A lot of companies are still processing invoices by hand, having their accounts payable personnel key invoices into an accounting system. This means that every one of the hundreds or thousands of invoices that come into an AP department each month are being manually keyed and processed by an employee in AP. Nobody’s perfect, but manual processes are prone to human error.
Needless to say, manual invoice processing is a labor-intensive function requiring the undivided attention of AP to accurately key in and process vendor invoices. While data entry is time-consuming process, so is responding to vendor inquires, along with obtaining manual approvals which can be a laggard in the process. Both of which force AP to context-switch away from keying in data — creating the perfect storm for data entry errors.
Companies have already begun to enjoy the competitive advantage that comes from automating their accounts payable invoice processing. Join us as we explore the nuts and bolts of accounts payable invoice automation, including how automation can cut costs and invoice processing times, and how it gives AP the opportunity to take on value-added tasks.
The Basics of Automated Invoice Processing
In some ways, invoice automation isn’t all that different than the old days of manual processing. At the end of the day, invoices still get paid, ensuring that companies maintain good relationships with their vendors and keep the lights on.
Automation simply improves the process, removing the more tedious aspects that many seasoned accounts payable specialists loathe, such as manual data entry of invoices, monitoring where they must go, and what happens with data after invoices are paid.
How Invoice Automation Works
Invoice automation starts by using scanning or optical character recognition (OCR) tools to extract data from invoices that arrive at a company, with only a select few leveraging intelligent OCR which includes artificial intelligence and machine learning to translate invoice data to accounting codes. This matters since, as Levvel Research found, approximately 22 percent of invoices still reach a company in paper format. Automated tools by means of integration can then push and pull data between a company’s accounting or enterprise resource planning (ERP) system, reading the invoice for payment.
From there, automation can help through other stages of the procurement-to-payment, or P2P process. It can automatically perform the three-way-matching of purchase orders, receipt reports, and invoices that prove that goods or services were agreed to and that they arrived. Then suggest and route invoices to every required approver within a company that must see it before payment can be remitted.
Different Applications for Invoice Automation Software
There are numerous ways to deploy invoice automation software, these include:
- Automation Intelligence: Invoice automation software uses Artificial Intelligence (AI) to make invoice processing fast and easy. Based on prior activities, these systems auto-populate fields. As more invoices are processed, they learn, get more accurate and make more suggestions. Over time, invoice automation systems will suggest invoice approvers in addition to filling out custom fields. After an invoice goes through the entire cycle — from receipt, to approval, to referral for payment — suggestions will become more accurate.
- Workflows: With invoice automation software, there is never uncertainty about where an invoice needs to go once it is received in system. The software learns your approval workflows to ensure your processes are intact.
- Vendor Relations: Invoice automation software can function like an extra service representative given vendor portals where supplier-vendors can see the status of their invoices. The software can also monitor which vendor payment deadlines are looming, instead of forcing reps to manually monitor payment due dates. This is also useful, since 91 percent of AP departments get calls from vendors asking where their money is.
- Audits: Compliance, performance, and other types of audits are an increasingly common — and necessary — part of business operations in both the public and private sector. Invoice automation software helps make it so that a company is never caught off guard for an audit. Analyst and Reviewer seats can be given to auditors to track AP metrics or search and review invoices with read-only access.
What to Look Out For with Invoice Processing Systems
Invoice automation software can instantly improve an accounts payable department’s operations. That said, it isn’t a magic wand and it should be approached with knowledge of it takes at least one pass through the system before it learns your processes.
Therefore, it’s always wise to have human review to perform quality control to ensure all necessary data was extracted including the appropriate approvers.
Five Benefits of Automating Invoice Processing
With even a modest investment, invoice automation can offer vastly superior outcomes than old manual processing setups for companies. Here are five benefits of invoice automation to consider.
1. Lower Costs
An invoice never really costs what it says. The hidden expense of invoice processing will always add something, though the bump will be lower for those firms with broadly-adopted invoice automation.
The Institute of Finance and Management, or IOFM, estimated in a benchmarking study that companies with high levels of automation would pay $1.77 per invoice to process. The IOFM estimated that companies with low automation would pay nearly five times as much, or $8.78 per invoice. And that might be a conservative estimate. Processing costs can run as high as $30 to $40 per manual invoice, according to some sources.
Whatever the case, there can be massive savings for companies that implement invoice automation, with up to 80 percent reductions in its P2P process.
