Is AP automation the right step for you?

One of the most crucial elements in accounts payable is time. After all, time is money; therefore, time wasted equals money wasted. The efficiency of your AP team’s invoice processing method can have a massive impact on operations across your business, ultimately affecting your bottom line.

Let’s start by investigating invoice processing inefficiencies. You’ll learn how to identify their causes and effects, helping you determine how to streamline your AP operation and choose a solution that is for you.

Time management is crucial to AP

If left unchecked, delays and inaccuracies in your AP process will create inefficiencies that ripple through your company, generating cost leakage, frustrating other departments, and straining relationships with vendors. 

Generally speaking, there’s potential for time wastage and errors throughout the AP process, including:

• Late or lost invoices
• Incorrectly entered data
• Invoices without required purchase order numbers
• Difficulties retrieving invoice data for reporting

One or more of these factors can take several days for one or more employees to resolve, and could hinder other employees, departments, or even end customers.

Inefficiencies that reduce business transparency can put your company’s reputation at risk or give rise to serious legal issues. A deficient AP process can also make your company more vulnerable to fraud, especially if the issues are easy to find and exploit externally as well as internally. Accountants at Google and Facebook know this all too well: a group of European con artists emailed fake invoices to both companies, fooling the tech giants into sending them more than $100 million over a two-year period.

No company wants to be known for late launches and updates, and no company needs the notoriety of bankrupting its vendors. The importance of AP process efficiency cannot be understated: it’s a business-critical matter that you should monitor and improve on a regular basis.

The KPIs of AP efficiency

To determine what improvements need to be made to your AP processes, and how to make those improvements, you’ll need to measure specific KPIs.

First, look at your invoice data capture method. Examine steps that require paper or manual data processing, as they’re error-prone and take the most time and resources to complete. Chances are there’s at least some manual work involved – 58% of invoices are still being entered manually into AP systems in a typical enterprise.

These are among the key KPIs to monitor so you can find out whether any part of your AP process needs fixing:

Invoice exception rate: Data inaccuracies, omissions, and inconsistencies are just a few of the many causes of invoice exceptions, which can slow or shut down your AP processes. Ardent Partners’ 2018 invoice exception rate benchmark is 23.2% across all industries; leading companies have a considerably lower rate of 10.7%.

Average invoice processing time: The longer it takes your AP team to process invoices, the more costs your department and company will incur. A 2017 Ardent Partners report states the average company takes 10.3 days to process one invoice; the report goes on to list all the issues that can arise when the function is drawn out for so long.

TCO: Using a model based on a real use case, we calculated that the TCO of manual invoice data capture comes out to an average of $2.03 per invoice. This figure can fluctuate wildly depending on the TCO methodology used; for example, the 2017 Ardent Report indicates an average TCO of $12 per invoice, with top-performing companies averaging $2.74 per invoice.

Invoices per month per employee: Our aforementioned model also calculated the average number of invoices one employee processes per month. Using manual data capture methods, this average is 3,840 invoices per employee per month.

Days sales outstanding (DSO): The number of days it takes you to pay a supplier after receiving their invoice is another important metric. No vendor wants to be kept waiting too long for payment, especially after they’ve honored their end of the service agreement. Also, you stand to lose early payment discounts. The Euler Hermes report we referred to above says that, globally, the average DSO is 66 days and rising.

Map and monitor what you can’t measure

There are numerous qualitative factors that you should be aware of as you evaluate your AP process. While you can’t measure them directly, all have a quantitative influence on your team’s performance and your business results. Understanding these elements and their effects will reinforce your proposals for improvements to your AP process.

For example, map out your invoice processing operations to gauge their complexity. You can start by listing the fundamental steps of any AP process, then break each step down into its components, such as the step’s owner (manager or department), software used to facilitate or complete the step, and the time it takes to complete each step.

