Keep your business healthy with Accounts Payable Automation
Manual invoice processing is slow, costly, and resource-intensive enough under normal operating conditions. AP efficiency could worsen if you now have a distributed team that may be smaller in number due to furloughs or layoffs.
Fortunately, you can quickly and easily automate invoice processing to ensure your vendors get paid on time. In the long run, you’ll save time and cut costs; you’ll also enable your AP staff to create more value for your company.
5 ways to improve your Accounts Payable department
There are many different options when it comes to improving your AP department, and in this guide, we’re going to walk through a few “quick wins” and provide you with some tips you can implement into your accounts payable process today.
2 way matching in Accounts Payable
What is 2-way matching in accounts payable? All over the world, businesses rely on the accounts payable process to provide the foundation for their purchasing activities and hence their growth. Without accounts payable (AP), organizations would not be able to manage their invoices and pay their vendors. The overall accounts payable cycle begins with invoice data capture. Most invoices arrive at an organization in a PDF or paper format, which the automated accounting systems cannot recognize.
Using an AI-enabled OCR solution like Rossum can be a great way to streamline this first step. After that, the digitized invoices are coded with the correct account and cost center. Once categorized, invoices are then approved. After the approval phase, invoices are then matched to purchase orders. This is what is meant by 2 way matching in accounts payable.
Matching is a vital element of the accounts payable process because it ensures that you only pay for what you actually bought. If there is a mismatch between the purchase order or sales receipt and the invoice, then there is a problem that needs to be addressed. 2-way matching is also required in order to remain fully compliant with the IRS’s paper trail requirements.
In addition to 2-way matching, there is also 3-way matching and 4-way matching. We will explore the specific attributes of these matching methodologies, but the basic principle to remember is that they all follow the same rules of 2-way matching, just with additional verification checks. How much matching you use primarily depends on the requirements of your industry and the level of trust you have in the vendor.
The final stage of the accounts payable process is posting for payments of the invoice. However, this stage can only be reached if the 2-way matching process is successfully carried out. The key difficulty is that this matching doesn’t just need to occur on one or two invoices. At a large organization, there may be hundreds or thousands of invoices that need to be quickly processed and promptly paid. Manually, this is almost impossible and merely results in huge piles of paperwork and demotivated employees. This leaves companies scrambling to meet deadlines and not lose valuable talent.
Fortunately, there is a better solution. Rossum is an intelligent document processing (IDP) platform that uses AI-enabled OCR technology to accurately extract data from a variety of sources, including invoices. Plus, Rossum also features a data matching extension that makes it easy to automatically match the data within invoices to the data within purchase orders, saving you valuable time and money.
Accounts Payable process
From our simple outline of the accounts payable process, it should be clear that there are several tasks that need to be performed on every single invoice in order to ensure full compliance and correct payment. Doing these tasks manually takes far too long and can result in unnecessary delays in payment. This can damage your relationship with your vendors, who are left waiting to be paid.
Delayed accounts payable processes can also slow down other departments’ projects and lead to the complete derailment of time-sensitive strategic initiatives and projects. What is the solution? Automate your accounts payable. The time has come to move past the days of paper and enter the digital age, where unprecedented efficiencies can be unlocked. In order to achieve automation, you’ll need to understand the benefits it can bring to your organization. Here’s a quick list of some of the benefits you can expect:
- Cost Savings
- Value Generation
- Better Information Sharing
- More Actionable Insights.
The time saved through automation results in serious cost savings for your organization. For example, by reducing the hundreds of hours your team may have been spending on invoice processing, you can lower your cost per invoice. Some suppliers offer early payment discounts. With an automated system, you could tap into these savings with every single invoice. Secondly, automation can create more value generation for your organization by freeing up your AP team to focus on higher-value tasks. Examples of these include fraud prevention, improving payment operations, spend management, and supplier relationship management, to name a few.
Better information sharing is a third benefit that comes from relying on a cloud-based automation solution for invoice processing. This gives one central place where your team members can access the invoice information they need quickly and easily. Finally, an AI-powered data capture platform gives you more actionable insights through its financial reporting dashboards and easy-to-understand analytics. It should be clear from these benefits that automating AP should be a top priority for your organization. One of the major aspects of this automation should include a way to streamline the invoice matching process.
As we have already described, invoice matching is a verification process that is a crucial component of the accounts payable cycle. It’s a process that’s used when the buying organization has already created a purchase requisition describing exactly the goods or services they need. Once this requisition is approved, a purchase order is sent to the vendor. Invoice matching can sometimes save the need to approve the invoice because the requisition approved the initial price previously.
There are two main ways in which invoices can fail to match their purchase orders. These are quantity deviation and price deviation. Quantity deviation refers to the number of goods not matching the number on the purchase order, and price deviation refers to the prices not matching on the invoice and the purchase order. Sometimes, these deviations are minor and not worth halting the payment process. Other times, the deviations are serious enough to warrant an investigation to correct the errors found on the invoice. Unfortunately, errors are more common than might be expected.
Addressing these errors is a task that can take up a great deal of time on the part of AP teams. However, the entire process can be streamlined, and errors can be reduced through an automated system that both automatically extracts the data and matches it up with the correct purchase order. The next level of verification above 2-way matching is called 3-way matching.
What is 3 way matching in Accounts Payable
What is 3 way matching in accounts payable? 3-way invoice matching, as you might expect, adds a third document to the two that are checked with two-way matching: the goods received note (GRN). A goods received note is a record of goods received from suppliers and used to prove that the ordered products have been received. When the ordered goods arrive at the buyer, they are checked, and the goods received note is generated. By matching the invoice to both the purchase order and the goods received note, you can be even more sure that you are only paying for the goods you have received.
Examples of 3-way matching do cover purchases of services as well. A 3-way match for services relies on the services received note (SRN) instead of the GRN as a way to verify the invoice. Rossum features a data matching extension that can make this entire process much more efficient. All you have to do is upload the document you want to match data with, along with the invoice or invoices you want to verify. The system will do the rest.
4 way matching in Accounts Payable
There is an even higher level of verification that businesses employ in their accounts payable workflows. It is called 4-way matching. 4-way matching in accounts payable is the process of validating the invoice by comparing its data to the data in the purchase order, the goods or service receipt, and inspection slips.
What are inspection slips? They are the documents created by the receiving department of the buying organization. When the goods are delivered, they are inspected to ensure that their quantity is accurate. Once verified, an inspection slip is created with the quantity recorded on it. This matching process provides the strongest validation of the three different methodologies we have discussed.
As you might imagine, 4-way matching is primarily used for large purchases of expensive goods rather than services. Unfortunately, all of these validation methods have the same problems in that they can be extremely time-consuming and expensive to do manually. Plus, attempting to do 4-way matching on hundreds of invoices is highly likely to be error-prone. That’s why many organizations look for solid invoice matching software.
Invoice matching software
There are several different alternatives for invoice matching software that you can find out there. It’s important to do your own research and read plenty of reviews before making a decision on which software to buy. Furthermore, we’d encourage you to think about whether you want a single tool that will help with invoice matching or a more comprehensive platform that can help you take control over all your document-based processes.
An automated document processing platform like Rossum can make it easier for you to automatically match invoices to purchase orders and extract data from invoices so that it can be sent to accounting for payment. If an invoice does not match purchase order, the visibility and analytics provided by the Rossum platform make it far easier and faster to identify the cause of the problem and address it.
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