2. More Discounts
Vendors will frequently offer discounts on invoices in exchange for paying them earlier than required. While the discounts might only be 2-3 percent of invoice amounts, they can add up over time, with companies in one study processing just over 22,000 invoices per month.
That said, companies frequently miss out on these discounts and paper invoices might be a culprit for this. As Global Trade Magazine noted that a 2019 IOFM benchmarking study by IOFM found that 53 percent of companies even with extensive automation paid at least 10 percent of invoices they received late, “very likely the very invoices that required manual processing.”
If companies with good automation are struggling this much to hit deadlines, this suggests that the early discount numbers for companies that cling to manual invoice processing are a straight horror show.
3. Less Fraud
Unfortunately, fraud remains a significant problem for companies. Even corporate giants can fall victim, with Facebook and Google losing over $100 million after a Lithuanian scammer impersonated a firm they did business with, sent forged invoices, and convinced them “to wire funds to bank accounts he controlled,” according to Payment Source.
Invoice automation software can lessen the degree to which these sorts of incidents occur. This is both because the software’s archiving tools can store seemingly-endless amounts of client information, making it both secure and easy to retrieve. The software also has built-in indicators for possible fraud, flagging invoices that don’t conform to norms.
4. Better Labor Allocation
Every minute an accounts payable clerk or specialist (or worse, a controller or finance director) doesn’t have to spend keying an invoice into an accounting system is time they can be devoting to more high-value tasks. Automation helps accounting departments better allocate their labor, which helps ensure every payment goes out on time for discounts, helps with monthly closes, and possible fraud is immediately rooted out.
5. Data Integration
The valuable data that lives within the world of accounts payable winds up, too often, siloed. With accounts payable automation, invoice data can be shared throughout different platforms that companies use, including their enterprise resource systems.
Best Practices to Implement Invoice Automation
For companies that are tired of manually processing invoices and would like to start automating processes to improve controls and streamline processes, the good news is that it isn’t too difficult to do. Here are some best practices for implementing invoice automation.
The Steps of Implementing Invoice Automation
Getting invoice automation working for a company is essentially a three-step process, with smaller substeps baked in. These steps are:
- Pre-automation analysis: Ahead of calling an invoice automation vendor, it’s smart to perform some analysis and make necessary changes. This includes taking a look at the current invoice processing procedure, should one exist (some companies get entry-level AP reps from temporary staffing agencies and deploy them with minimal training or guidance.) Regardless of what procedures might be, it’s also wise to consider centralization of invoice oversight, standardization of policies, and segregation of duties.
- Automation: A lot of times vendors will sell payments as their main product, with invoice automation as a feature. For the sake of payment freedom, and not having your approval processes tied to a single payment option, it’s wise to check with the invoice automation provider that payments can be processed outside their system. Moreover, an all-in-one accounts payable automation system with payment freedom offers the most value since you’re not stuck with a single payment method.
- Post-automation work: Just as the engine of a high-powered sports car will underperform without proper maintenance, an invoice automation system will not work optimally without some extra work once it’s in place. Advisable work includes toggling self-service tools for vendors, which can allow them to update their payment information if desired. It’s also advisable to identify invoice automation vendors that have hand-holding set up and continual 24/7 support as needed.
Gauge IT’s Involvement
Some invoice automation vendors provide dedicated customer success support. Others, perhaps not so much. For this reason, it’s advisable to discuss with both your automation provider and internal IT staff what role the latter will have to play in overseeing the new system.
See If It Allows for Three-Way Matches and Integrations
As noted earlier, three-way matching is an important part of accounts payable, matching invoices with purchase orders and receipt reports to show that goods or services were agreed to by a company and that they received them. Therefore, any invoice automation system that a company puts in place should be able to do this automatically. If it can’t, that is a big red flag.
Integration matters as well, namely that the invoice automation system should work seamlessly with any ERPs or other internal platforms. Otherwise, this can negate significant investments that companies make in these systems and compound expenses.
Keep Learning More
With the vast advances in recent years in mobile and cloud computing, invoice automation platforms will likely only continue to develop. Though cloud-based providers are excellent at ensuring their partners receive updates for SaaS solutions, it’s still smart to only keep learning about everything automated solutions can do.
Need a hand with automating your invoice processing? Check out Stampli’s invoice processing guide.