The fundamental steps of the AP process are:

• Invoice receipt and sorting
• Data extraction
• PO matching
• Verification of vendor details
• Invoice approval
• Invoice payment
• Auditing and reporting

As you’re going through your AP team’s workflow and think about whether you should automate this process, you’ll need to bear several questions in mind, and find the answers to those questions, such as:

• Do you receive both electronic and paper invoices?
• What forms of electronic invoice are you receiving (e.g. doc, pdf, xls, EDIFACT)?
• Are you using more than one invoice delivery channel (e.g. post, email, fax, EDI)? 
• Does the same flow apply to all invoice formats, or do you have different flows according to format?
• Do you need to match POs to all invoices, or are you also processing invoices that don’t require POs? 
• Are your POs standardized across your company, or do different departments have their own PO systems?
• Are all invoices centralized or stored in various locations throughout your company’s network?

This is just a handful of the queries that will arise as you study your AP team’s invoice processing. At specific steps, you may discover that your invoice data capture method is causing inefficiencies. To remedy this, there are alternative data extraction solutions that can streamline your AP operations.

At the same time, some of these alternatives can end up creating more work for your staff and reducing efficiency. A thorough understanding of your AP processes, along with the right KPIs, will help you choose the invoice data extraction solution that’s right for your company. 

If you deal with documents that always have the same layout with no variety or if they are only internal and are never exchanged, a template-based solution is a good choice. There is no need for the extra AI and cloud aspects because you won’t take advantage of their full value.

However, template-based solutions need to be set up for each document layout separately, making this solution highly inefficient for a company with a lot of suppliers with their own invoice formats. Therefore, if you have a large variety of documents and want to do something complex with their data, then it’s time to think about AI.

With AI always comes the huge value proposition of cloud, because you are saving large amounts of time on maintenance as well as the initial rollout: no one needs to configure each different layout with all the extra added benefits. 

AP efficiency benefits everyone

If you decided that an AI solution is the best option for you, it is time to start looking for the right vendor. But before you can start making improvements to your company’s AP process, you’re probably going to require buy-in from the C-suite. Your plan may also need the blessing of other departments, such as procurement and legal, and the rest of the financial team. Therefore, you need to highlight the benefits that efficient invoice processing delivers to individuals, departments, and the company as a whole. Let’s take a look at some of them. 

Cost savings

Generally speaking, the time you save on invoice data capture means more revenue goes to your company’s bottom line. Just as inefficiencies drive costs up throughout the AP process, efficiencies can drive costs down at every step. An intelligent automated data extraction solution can save your AP staff several weeks’ worth of man-hours they may have been dedicating to tasks like invoice template creation, data entry, and PO matching.

Reductions in man-hours mean lower HR costs per invoice. At the same time, greater efficiency keeps functions like procurement and vendor relationship management running smoothly and cost-effectively. And if you work with suppliers that offer early payment discounts, a streamlined AP process can cut costs even further.

You can also save as you scale. With greater prosperity comes more transactions and more financial documents, and the potential for higher storage costs. Paper filing systems, on-premises storage, and legacy accounting software can’t match the scalability of cloud-based data capture solutions, which offer a cost-effective means of acquiring more storage space whenever your company needs it.

Value generation

When your team is spending less time processing invoices, they can focus on value-generating tasks, such as those outlined in Ardent Partners’ The State of ePayables 2018 report. The study points out that “the contemporary AP function is dynamic in nature and can support operations and impact performance in a variety of ways.” Greater efficiency frees your department to take on a more active role in several areas, including 1

• Fraud prevention
• P2P technology
• Improving payment operations / platforms
• Supply Chain Finance / working capital
• Drive financial visibility to stakeholders
• Spend management
• Supplier relationship management
• Cash management and corporate liquidity

Better information sharing

A centralized cloud-based invoice processing solution saves everyone the hassle of a paper chase or hunting for digital copies in a vast forest of files. By “everyone” we mean more than just your team, but anyone who needs access to processed invoices, such as 

• Customer service experts when they’re authorizing refunds
• Vendor relationship managers when they need to check late or missed payment claims
• Financial team members responsible for reporting to auditors

More actionable insights

When you integrate an AI-powered data capture platform into your company’s network, you can gain more actionable insights than with manual or template-based solutions. Invoice processing software that enables agile financial reporting dashboards to pull data from it in real time can provide your company with valuable analytics.

