Every business, no matter how large or small will have invoices to pay. These invoices are normally for goods and/or services provided by another organisation or vendor. Receiving, approving and paying these vendor invoices can be categorised into a process called Accounts Payable (AP).
The AP process can vary dramatically from business to business, with larger companies having whole teams of people managing the accounts, invoices and enquiries of their vendors and service providers. Typically, the manual process used by AP teams of large organisations requires lots of steps and lots of people to move an invoice from being received to being paid by the finance system/ERP.
Smaller entities with fewer purchase transactions don’t normally have a team of people managing their AP, but they still require a process for AP payments to ensure that their suppliers are paid accurately and on time.
The Accounts Payable Process can be broken down into a few key steps:
Invoice Received and Collated: The invoice is sent from the vendor via email in various formats, via post as a hard copy or via fax as a hard copy. Sometimes hard copy invoices are scanned and saved as electronic files.
Invoice Recorded: Details of the invoice are manually typed into a Finance/Enterprise Resource Planning System (ERP) or finance spreadsheet. These details need to be accurately entered and will include information such as: vendor name, vendor ABN, vendor GST details, invoice date, payment date, PO number, description of goods and/or service, payment terms etc.
Invoice Approved: Once the invoice is in the system, it needs to be authorised by the person who ordered the goods or service. This step requires that the vendor’s details are verified (Name, ABN and GST details); requires Purchase Order matching; and sometimes requires the invoice to be sent to another staff member or staff members for approval.
Invoice Paid: Once the invoice is approved, it can be paid by the finance team. Supplier payment details are checked again before the amount is paid.
Invoice closed: Once the invoice is paid, it can be marked as closed so that it no longer shows up as a liability in the Finance System. The steps above are indicative only and are considered the basic steps that need to be taken before payments are made in order to avoid errors and fraud. Large companies can sometimes have more steps in between, with more approvals and verification being required before an invoice is paid.
The Accounts Payable Process.
As with all businesses, efficiency dividends and cost savings are integral. Sadly, the Accounts Payable (AP) department can be one of the largest overheads in an organisation, with the Accounts Payable Process being heavily reliant on people and paper.
AP departments relying on manual processes are finding that adding staff does not solve the overall problem. Manual processes are not only expensive and inefficient, they increase the chance of errors and expose organisations to many risks.
If you review each of the tasks in the manual AP process, and categorise their associated problems, it reveals four key challenges facing AP Departments:
1. Cost per invoice
Inefficient AP processing can affect a company’s financial situation in two main ways.
The Human Resource cost of processing vendor invoices is generally high, with the average invoice processing cost being $15 per invoice. This might seem high, but when you review the high-touch tasks from the previous table it quickly becomes clear why.
A company’s overall financial situation can also be dramatically influenced by cumbersome accounts payable processing. Although most invoices start as electronic documents, they generally end up as paper on someone’s desk requiring actioning and approval. Any delays in this approval process seem like a lot, but when you review the tasks and actions that need to be undertaken on the previous page, it is clear how costs can quickly accumulate because inefficiencies can have a negative impact on a company’s bottom line:
- Higher Human Resource costs
- Late Payment of Invoice fees
- Early-Payment Discounts being lost
- Suppliers relationships becoming strained making it more difficult to
2. Accuracy and efficiency dividends
Manual AP processes can dramatically affect a company’s efficiency levels and in turn their overall cash position.
With any process that involves paper, manual data entry and manual approvals, the impact on a company’s working capital are high.
High workloads increase the capacity for errors and in turn increased scrutiny both internally and externally.
Any inaccuracies and delays in processing and recording invoices can result in:
- Strain on Human Resources
- Misplaced, mishandled or overlooked invoices
- Strained supplier relationships
- Inaccurate financial statements
- Likelihood of regulatory compliance audits
- Allegations of fraud.
3. Transparency and reporting
Traditional Accounts Payable processing can make financial reporting more difficult and time consuming for a Finance Department.
A myriad of requests are regularly put to a finance team, with everything from supplier queries, audit history reporting, invoice tracking, supplier spend, invoice status and monthly accruals needing to be handled quickly and efficiently.
A traditional, non-automated process can create a lack of financial visibility and transparency for a Finance Department which in turn can contribute to the increase in the transaction cost of an invoice and the overall procure to pay life cycle.
4. Risk of invoice fraud
Manual Accounts Payable processing can make an organisation more susceptible to Invoice Fraud. In 2018, invoice related fraud increased more than 46% on the previous year with 13,455 cases reported to the ACCC. Within that year millions of dollars were directed into fraudulent accounts, by seemingly unwitting organisations as a result of inadequate or substandard fraud detection measures.
What is Accounts Payable Automation?
Put simply, Accounts Payable Automation is when an organisation implements technology and software in conjunction with the finance system to help streamline their accounts payable process and minimise the level of human interaction required to process an invoice.
Automating Accounts Payable can improve accuracy, provide better financial visibility, increase efficiency dividends and dramatically reduce the cost to process an invoice.
When you review the problems associated with the manual Accounts Payable (AP) process and the knock-on effects these problems have from a financial viewpoint, it quickly becomes clear that automation is the answer.
There are many benefits to Accounts Payable Automation. Some of these are:
Greater accuracy and reduced keystrokes
AI-driven OCR technology that can reduce an AP department keystrokes by more than 90%, slashing both processing times and costs.
Smart technology can extract and automatically check the ABN and GST details provided on a supplier invoice against the finance system and with the relevant government department to reduce the risk of invoice fraud.
Invoice Exception Management
Where Accounts Payable teams gain many of the efficiency dividends is by quickly and effectively resolving any discrepancies that arise during the invoice life-cycle before posting the information to the ERP.
Integration with your existing ERP
AP automation solutions can be ‘plugged in’ to your existing ERP to help compliment the overall finance function. There are a handful of integration methods enabling routine data exchanges through to real-time AP data integration with your ERP.
Total invoice transparency
You can have all invoice information at your fingertips: supplier data, amount to be paid, taxes, line item details, workflow status (who, what, when & how someone has interacted with a task), audit trail and invoice images.
Improved financial situation
Early payment discounts, coupled with the elimination of late payment penalties, double payments and fraudulent invoices – can make a substantial difference to a company’s bottom line.
Accurate Financial Reporting
Invoice libraries provide deep search access to what has traditionally been dark data. This data can then be accessed for a myriad of requests such as supplier queries, audit history reporting, invoice tracking, supplier spend, invoice status and monthly accruals. Information can be accessed through drop-down filters, at the click of a button, from anywhere on any device, all the while improving visibility and transparency at every point in the Accounts Payable process.
Improve Cash Flow
Visibility and control, along with timely and accurate reports, enable healthy cash flow decisions. You avoid late payment penalties while taking advantage of payment discounts.