How to Automate Accounts Receivables?
We've accumulated the list of questions you should be asking before automating accounts receivable process in your company. This article helps you filter out the solutions for your consideration list.
In the wake of the current digital revolution, an increasing volume of transactions are happening online, and virtual touchpoints are the norm. There is an urgent need to streamline the high volume of transactions, complex invoices, disparate systems, and regulatory compliances that are part of the accounts payable process. And thus, for many organizations, accounts payable optimization is a top priority to increase positive cash flows and operational efficiency.
But what does optimizing one’s AP process take, and how do we go about it?
This blog will help you understand the essential steps to AP optimization, measuring KPIs, and finding the right automation tool for your business.
Let us dive into it:-
The AP department is no longer a back-end function and has become strategically valuable to businesses. An efficient accounts payable process leads to positive cash flows and supplier relations. It also levels up your operations and profitability.
Let us explore the strategies that can help optimize your accounts payable process.
The invoice processing function in finance departments follows a somewhat similar process:
i) Vendors share an invoice.
ii) Finance does manual data entry into accounting software.
iii) Documents go through an approval process.
iv) Finally, the Payment is released.
Manually implementing these tasks is time-consuming, error-prone, and demands significant resources. Releasing the payment to a vendor might take weeks or months, hurting their cash flows and your long-term relations.
On the bright side, intelligent invoice processing platforms are changing the game for AP professionals. An intelligent invoice processing software uses OCR & intelligent data extraction to automate matching invoices against purchase orders, receipts, and approval workflows. With these platforms, you can avoid errors, delays, and late fees and rapidly process invoices while maximizing visibility and improving accuracy.
They can help your AP team focus more on strategic tasks like cash flow analysis and forecasting.
Your finance team uses accounting software for bookkeeping and more than one tool to manage approvals, collect invoices, and create reports. But do they still manually enter and tweak data most of the time?
If so, consider an Accounts Processing Automation software that can integrate with your existing accounting software. By ensuring ready integrations to push data in the matching schema, your team can save precious hours and avoid manual tasks.
CFOs are taking stock of data and analytics to stay competitive and gain better visibility into every aspect of their finance department. According to a report by PWC, 68% of CFOs are investing in digital transformation, including in technologies like cloud and analytics. They seek to make more strategic decisions by leveraging AI and ML-based automation to accelerate revenue growth.
An intelligent AP automation platform offers intuitive data visualization that makes it easier to draw insights. It allows you to focus on strategic decision-making backed by data. With granular analytics, you can identify and solve bottlenecks in your AP process.
Implementing fraud prevention protocols and internal controls is critical, especially in the Real Estate and BFSI sectors. Due to the large volume of transactions and high dollar amounts in these sectors, unauthorized payments and fraud are more likely. These industries are subject to stringent regulations by governing bodies like NAR and FTC to protect consumers and prevent financial fraud.
AP automation tools help companies prevent fraud through audit trails, segregation of duties, and integration with procurement teams. Since these automation tools also work with third-party vendors, check for SOC certifications to ensure they comply with data protection and cybersecurity standards.
So far, we have understood the essential steps to optimize accounts payable processes. Now let us explore the KPIs that help us further evaluate our AP process.
When automating accounts payable processes, one must look at some key metrics to assess automation success:-
This metric measures the time to process an invoice, from receipt to payment. While automating the AP process can significantly reduce the time taken to process invoices, measuring the processing time helps you gauge productivity.
Keep an eye on your invoice error rate post-automation. It is a critical metric to track because erroneous or duplicate payments can hurt your company’s bottom line.
Cost saving measures the cost of processing an invoice. Automation is supposed to reduce the cost of processing invoices by eliminating manual data entry and reducing the need for paper-based processes.
This metric measures the time taken to approve an invoice for payment. Automation decreases invoice approval times, enabling organizations to pay vendors more quickly and efficiently.
Selecting an accounts payable automation software requires careful consideration of your business's goals, industry, existing workflows, and systems.
Account for factors such as the volume and complexity of the documents you process, the number of vendors, and the complexity of your approval process. It is also essential to ensure that the AP automation tool you select complies with regulations such as SOX.