This overlaps with improved flow of information throughout your company. The metrics gained through a cognitive data capture platform can, for instance, help other units manage their budgets better and identify opportunities to improve procurement functions.

How to improve AP efficiency

As we saw in the first part of this series, you need to measure the KPIs and monitor the qualitative elements of your AP process. This enables you to determine which stages need fixing, offers some insight into how to make those fixes, and helps you establish goals for improvements to your invoice data capture procedure.

Implement intelligent automation

Chances are you’re already looking into automating your AP workflow. Of course you can’t completely remove the human element – nobody is going to allow robots or algorithms to handle approval and auditing activities in their entirety. So determine which AP procedures you want your intelligent automated data capture solution to manage for greater accuracy and efficiency.

Automation is especially suitable for handling these steps, as presented in Accountancy Age:

• Document recognition and smart data capture
• Organization of unstructured data
• Data extraction to other business units
• The initiation of processes dependent on sets of business rules
• Subsequent financial processes, such as reporting and auditing

This is where the effort you put into identifying areas for improvement in your AP process pays off. You and your team can easily track KPIs and, when necessary, optimize automated processes systematically, rather than in an ad-hoc manner.

Introduce or improve PO matching

If your company does not have a PO matching system, consider introducing one. The advantages of doing so include:

• Reduced data capture requirements; for example, AP no longer needs to extract line item data
• More effective fraud prevention
• Faster and simpler approval
• Greater transparency in reporting and auditing

It’s more likely that your company has a PO structure. Smart document processing can automatically match PO numbers in your AP system against those in invoices. The value of the recovered man-hours depends on how much manual effort your current PO matching procedure requires.

Work in the cloud

A cloud-based AP solution can not only save your team a considerable amount of time, it supports more efficient collaboration between departments. Once the platform captures invoice data and stores it in the cloud, stakeholders can access and work with that data with greater efficiency and transparency than paper- or template-based processes.

You might come up against some resistance against the idea of moving financial information from on-premises storage to the cloud. The most probable concern will be potential security risks. The truth is, a cloud-based platform can deliver benefits that cancel out these risks, with physical data security capabilities that are above and beyond those of your corporate servers. 

To keep your data safe at all times, your cloud service provider patches its storage systems, network, and software continuously. You also no longer have to worry about backups since your reliable partner in cloud technology takes care of them for you.

Team up with your IT department

As they audit data extraction platforms from a technological perspective, your colleagues in IT should play a major role in suppressing security concerns. They can also help you choose the solution that best helps your company achieve its business objectives. Once you’ve settled on a platform, make sure IT keeps you informed about the progress of the setup and integration procedures. Doing so enables you and your team to support other departments during and after onboarding.

Efficiency elevates AP function

Businesses that have adopted cloud-based document data capture are experiencing huge improvements in accuracy and efficiency. For instance, Pepsico’s AP team reports 95% STP (straight-through-processing) automation, mostly thanks to Rossum’s AI capabilities and Pepsico’s large PO coverage of vendors.

The benefits you gain from a streamlined AP process are numerous. The automated data extraction platform that delivers these advantages should meet some essential criteria, including:

• fast setup
• simple integration with existing / legacy software
• an intuitive interface
• quick onboarding requiring little to no training

A more efficient AP process will enable your team to become a key value driver within your organization. As they eliminate manual tasks, smart automation and cloud technology can help your team play a far more vital strategic role across units, especially finance and procurement.  

It’s about the whole chain of communication

AP automation is not just about data extraction. What your AP team members are spending time on is related to the full range of communication with your vendors – from receiving the documents in a variety of forms, to making sure the correct data gets captured, handling exceptions and errors, and reviewing the data again in the ERP downstream. This brings with it major overhead – we estimate that as much time is spent on the additional communication-related tasks in total as on the actual data extraction. All that time amounts to money wasted on inefficiency.

That’s why we built Rossum, an end-to-end solution for automated document communication.

If you want to see if Rossum is the right solution for you, give our free trial a try.