IVR telephone systems are automated caller-handling technologies that allow businesses to address customers’ complaints and information requests without connecting them to live agents. IVR systems use programmed menu options to provide preset responses to a business’s most common and easily resolved inquiries. These preset responses can be recorded in advance by a human customer service representative or generated using natural language processing (NLP) text-to-speech technology.

An IVR’s programmed menu options allow customers to easily access the information they need without having to wait or stay on hold for a live agent to become available. Since easily resolved calls, such as inquiries for existing information, are handled automatically, IVR systems help reduce the number of calls live agents need to handle. In effect, by filtering out callers whose concerns have readily available solutions, IVR software enhances business inquiry call flows and the turnaround time for customer inquiry responses using any number type, resulting in an improved customer service experience.

With a properly configured IVR system, customers with complex issues are efficiently directed to the agents best suited to assist them. Companies can better focus their human resources’ customer service efforts on callers with issues that require live call handling.

This article will help you understand how IVR systems work, the differences between single- and multilevel IVR systems, and the advantages the technology provides so you can decide whether setting up an IVR system is the right choice for your business.

How Does IVR Work?

From a business perspective, an IVR system is made up of several network components, typically including:

  1. Internet Protocol (IP) suite (commonly referred to as a TCP/IP network”): Provides the IVR system with Internet connectivity and connects callers interacting with it to a business’s intranet.
  1. Database of preset responses: Provides individual preset responses to callers if their selected menu options meet specified criteria.
  1. Web server: Hosts the IVR system.

For callers, an IVR system works by prompting them to select from predetermined options assigned to keypad selections. That is done using language recognition artificial intelligence (AI) to interpret a caller’s verbal responses or combining both. IVR systems are frequently used in combination with automatic call distributors (ACDs). ACDs prioritize and put incoming callers in a queue by parsing information generated from call metadata gathered from the IVR system before sending them to the first free agent to assist as soon as feasible.

Each option a caller provides to the IVR system can branch into several other options. That way, even when the IVR system cannot fully resolve a caller’s issue, necessitating assistance from a live customer service agent, the live agent that the caller is referred to can see which options the caller selected during the IVR system interaction.

For live agents, a caller’s previous IVR system interaction is a powerful resource to quickly diagnose caller concerns and determine appropriate probing questions to resolve the caller’s issue efficiently. By using an IVR system, businesses can decrease caller wait times and improve customer service agents’ daily call capacity, thus allowing smaller teams of agents to handle greater volumes of customer calls in less time.

Types of IVR Systems

IVR systems can be categorized by distinguishing between different IVR infrastructures. The type of IVR system you choose to set up will determine the degree of flexibility necessary for effectively handling incoming calls. The two main types of IVR systems are broadly categorized into single- and multilevel. The type of IVR system that will best suit your business will depend on the overall complexity of the caller inquiries most commonly made. In this section, we’ll go over the advantages and disadvantages of both.

Single-Level IVR Systems

A single-level IVR system provides the basic functionality of automatic call response to control how incoming calls are handled. This type of IVR can present custom greetings to callers and bring them to specific information announcements, voicemail inboxes, or live agents. Alternatively, this type of IVR system can be used to prompt callers to dial extension numbers to connect to specific departments of your business quickly.

Multilevel IVR Systems

A multilevel IVR system works to build on the utility provided by a single-level IVR system’s functionality through a tiered menu structure. In case your customer service agents are spread across numerous locations, multilevel IVR systems allow you to centralize phone routing for multiple physical sites using always-online, cloud-based technology.

Similarly, this type of IVR system allows you to set up more than one direct number for each IVR system menu. That way, each IVR system menu can function independently, both of each other and the business’s main call handling line.

What Are the Advantages of Using an IVR System?

IVR software provides businesses a competitive edge by delivering an effective automated call-handling solution. The many advantages of IVR technology include the following:

  • Improved call routing reliability: IVR systems boost first-contact resolutions and improve response times by accurately routing calls to the proper agents using information gathered from each incoming caller.
  • Reduced overheads: IVR systems are a highly economical call-handling solution. They reduce businesses’ incoming call volume, allowing them to operate with smaller teams of customer service agents. At the same time, IVR systems increase customer access to information during off-peak hours and provide consistent conversions for customers who call at the end of the sales funnel.
  • Better customer service: Since they don’t rely on a human customer care agent to take notes and properly route incoming calls, IVR systems can improve your customer service experience.
  • Heightened security: Some IVR systems can use voice recognition technology to confirm a specific caller’s identification. In doing so, your business can offer its customers an added layer of security by preventing fraudulent calls made by imposters attempting identity theft. Your business’s efforts to protect customer information like social security, phone, and account numbers —all of which are extremely sensitive—can benefit from this.


IVR was a challenging technology to implement. To support an IVR system, businesses used to need to invest in specialized IT equipment, along with hiring an IT specialist to oversee setup and maintenance. Larger businesses had to consider the costs of scaling any IVR solution they planned to implement since, due to technological limitations, more users required more expensive equipment, which only compounded the cost and time required for the setup.

Things have become easier. IVR software is a powerful tool for businesses, evolving rapidly amid today’s technological landscape. The variety of ways that callers can effectively communicate with businesses through computers on the phone has expanded because of the advancement of natural language processing AI technologies. More sophisticated IVR software allows callers to verbally express their wants over the phone rather than via a touch-tone system. Modern IVR systems use voice recognition to comprehend customer requests and provide real-time resolutions to complex inquiries and complaints, thus making IVR systems more customer-friendly than ever before.

IVR systems enhance customer experience by giving users a self-service option to get the information they want without contacting customer care unless it’s absolutely necessary. In the end, IVR systems are the ideal tool for reducing call volume and wait times, improving customer satisfaction, and slashing business operational costs.