Accounts payable departments are crucial to managing the cash flow at any company. However, many of these organizations experience significant disruptions in their workflow due to an unmanageable amount of paperwork.
Much of the paperwork in the accounts payable department comes from processing invoices. Until recently, invoice processing was primarily a manual task performed by an accounts payable specialist. However, as technologies like artificial intelligence, robotic process automation, and machine learning have made headway in improving many of today’s existing business processes, organizations are now looking to adopt those technologies to achieve accounts payable automation.
In this guide, you’ll learn how invoice processing functions within the accounts payable department, some of the problems associated with processing invoices, and factors to consider when evaluating automation solutions.
Invoice processing deals with handling of invoices from arrival to payment. It verifies the bills of purchase to pay from various vendors with the payment terms. As the first step in the accounts payable process, the department oversees the accuracy of all bills and invoices submitted to a company.
Before an invoice is entered into an accounting system, the accounts payable staff must ensure all invoices reflect what the company ordered is exactly what was received, and that the amount to be paid matches the total on the invoice.
Invoice processing is crucial to managing cash flow within an organization. Accounts payable professionals are responsible for preventing invoice fraud, inaccuracies and missed payment deadlines. When invoices are accurately processed, companies can maximize cash flow by getting more favorable payment terms, better pricing, or even better discounts.
Many suppliers will even offer early payment discounts to companies that pay before the due date. Therefore, the person managing invoice processing must be extremely organized and knowledgeable of the various payment terms.
The accounts payable process, also known as procure-to-pay, has several steps starting from when the invoice is received to Enterprise Resource Planning (ERP) system input. While there is no standard accounts payable process, the following workflow is typical when it’s entered:
Many accounts payable departments still process invoices manually. However, the costs involved are varied: paper, postage, staff required, and many other factors put the real price of manual invoice processing between $12 and $30a per invoice. This comes before many of the other hidden costs associated with invoice processing, such as missed early payment discounts, late fees and accounting errors are considered.
Human error in data entry is common among nearly every accounts payable department. Accounts payable clerks often perform two- and three-way matching using “stare and compare,” to verify invoices. When this action is repeated hundreds of times per day, even the most careful human eye lacks the ability to guarantee accuracy. They might miss dates, values, or formulas that can ultimately slow down the entire department and expose the organization to a variety of risks.
As a company scales, the problem will only get worse. More invoices can overwhelm an accounts payable department due to the volume of paperwork. In addition, accounts payable departments are often understaffed, leading to hours of data entry.
Even when alternative solutions are offered to manual invoice processing, the IT team will be reluctant to implement them and instead will favor legacy software and other processes. Many IT departments are backlogged with numerous tasks and don’t have the time for additional projects, leaving many technical initiatives on hold.
Purchasers may feel that Electronic Data Interchange (EDI) software can adequately solve most of these problems. The reality is that EDI fails to effectively lower the cost of invoice processing for a variety of reasons. As a result, these companies spend thousands of dollars per year without any improvement in their current business process.
EDI is an exchange of business documents between computers in a standard electronic format. This platform replaces the cumbersome task of handling a variety of invoices received via email, fax or postal mail.
EDI is commonly used between companies to increase the efficiency of data transfer. Despite its popularity in many accounting departments, many suppliers don’t have EDI implemented, and have no plans to do so due to its costs and the training involved.
As a result, the accounts payable team will often deal with a variety of both paper- and EDI-based formats, which create additional bottlenecks and more work.
Even if every vendor sends invoices via EDI, their accounts payable department will need to review and process invoices manually. An automated solution allows companies to bridge the gap between invoices received via EDI and non-EDI methods.
Automating your accounts payable can have tremendous advantages in terms of efficient resource allocation. An automated invoice processing system can dramatically reduce processing time by as much as 80 percent with significantly better accuracy than a human.
For an organization that processes 3,000 invoices per month, automated invoice processing can bring the cost per invoice down to just $6. That’s a savings of over $800,000 per year in labor, creating a clear ROI for accounts payable departments.
