A complete guide to Invoice Processing on Autopilot
Handling and processing physical and digital documents manually, managing the growing number of employees, and optimizing cash flow for the business is challenging but not impossible. As the business grows, so does the volume and complexity of all three of them. For fast-growing organizations, accounts payable automation manages all three with minimum human interaction.
Accounts payable automation replaces archaic invoicing processes and helps optimize the company’s human resources. In simpler terms, accounts payable automation minimizes human dependencies and eliminates error-prone tasks from the accounts payable process.
Using an accounts payable automation software affords many benefits including: streamlining and digitizing invoice processing, reducing the processing time, reducing operational costs, improving security and visibility throughout the AP process, and ultimately leading to better cash management.
Let’s look at the 10 reasons why organizations should start investing in accounts payable automation software.
The AP automation software scans and extracts data from invoices, validates data, and structures it. Next, by integrating with third-party business software, the payables processing can be automated from further processing to downstream apps.
What’s more, by building AP process rules based on contracts, payment terms and policies, and purchase orders, the accounts payable system flags errors that the accounting teams can then address.
Let’s look at some of the main reasons why businesses are investing in AP automation:-
Surprisingly, paper-based invoicing still dominates the AP systems. 72.4% of AP professionals rely on emails to receive invoices whereas 40% on fax. The paper invoices are passed from department to department to get the necessary approvals. The entire process is repetitive, time-consuming, highly prone to errors, and ripe for automation.
While the process seems simpler during the initial days of the business, things soon become disorganized as the company starts to scale. Eventually, the accounts payable team starts spending more time correcting errors and chasing down lost or late invoices. An AP automation software optimizes these processes and reduces physical paper trail.
The accounts payable automation software helps accountants reduce invoice approval time from a couple of weeks to 30-60 seconds so that AP teams save time from the grunt work to focus on strategic financial activities.
The data captured from invoice is automatically uploaded to the system which reduces duplication of invoices and human errors. Again, it saves more time as accountants do not have to scan the physical documents individually.
According to a report by APQC, top-performing companies experience an error rate of 2% with manual invoice reporting. But, for smaller companies, the chance of human errors can easily go up to 18% while processing an invoice. Over a year, these small errors provide a significant financial blow to the company.
Let’s work this out with an example to put things into perspective.
Say, a logistics company processes 10,000 invoices annually. At a 2% error rate, the company has to deal with 200 erroneous invoices. If an accountant takes one hour to correct one invoice then they are sinking 200 valuable hours behind repetitive tasks. When multiplied by the average hourly salary of $20/hour, the total sunk cost comes out to be $4000/year.
Duplicate payments, late payment penalties, and wrong payments only add to the financial burden.
Ideally, look for AP automation systems that have a high invoice processing accuracy rate. This way, by eliminating redundant and repetitive processes, AP teams can reclaim their time and contribute to the organization’s growth in a more meaningful way.
Manual invoice collection, data extraction, and invoice processing seem comparatively inexpensive compared to the initial setup cost of AP automation software. However, the ROI of such software is significantly higher in the long run.
The software also reduces overheads, improves employee productivity, and encourages sustainable growth for the companies. Reduction in errors and faster invoice processing speeds decrease manual labor costs.
Accounts payable software boost the organization’s efficiency by 10X, while lowering operational costs by 68-70%. Timely payment reminders and optimized workflows help the company capitalize on early payment discounts and rebates.
Additionally, lowering operational costs frees up working capital and improves the working capital performance.
AP automation platform funnels all the invoices through a single dashboard increasing visibility. Accounts payable automation compiles invoices, goods received notes, and purchase orders from multiple suppliers from different locations and business applications in an easy-to-use interface.
For added security, AP teams can give role based access. The authorized parties can see the invoice status and the list of people responsible for dispatching the invoice.
Moreover, the dashboard generates reports displaying the average time taken to clear invoices, the average approval rate, and overdue payments, among other key metrics.
Increased data visibility allows the accounting department to identify the areas that need improvement. Lastly, the cloud-based AP automation software provides a central repository to store and retrieve invoices.
