Accounts Receivable Software – an overview
Accounts Receivable (AR) refers to the amounts that a business is owed by customers to whom it has sold goods or services on credit. Management of this function is normally of critical importance to a business because it can often mean the difference between long-term survival and short-term bankruptcy – the money collected pays salaries, rent, suppliers and all the other essential elements of a company’s operations. It is vital that invoices are raised for all goods and services provided, and that all monies owed by customers are collected and on a timely basis. At the more detailed level there is a requirement to ensure that no duplicate invoices are raised, and that, where applicable, customer discounts are applied and in a correct manner, and that income is not reported until a sale has been fully completed.
As with Accounts Payable, it may be enough for a one-man business to track sales information and receivables on a simple spreadsheet, and raise invoices manually. However, if the company is of any size, some form of Accounts Receivable software package will be required to reduce manual labour and error, ensure that information is properly collated and reported on, and allow all stakeholders in a business to have visibility of its financial health. AR, however, is an integral part of a business and fundamentally linked to other processes such as cash and finance management, inventory and billing. As such then, there are no separate AR software packages – instead it is a usually a separate module within larger Accounting System programs.
The Best AR Software Programs
1. FreshBooks is very much focused on invoicing, and it handles this task with considerable functionality and flexibility. There are two customisable invoice templates, and personalisation options include a choice of logos and colour schemes, amendable customer messages, and a tear-off slip. Invoice templates provide two options in terms of type – one for products, and another for service billings based on time.
The invoice list in Freshbooks contains a column which lists the status of every invoice – draft, paid, pending etc. There is also an attractive user interface with easy to use and understand buttons and icons.
However, one drawback of Freshbooks, at least as far as professional accountants are concerned, is that it is not a double-entry system. There is no General Ledger or Chart of Accounts, and there is no possibility of using adjusting journal entries. As a result, the accuracy and integrity of data in the Accounts Ageing report, for example, is not as complete as can be found with other systems. This makes this system more suited to the small business owner with limited needs and a budget, than for a company with any substantive operations.
2. PaySimple is a very user-friendly online billing and invoicing program which offers companies a secure platform from which they can generate customer invoices, and process and collect payments, whilst their dashboard provides an overview of the AR ledger, including paid, overdue, and pending invoices. With PaySimple, there is the functionality for customer to make payments via credit cards, debit cards and electronic funds transfer, making it easy for them to choose their preferred mode of payment. Customers can also pay outstanding invoices directly online by logging in through a simple portal.
3. SageIntacct is a collaboration of the established Sage Accounting suite of programs with Intacct, which is a cloud-based web hosting company (which Sage has acquired). Essentially the merger brings cloud computing to finance and accounting, and the resultant software has become popular with CFOs, CPAs and small to medium sized businesses.
The system provides real-time financial and operational insights, and includes built-in reporting and dashboards. It also uses an open API structure so that its accounting system can be integrated with other business solutions and applications. Sage Intacct is flexibly priced with only a small upfront cost, so that customers only pay for what they need. The software is ideally suited to environments where there is a lot of data which needs to be captured and reported on, so it may be a little complex for some smaller businesses.
4. Xero is easy to navigate and whilst invoice entry can be a little slow, there is an option to enter bulk transactions. The system is organised into seven functional areas, and has separate accounts for sales, purchases, fixed assets and the like. This set-up enables users to quickly grasp where to find certain applications, whilst it also comes with a “quick select” menu so that daily admin tasks like the creation of invoices can be performed.
One negative for a number of users is that Xero does not provide phone support. Instead customers with problems or questions must rely primarily on email or on-line guides and articles; there is a live chat facility, but this is more geared to sales enquiries.
5. Zoho Books allows users to send professional invoices to customers and receive payment from them all from a single platform. This means that customers do not have to abandon a company’s website in order to make a payment. One distinctive feature from an AR perspective is the ability for the system to create personalised messages, reminding customers about invoices which are due and prompting them to pay on time.
Choosing the Best Accounts Receivable Software
When deciding the factors to weigh up when choosing the best AR software program for your business, consideration needs to be given to the size of your business, whether you are selling goods or services, and whether there are industry specific issues that needs to be accommodated within a software system. Then, of course, there is budget, and issues around the depth and talent of your finance staff.
Then there is the functionality of the package itself. For example, what options does it provide for invoice creation and customisation, what reporting does it offer – by client, by category, age of debt, payment date etc. – as well as whether considerations as to whether it integrates with other business processes. In addition, there will be factors to consider in terms of installation and maintenance costs which may determine the type of solution that is chosen.
Accounts Receivable Software types
As with AP software, there are 3 generic types of programs available – On-premise; Saas (Software as a service) and cloud-hosted. On-premise programs are usually the most expensive as they require complex set-up and sometimes hardware installation; Saas are usually paid per month on a subscription basis; Cloud-hosted are usually the cheapest because clients are not paying for maintenance, and there is no need for them to worry about storage space.
However, there is some functionality which is integral to any AR system. This includes:
- An AR ledger which is a list of customers by invoice and the amount owed, which should be updated on a monthly basis (if real-time is not an option). This should be aged so that late and slow payers can be identified and appropriate action taken if needed.
- The ability to produce customer statements in either online or manual form. This is an important means of communicating with customers and to highlight any discrepancies or disputed items with them.
The benefits of an effective AR software program (or module if it is part of a broader Accounting system) are clear. A sharper focus on receivables, improved cash flow, better communication with customers and stakeholders, internal and external, and reduced administration costs. It also should minimise credit risks by flagging potential problem customers and potential doubtful debtors much earlier in the payment cycle.
These benefits are not inconsiderable to a business, in that they can help improve working capital and balance sheet risk, important factors which are considered when a company approaches a bank or a venture capitalist for a loan or external funding, for example.
Accounts Receivable Software – Examples
1.QuickBooks Online is the best known accounting product for small and medium-sized businesses. One of the most powerful features that the system offers is the ability to access Accounts Receivable data anytime and anywhere, because data is synced automatically on connected PCs, phones and tablets.
2. SageOne is part of the Sage product suite of programs aimed at small businesses. It offers a mix of basic and advanced features and supports connections to online financial systems. It is cloud-based which removes the need for storage space on local servers, and is relatively easy to use, although the navigation and customer interfaces look dated compared to some of its rivals.
3. Wave is completely free to download and install (the company makes its revenue from other activities such as payments and credit card processing and payroll services). This makes it a very useful tool for freelancers, small businesses and start-ups. The package allows users to create professional-looking invoices, and monitor the status of all sales and receipts.
Accounts Receivable is a critical business process, and, for all but the smallest business, there is the need for an appropriate software package to automate and order tasks such as the creation of invoice, tracking of payment and follow-up for overdue amounts. Whilst there are separate invoicing and billing applications available on the market, it is recommended that an integrated package should be bought because of the importance of the AR function to the whole business. Prospective customers should try a number of competing products before making a buying decision so as to best determine which of the available packages offers, for them the best functionality, ease of use, flexibility, and value for money.