Typical number of invoices per month
Cost per invoicea
Potential cost savings in labor
$72,000 per month
For example, accounts payables managers can spend more time leveraging early payment discounts, providing the top financial officer with more accurate forecasting and work to better optimize cash flow. With timely and accurate data, the accounts payable department can finally become an efficient resource rather than a ballooning expense.
An automated invoice management system helps prevent fraudulent, inaccurate, and duplicate invoices caused by human error. The best invoice processing solutions combine the company’s business rules with advanced optical character recognition (OCR) or computer vision technologies to perform accurate invoice data extraction.
ERP software is crucial to any accounts payable department. In fact, many organizations base their AP automation strategy on how it integrates with their ERP solution. ERP systems store all the accounts payable documents such as open PO files, shipping documents, invoices, and receiving reports. The best invoice processing solutions can take advantage of the information stored in an ERP to further improve business workflows.
But not all automation solutions integrate with every ERP. Even worse, there may be issues with interoperability where the file exported from the invoice processing software isn’t accepted by the ERP.
Either issue may create more headaches for the accounts payable team rather than solve them. However, when there is seamless integration, the data can be used to provide a full overview of the accounting department.
Purchasing an invoice automation solution requires a significant amount of due diligence. Implementing an enterprise-level solution often requires buy-in from the accounts payable team, the IT team, and often the C-Suite.
Below is a list of questions the accounts payable team can ask prospective solution providers.
How does your solution work with invoices in various formats?
In order for an invoice processing solution to be effective, the software should be able to extract data with enough accuracy to keep manual corrections to a minimum. While many automation vendors will claim to achieve above 90 percent accuracy, the complexity and variability of invoices makes this difficult for most systems to achieve. One challenge facing accounts payables specialists today is that invoices come in a variety of formats. For instance, an invoice might come in via mobile capture, fax, EDI or other method. Your invoice processing solution should understand the format the invoice came in and know whether they need to OCR the document. Either way, your prospective solution should be able to extract data regardless of its format.
What level of involvement will IT have with this project?
If the IT team needs to be involved, your implementation might have to wait weeks or even months. This often prevents businesses from driving better process optimization until enough resources are available to ensure the software works within the existing technical infrastructure. If your accounts payable team needs to streamline their existing processes quickly, but IT is overwhelmed, ask prospective vendors if their support team can help implement the software. Even better, ask if there is a guide available to support self-installation of the software on-premise.
How is your software different from the competition?
The market for automated invoice processing solutions is extremely competitive, and it can often be difficult to tell which software is right for you. One pitfall to watch out for in the selection process is whether the software needs to be templated to match your invoices. If the software is not already configured, the vendor will likely tack on a large professional services fee in addition to the license. When the software is pre-configured out of the box, the accounts payable team can save a significant amount of time and money on professional services.
How does the solution support two-way matching?
Invoice matching is a critical, yet often tedious process when done manually. During the invoice approval process, companies need to accurately verify line items between invoices and purchase orders to avoid paying an incorrect amount. When evaluating vendors, make sure their software can extract line-item data, so clerks don’t have to go back-and-forth to fix processing mistakes.
Automated invoice processing can achieve powerful results for accounts payable departments. Thanks to technological advancements in AI and computer vision technologies, invoice processing can eliminate bottlenecks within the AP process and turn the department into the profit center it can be. Automated invoice processing enables touchless automation across the entire accounts payable process, and can transform the business in just months, creating a powerful return on investment.
About SoftWorks AI
SoftWorks AI is dedicated to helping businesses enhance operational efficiency by providing state-of-the-art computer vision and automation solutions. We strive to leverage our deep expertise in computer perception, OCR and AI technologies to convert raw information into actionable insight, equipping knowledge workers with the means to drive business value faster and more intelligently.
We are invoice processing experts with proven solutions that automate and optimize business processes. SoftWorks AI possesses deep vertical knowledge coupled with advanced technologies to drive substantial ROI. Our diverse client base includes many Fortune 500 companies.
a Palmer, M. (2017) The True Cost of an Invoice to Small Business Owners