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Automating Accounts Payable reduces the time it takes to receive, process, and pay invoices and helps drive business intelligence by bringing together information from various sources. It helps unify your entire organization around key metrics by automating processes and eliminating manual tasks, so everyone can focus on the things that matter — growing revenue and managing costs.
We take this opportunity to discuss different aspects of AP automation and help you choose the best-suited AP automation tool for your business.
Let’s get right into it:-
Accounts payable cycle-an overview
Accounts Payable are the financial records of a business that detail the transactions associated with the buying and selling of products, services, and other resources. In short, they record your business's financial obligations or liabilities to others.
The job of this department is to deal with invoices, orders, and checks associated with purchases. But many small businesses today are wise to outsource their accounts payable functions because it is often a manual process.
As per a recent survey by PYMNTS, 86% of finance professionals view automation as a new revenue generation process to boost customer satisfaction.
There are different ways to set up your AP process however the critical components of the AP process remain the same -
Managing cash flow
The summary below shows a basic breakdown of the AP process:-
Identify suppliers and create vendor master file
Create purchase order forms
Establish different payment terms with vendors
Establish credit limits for each vendor
Enter purchase orders into the system and send out purchase orders
Create payments when invoices are received from suppliers
Post payments to the accounting system regularly
Follow-up with slow-paying vendors or those who haven't responded to requests for additional information about invoice amounts.
Whether you are a small business, startup, or even a corporation, every company has to deal with accounts payable. Setting up an accounts payable process is one of the most valuable things you can do for your business.
Make sure that all transactions are payable.
Ensure that the accounts payable process is current, consistent, and complete.
There are two ways to process accounts payable, manual and automated.
Manual system is not the way to because it is highly inefficient and lacks proper controls. Also, if the manual system is outsourced to an outside accounting firm, the errors and inconsistencies can be costly. Manual systems often fail to provide necessary reports to management and auditors for review.
So, what’s the solution?
The answer is accounts payable automation.
Accounts payable automation- why is it critical?
In the current digital age, you can generate purchase orders, make payments, reconcile accounts payable, and even look-up vendor information with a few mouse clicks and keyboard strokes. Other reasons to prefer automated systems over manual processing are increased efficiency, reduced errors, simplified workflow, and a complete audit trail.
Furthermore, they can generate reports that can be used by management and auditors, providing valuable insight into accounts payable activity. Automation also reduces overall costs by reducing the staff required to run the function.
There are two main steps to accounts payable automation:-
1. Setting up vendors and tracking accounts
The first step in automating your accounts payable process is getting your vendors set up in the system. You need to think about how you use vendors:-
Do you have just a few large ones or many small ones?
Are there any special considerations for each one?
Do you have any recurring invoices from vendors that need to be paid automatically?
When setting up your vendors, add as much detail as you can, including their names, addresses, tax IDs, and contact information. Also, make sure to include the item numbers for each vendor.
You need these details to track payments and expenses. If a vendor doesn't have an item number, you can create one for them.
2. Capturing data and making payments
When you receive a PO, invoice, or purchase order, you need to break out the fields that are relevant to your workflow and add them to your system.
That includes fields like:-
Due date, etc.
Once you've captured this data, you can proceed to making payments.
This is where an automated solution can save you a lot of time and keystrokes.
Accounts payable data extraction techniques
Automation has made it possible for companies to set up internal payment processing systems and online portals where suppliers can submit their invoices. As a result, accounts payable departments no longer need to spend as much time reviewing and processing every invoice individually; they can now rely on automated processes that do most of their work for them.
Examples of such data extraction technologies that helps streamline the whole accounts payable workflow are:-
1. Computer vision
It involves analyzing images to detect specific features in an image or video feed. The system can detect characteristics such as lines, shapes, objects, and faces in real-time.
This is used to automate object tracking, parts counting, industrial inspection, and much more. One of the most popular uses for computer vision is object tracking in manufacturing operations.
Computer vision technology can track parts through a production line for quality control and alert supervisors if an issue is detected.
2. Optical Character Recognition (OCR)
Optical character recognition (OCR) software enables a computer system to translate and store information from images of scanned or faxed documents into your system. OCR is one of the most effective ways to speed up invoice processing. It can automatically extract information from the document uploaded into your accounting system.
The software is typically installed on a single computer connected to a scanner or camera that is used to capture the image of the document being processed. After the image has been captured, it is analyzed by the software to determine what text or numbers are present in the image. This enables the program to extract all relevant information from the document to be processed following business rules established by an organization's management team.