Capturing data from an invoice and making payments are the most critical aspects of accounts payable. You can streamline these tasks for optimal expense management and cash flow. An invoice processing software is tailored for this purpose.
While multiple kinds of invoice processing software exist, we will focus on the two most dominant ones.
A template-based-OCR invoicing software uses predefined templates to recognize and extract data from structured documents such as invoices, purchase orders, and receipts. By using predefined templates, the software can quickly and accurately extract data from each document, reducing the need for manual data entry and minimizing errors.
However, this software falls short when it comes to processing complex documents. It is ideal for small-scale businesses that deal with similar structured invoices with minimal variations. Template-based OCR is also priced cheaper compared to more advanced processing software.
An Intelligent Document Processing software combines powerful OCR, machine learning, and deep learning capabilities. It can process structured as well as unstructured documents and adapt to enormous variations. Besides capturing data, IDP derives context and insights and generates a narrative. Its ML techniques systematically boost accuracy over time.
An IDP platform is recommended for businesses receiving documents in multiple structures, formats, and styles. For example, enterprises in the Insurance, Real Estate, and lending industries that handle high volumes of paperwork such as invoices, receipts, purchase orders, bank statements, and contracts can benefit highly.
To sum it up:
To find the best invoice processing software for your business, compare options for the following aspects.
The accuracy rate measures how accurately a document processing software can recognize and convert text from an image or scanned document. The accuracy rate of invoice processing software that uses OCR and machine learning technologies can range from 80% to 98%. However, this can vary depending on the specific software and how well it has been trained to recognize and extract data.
Turnaround refers to the time the software takes to process an AP document from when it is received until it is fully processed. The average turnaround time varies depending on the document’s complexity and the software's accuracy. An IDP software can process a document in less than 30 seconds.
STP (Straight-Through Processing) rate measures the number of documents processed without manual intervention. A good STP rate ranges from 90% to 95%
Choose software that guarantees ease of use and minimizes manual effort. Automation software that requires less training time is ideal and more equipped for time and resource-saving. It simplifies adoption without disrupting your processes.
Choose a document processing system that lets you send invoice data to downstream software using API. Different APIs consider different formats as per need, such as JSON or XML. So find a platform that efficiently extracts data from popular formats (TXT, PDF, PNG, JPG, Excel, Email) and has ready integrations with your existing software.
Above all, scout for relevant reviews and feedback from peers in your industry. Sites such as G2 and Capterra are excellent sources for software reviews and insights from other users.
Factor in your company's budget and requirements while weighing your options. Consider the business's size and scale and ensure that the software leads to positive ROI. While cheaper template-based OCRs are suitable for startups and small businesses, enterprises that handle complex documents benefit more from intelligent document processing systems.
Apart from gauging all these aspects, ask potential vendors about pricing tiers based on features and scalability. You also need to ensure whether there are additional training and technical support charges.
Docsumo does the heavy lifting of automating these 4 critical steps of invoice processing:
Docsumo’s pre-trained APIs ingest invoices directly from email inboxes, cloud drive, and local machines. The API supports all the popular document formats, including scanned images, and can adapt to changes in the document structure. And thus, your AP team’s process begins without someone having to download the document and enter the line items manually.
Docsumo’s intelligent AI enables you to extract and easily review only the fields you need from complex documents such as invoices, bank statements, contracts, rent rolls, bill of lading, energy/utility bills, etc. It requires zero human intervention and measures up to 99% data capture accuracy.
The AI and machine learning algorithms create excel-like rules/formulae to validate extracted data within your document, across documents, or against a database. It categorizes table line items based on descriptions to derive critical metrics required for decision-making.
Docsumo pushes the data post-process and integrates them with your downstream software. It has supported integrations with Microsoft, Google Drive, Dropbox, and accounting software such as Xero and Quickbooks.
To summarize, accounts payable automation improves operational efficiency, reduces manual efforts, and saves time and costs. It enhances cash flows and profitability, making it easier to seize greater investment opportunities. And thus, one of the biggest priorities for a business is garnering more strategic value from its AP departments by automating and optimizing the accounts payable process.