are:

1) Comparing internal records (receivables ledger, invoices) with external statements (usually bank statements)

2) Identifying and investigating discrepancies (open invoices, payments received)

3) Making necessary adjustments to align the accounts.

This process ensures that recorded receivables match the incoming payments.

What is the difference between manual reconciliation and automated reconciliation?

The main difference between manual reconciliation and automated reconciliation is the time spent and susceptibility to errors. Manual reconciliation involves human intervention when matching invoices to payments and updating records, while with automated reconciliation all is done automatically and in real-time.