Human errors made during the initial stages of manual invoice processing can cause serious compliance bottlenecks. Furthermore, incorrect data transfer between the various departments makes the company vulnerable to lawsuits.
Relying on physical copies exposes the company to internal and external fraud. According to a Forbes survey, invoice frauds continue to be a major issue for finance teams and the estimated cost of the invoice fraud for a mid-market business is $280,000.
In short, companies with manual invoice processing methods compromise on essential security features.
AP automation software ensures the organization follows government-mandated approval processes. The software ensures the invoices are HIPAA, SOC 1, SOC 2, GDPR, and PCI DSS compliant.
Being cloud-based, AP automation software allows relevant departments to access invoices from anywhere, across devices. The central repository improves cross-departmental collaboration and end-to-end security ensures sensitive data is stored securely.
Faster processing times, reduced errors, and increased visibility shorten the payment cycle for the vendors. The vendor invoices are processed in a few days rather than a few weeks. From the supplier's perspective, their Day Sales Outstanding (DSO) drastically decreases.
The vendors enjoy the increased visibility that comes with AP automation software. They can directly check the status of their invoice from the dashboard without having to jump through hoops. Suppliers can raise queries and communicate with the relevant authorities through the user interface.
In simpler terms, automated accounts payable workflows keep the suppliers happy by increasing transparency and ensuring faster payouts.
An AP automation software increases the company’s cash liquidity. Improved efficiency and higher straight-through processing (STP) rate helps the company optimize its cash flows. Some accounts payable automation platforms have a 95% STP rate.
The finance team, accounting department, FP&A, and C-suite leadership get access to features, like invoice trackers, spend pattern analysis, spend-to-supplier ratio, and on-time payment percentages. Generating insightful reports and running more forecast models helps with spotting cashflow opportunities.
Decreasing operational cost increases the working capital for the organization, enabling them to create more impactful financial strategies. All combined, AP automation software offers more flexibility to financial managers and accountants to spend more time budgeting and analyzing invoices and less time collecting, cleaning, and validating data from invoices.
An audit trail refers to the documentation required to verify the transaction records and keep the books in order. However, conducting audits of businesses using manual documentation can be a nightmare. The auditors have to scan through piles of paperwork to locate the relevant documents.
Depending solely on managers and accountants to furnish the relevant data can be detrimental to the audit process as they can produce or omit documents to skew the investigation. But, AP automation software prevents this by offering unrestricted access to both internal and external auditors.
Auditors can access records starting from the receipt of the invoice at the accounts payable department to the approval of payment.
The manual account payable process becomes more chaotic as the volume of invoices increases. The accounts payable department of fast-scaling businesses can get easily overwhelmed when the number of suppliers increases. And, continuously hiring more employees to keep up with the workload is not sustainable.
AP automation software is designed for businesses that are rapidly scaling their operations. The software can process invoices 24/7, at scale, without human intervention.
Invoices per FTE is a typical KPI that measures how efficiently the invoices are processed by full-time employees. So, if the number is lower than the invoices are spending more time in the system before getting processed. Introducing AP automation to the mix enhances the FTE by manifolds.
According to a recent report, 88% of small to medium-sized businesses still use manual invoice processing. Being an early adopter of automated workflows gives the company a considerable competitive advantage over a majority of businesses.
AP automation tightens security and prevents data leakages. It prevents the competition from using underhanded tactics to get a glimpse of your vendor contracts. Beyond the regular features, AP accounts payable automation manages non-PO invoices, such as service bills.
Reduction in errors, increased time-savings, decrease labor cost, and easy enforcement of compliances free up human resources to be reinvested elsewhere to improve the company’s strategic standing.
Westland, a portfolio management company, uses Docsumo not only to process its invoices but also their utility bills. Currently, they manage utility bills from 6 different service providers and are processing over 2000 invoices per month.
Implementing Docsumo can streamline your procurement and accounts payable processes to:
What sets Docsumo apart from other accounts payable automation software is:
If you’re looking to make your accounts payable system error-free, touchless, and accurate, sign up for a 14-day free trial.