IDP is a big step forward from traditional data capture technology that eliminates the need for templates, dramatically reducing the dependency of template-based data capture models. More importantly, IDP eliminates manual intervention when invoices do not conform to standard formats.
Intelligent document processing (IDP) analyzes the structure of documents such as invoices, receipts, and reports, extracts critical information from them, and classifies them using machine learning algorithms.
For example, an invoice could be classified into "utility," "travel," etc., based on its line-item description. Information such as vendor name, address and invoice number can be extracted from an invoice and validated against existing data in ERP systems or accounting systems. Once validated, Data is categorized into appropriate business objects stored in a data repository.
Tasks such as invoice reconciliation, invoice matching, and payment posting can all be streamlined with an automated data extraction solution.
Let’s see how Docsumo does it in 5 steps:-
1. Document pre-processing
It involves separating documents from envelopes and feeding them into document scanners. Once the invoices have been scanned into a computer system, they are classified according to their types or attributes. For example, specific invoices may require special handling or be delivered to different departments.
The pre-processing step is crucial to accounts payable automation because it ensures that your data is complete before moving on to the workflow's next step.
2. Document classification
A classification tag is assigned to each document based on its characteristics such as size, purpose, payer, and type (e.g., invoice, contract, check).
Docsumo does it with the help of the document auto-classification API. Docsumo uses machine learning algorithms to identify invoices based on content and associate them with a specific company code or customer number. Invoices that the classifier cannot identify are then sent back to the pre-processor for further validation.
3. Data extraction
Data extraction involves automating the process of pulling the relevant information from physical documents so that it can be imported directly into your accounts payable system, eliminating double entry and reducing human error.
Each document's specific data fields are identified for data extraction using advanced optical character recognition (OCR) software or custom business rules.
Data extraction is performed next using an automated IDP that reads the scanned documents and extracts them into an electronic format.
4. Data validation
A data validation tool is used to ensure the integrity of data. Your company depends on accurate and timely information to make decisions. Data validation is the process of checking and correcting extracted data.
Any errors can be detected using Docsumo’s data validation feature that applies excel-like formulas to validate extracted data within a document. Validation also includes checks for missing data fields, invalid formats, and inconsistencies within the data itself (e.g., customer name spelled correctly but addressed incorrectly).
5. Human review
If the system reports any error, the document is held for manual review. Authorized reviewers can correct and approve captured data using Docsumo’s embedded review screen.
Once an authorized reviewer has approved a document, it is transferred to a host system, which is used for payment processing by the accounts payable department.
The process of transferring documents to accounts payable often requires some manual intervention. For example, when a purchase order is approved, it can be used as a source document to produce an invoice.
Automating Accounts Payable is best for companies who frequently issue invoices, purchase materials from outside vendors, and are comfortable with having to triage their vendor payments.
Best AP automation software to improve your workflow
AP automation software helps small to medium-sized businesses manage their accounts payable process from start to finish. It automates the entire process from purchase orders, requests for quotes, vendor invoices, and payments. With AP automation software, you can easily customize your strategy to meet your specific business needs and effectively control your spending.
Why use Docsumo for AP automation?
Invoices are critical documents in any business, but they can be challenging to process and validate. That’s where Docsumo comes in.
Docsumo uses ML-based IDP technology to capture data from documents, classify, and extract relevant information. This greatly enhances the overall efficiency of the invoice processing system.
Docsumo provides a range of solutions for AP automation, which businesses of all sizes can use. The platform is highly flexible, scalable and easy to use. Some of the key features offered by Docsumo include:
1. Automated invoice processing
Docsumo helps businesses achieve an Straight Through Processing rate of 95%, or more for invoice processing. It means that there is no need for human intervention 95 out of 100 times.
2. Approval rules
Docsumo lets you create approval rules using simple excel-like formulas. Thus, it approves mutually dependent removed information inside solicitations so that no off-base information cruises by.
3. Processes documents in bulk
Docsumo can process an extensive range from small to large invoices with over 100 pages.
4. Field-level precision and accuracy
Docsumo offers 99%+ field-level accuracy for most invoices. Coupled with different ML models and multiple learning mechanisms, the user is all set to pick the best model to improve the accuracy and STP rate further. It results in significantly reduced turn-around time and saves up to 70% of the entire invoice processing cost.
Are you available to discuss Docsumo’s approach to automate accounts payable for your business today, or any time this week?
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