Accounting teams employ Accounts Payable Automation (AP Automation) to automate accounts payable invoice operations. AP Automation software has advanced optical character recognition (OCR) technologies that combine artificial intelligence (AI) and machine learning (ML) software to automate accounts payable invoice and payment procedures.
Companies can use automation to send bills, handle approvals, and execute payments, all from a single platform. AP automation is used by businesses to reduce or eliminate manual intervention and speed up processes like approvals, which can take a long time without effective controls. The following are the most common goals for which AP automation is used:
- Remove the need for data entry.
- Allow for online approvals.
- Create electronic audit trails.
- Invoices should be matched to purchase orders and payments.
- Enable end-to-end secure payments.
- Errors such as double payments should be avoided.
What are the Ways in Which AP Automation Can Reduce Expenses?
Here are six ways that Accounts Payable Automation can help businesses cut costs.
- Process Costs are Reduced
According to Institute of Finance and Management (IOFM) benchmarks, highly automated accounts payable departments spend one-fourth the time processing an invoice as their peers with little or no automation. Following things raise up invoice processing costs that are eliminated with AP automation:
- Inputting data for invoices
- Invoices and purchase orders, as well as proof of delivery documentation, must be matched
- Locating prospective buyers
- Routing invoices for approval based on their physical location
- Phone conversations back and forth about fixing issues
- Looking for bills that have been lost or missing
- Invoice storage and retrieval
- Organizing your payments
- Reconciling payments
- Troubleshooting payment problems
- Report preparation
- Obtaining data for auditors
According to the Institute of Finance and Management (IOFM) and the Association for Intelligent Information Management (AIIM) benchmarks for invoice processing costs, an accounts payable department processing 5,000 invoices per month can save $55,650 per month ($64,500 versus $8,850 per month) and $667,800 per year by automating their accounts payable department.
- Penalties for Late Payments are Reduced
Late payment penalties are increased by slow invoice approval cycles. According to Institute of Finance and Management benchmarks, fully automated accounts payable departments pay more than 90% of invoices on time. Several of the time-consuming tasks connected with processing PO-based and non-PO-based invoices are eliminated via automation.
Invoices are collected, digitized, and aggregated on a single platform from any delivery channel and in any format. Supplier, header, and line-item data (such as amounts) are automatically extracted from invoices using intelligent data capture technologies. After that, invoices are matched with purchase orders and/or evidence of delivery receipts.
Digitally routed bills that require approval (such as non-PO-based invoices) or exceptions handling are based on pre-configured business workflows. Furthermore, automation ensures that bills that need to be reviewed are always given to the correct person. Invoices will never longer be misplaced, misfiled, or “stuck” on the desk of an approver who is busy or out of the office due to automation.
- There are Fewer Incorrect Payments
Automation enhances precision by verifying invoice data against information in an ERP or accounting system slightly earlier, eliminating manual processes and paper hand-offs that frequently result in mistakes.
AP automation provides quick online access to supporting data, marking duplicate invoices, enables collaboration between suppliers and internal stakeholders, and uses business intelligence to identify problems. Some solution providers promise that their technology will offer accurate results.
Furthermore, electronically communicating with suppliers and internal stakeholders allows accounts payable departments to handle issues in a more structured and effective manner than manual systems, which often rely on back-and-forth emails and phone conversations with no tracking.
- Reduce Errors on Invoices
According to a report from the Institute of Finance and Management, vendor invoice inaccuracies are pretty prevalent, with approximately 3.6% of invoices containing errors. To catch all those problems by matching invoices to their supporting documentation, you’ll need a lot of attention to detail, and even the most dependable AP staff is prone to human error sometimes.
Workflows such as automatic invoice matching can catch and flag problems faster and more accurately than the human eye can.
These are only a few of the advantages of accounts payable automation, but you can see how they can add up to big victories for your company.
- Staff Productivity is Higher
According to The Hackett Group, highly automated accounts payable teams process 175% more invoices per full-time equivalent of work than their peers. In a manual or semi-automated system, data entry, matching, paper handling, and routing, and physical document storage are all required. Automation boosts productivity by removing these tasks.
Data from invoices is retrieved and checked automatically, then matched with POs and proof-of-delivery receipts before being immediately entered into any ERP. Any invoices that require inspection, approval, or resolution of exceptions are electronically forwarded to designated personnel according to predefined standards.
- More Discounts for Paying Early
Businesses benefit from early payment incentives by lowering their purchase costs. According to Institute of Finance and Management benchmarks, most accounts payable departments capture less than 21% of all early-payment discount offers, with 12% of departments unable to capture any early-payment discounts.
By removing friction from the invoice approval cycle, moving to higher degrees of automation allows firms to pay more of the invoices they receive during the discount period. After an invoice has been accepted for payment, the buyer sends an e-mail or an online portal to the supplier with alternatives for early payment.
The greater the discount, the earlier the payment is made before the invoice due date; the lower the discount, the closer the invoice due date.
- Increased Rates of Invoice Match
Invoices, Purchase Orders, and goods receipts can be matched two ways or three ways with automation. The technology takes invoice data automatically, checks for duplicates, validates supplier information, and calculates invoice line-item data.
Data extracted from POs and proof of delivery documents are automatically matched. Data sources like an ERP platform, business rules, and applications can all be used to validate the information.
Business tolerances guide the development of matching rules. Any invoices that do not match are electronically directed to a queue for examination and data correction, or they are electronically routed to stakeholders based on pre-configured rules.
- Identifies Possible Fraud
Unfortunately, examples of large and small businesses losing money as a result of paying false or fake invoices are common. These schemes are especially common in companies that use manual methods. It’s critical for an AP platform to set up and adapt to a company’s operations based on its various permissions and roles across departments.
AP Automation solutions can help identify duplicate invoices based on invoice number, invoice date, vendor name, line items, and/or amount, in addition to eliminating manual data entry.
The ability to quickly check previous invoices from a given vendor can help identify invoices that need to be investigated further. Another approach for detecting fake invoices is enforcing three-way invoice matching and verification. This helps the company in reducing payments that lead to zero benefits and safeguards it from potential frauds.