Swimming in a Sea of Invoices: How to Streamline Your AP Process
The sheer volume of invoices that organizations must process can be overwhelming, resulting in errors, additional time and delay in payments. Let’s examine some of the challenges that AP functions face and ways automation can help.
A wise person once said, “If you do as you’ve always done, you’ll get what you’ve always gotten.” That statement applies to many things in life, including accounts payable (AP) invoice processing.
For decades, AP was a manual process. Vendors mailed paper invoices to customers and accounting teams would perform their two- or three-way match, comparing an invoice to a receiving document and the purchase order (PO) or other purchase authorization documentation.
If the invoice description, quantity and pricing information matched, then the invoice would be manually keyed into a system, flagged for payment and an accounting entry made. That’s if you were lucky enough to have the vendor address the invoice directly to AP.
Often invoices were addressed to the main office address, received by a front office employee and eventually passed on to accounting. It was a good day if you processed the payment in time to avoid a late fee!
Manual processing is so yesterday.
The dawn of automation began in the 1980s with the advent of desktop computers. Issuing invoices, corresponding with vendors, matching documentation, updating the books and processing payment began a shift. This evolution continued over the past 40 years to where we are now – in a place where the entire process (minus a few keystrokes) is digital and seamless from beginning to end.
In our ever-connected world, even small companies receive thousands of invoices per month. Handling that quantity of paperwork isn’t feasible, and most companies can’t afford to staff a department large enough to handle the load. There’s also the time factor – manual processes are more time intensive than automated ones. Additionally, whenever humans are introduced into the equation, the chance for error increases. Multiply the time and error factor by thousands of invoices and problems can start to add up quickly.
So, who isn’t keeping up with the automation Joneses? While many are, 21% still haven’t gone digital. Based on the results from research commissioned by Medius, 50% don’t see the need or benefit, 45% lack sufficient resources and 15% lack buy-in from senior management.
While companies are often reluctant to change their processes, those who do often experience a quick return on investment. Darin Brzakala, senior finance manager at Milwaukee Tool said, “By adopting AP automation, we believe we’ll see a full return on investment in cost savings, reduction in manual tasks and increased efficiencies in under a year.”
If implemented correctly, AP automation can benefit companies of all sizes in various ways:
- Save time and money – Based on the aforementioned research, 44% of surveyed companies spent less time on invoice processing post-automation implementation. Teams are now freed up to focus more on value-added work. Additionally, 40% reported lower operating costs and greater visibility on spend. That contributes directly to the bottom line.
- Reduce errors – Invoice processing and payment are delayed 49% of the time due to errors in master data. Based on a study by Levvel Research, the second greatest reported benefit to AP automation is an improvement in error rate.
- Digitize documents – According to McKinsey, employee spend nearly two hours every day, on average, searching and gathering information. That’s equivalent to hiring five employees but only four showing up for work. There’s no longer a need to dedicate entire cabinets to storing paper documents anymore. By going digital from the start of the process invoices don’t need to be signed, scanned, emailed around the office for review and approval.
- Have internet – will travel – Gartner predicts that nearly 70% of routine work will be fully automated by 2024. Going digital increases accessibility by moving manual processes from a physical location to the cloud. That will also open the talent pool with Gartner predicting disabled employees in the workplace tripling by 2023.
- Don’t reduce, reskill – With automation comes less hand holding. What used to be a more involved process is now simpler and straightforward. Before, a receiving clerk would perform the physical receipt of goods and then run the packing slip up to Accounting for the second step in the receiving process. With automation, hand-held barcode readers are used to scan in receiving documentation and automatically matched to invoices and POs in the system. This in turn enables organizations to rebalance their business by gradually reskilling employees. McKinsey predicts that nearly 9% of the global workforce will be in new occupations due to AI and automation technologies.
After implementing an AP automation system at her company, Catherine Duvaas, Accounting Manager at Visolit said, “Previously, we handled supplier invoices directly in SAP. This involved time-consuming manual steps and it was difficult to obtain relevant reports. We now automate the entire process and instead have user-friendly reporting and an overview of the invoice flow and the degree of automation.”
Improvements post-automation were noted across the board. Of those surveyed in the study who implemented automation, 48% reported smoother purchasing and payment processes and 38% reported better collaboration across Procurement and Finance.
Dolly Parton once said, “we cannot direct the wind, but we can adjust the sails.” The way we do business is ever-changing and the pace at which it happens continues to accelerate. Take a step back and look at your company’s AP process – are you keeping up with the winds of change?