What AP Professionals Really Gain from Automation
When the pandemic struck, businesses globally began* automating their accounting systems to make payments while their people worked from home.
However, the benefits of accounts payable (AP) automation aren’t confined to convenience. Today, finance teams view digitisation as key to making efficiency gains and improving cash flow management.
The consequences of an inefficient AP process are significant. If your accounting team cannot complete tasks quickly and accurately, your business may suffer.
For example, if you’re still working with paper checks and paper invoices — and recent statistics* suggest that over 40% of you are — then it’s time to re-evaluate your AP process.
The manual efforts involved in processing paper translates into expensive labor costs. It takes longer to reconcile POs and invoices and complete transactions, which means your Days Payable Outstanding (DPO)3 is higher. According to IOFM’s 2021 World Class AP Performance: Efficiency Benchmarking Metrics Report4, the cost can be up to 300% more than if this were managed electronically.
By employing a smart AP platform it is possible to mitigate the challenges above while increasing efficiency and cost savings.
Let’s explore the actions you can take across the four key workflows in AP.
You can simplify these processes by adopting both automated and non-automated solutions.
Workflow #1:Purchase Orders
Purchase orders (POs) are designed to add structure and clarity to procurement. By allowing employees to submit their requests and helping finance teams track their spending, POs provide a system to record and approve requested resources.
When a structured, formal workflow is not in place, it can cause friction, become manually intensive and encourage employees to take potentially damaging
shortcuts. Not having end-to-end visibility could mean a lack of awareness of outgoings or the current status of individual POs.
The first step in setting up an optimised purchase order workflow is to establish a formal requisition process. By using PO forms, every purchase is recorded and tracked, allowing your team to easily match invoices to POs. This helps monitor approved spending, goods received and provides the opportunity to ensure that the goods received are indeed the ones ordered.
Another best practice is to create an approval network to manage departmental spending. Delineating responsibility for the purchase request between the employee and the approver helps create a culture of accountability. But to truly maximise the benefits your AP process brings to your business, automation is key.
By automating the PO process, you will gain the ability to:
Customise purchasing and spending limits — companies can create a formal purchasing process that controls who is allowed to buy what and how much money they can spend. Limits can be agreed upon based on department, project, vendor, or set manager budgets to control unapproved purchases.
Reduce unauthorised purchases — with automated approval and routing technology in place, it’s much harder for POs to get fulfilled unnoticed by the approval manager or the AP team.
Eliminate double data entry — through automatically matching POs to invoices, you remove the need to input information in multiple systems.
Preview budget and forecasts — the centralised dashboard means that you will have full visibility over payments, invoices and expenses, and allow you to measure how each of them is contributing to your overall growth. A smart automation platform can save time, more effectively track spending with fewer human errors, and provide accurate data to help better manage the business.
Workflow #2: Invoices
By allowing you to verify each purchase, invoicing is an important checkpoint to validate and take stock of goods received. As this also initiates the payment process, efficiency in this workflow means on-time payments and satisfied vendors.
The COVID-19 pandemic incited a seismic shift to remote work, but manual processes curbed AP teams’ ability to function properly. Research showed that
finance teams were often forced to visit the office to complete tasks like obtaining invoices or pulling paper files.
Slow invoice processing can result in:
Manual data entry and errors — updating the same data in multiple systems increases the opportunity for mistakes that can hinder reconciliation or even making payments.
Informal approval channels — AP teams reliant on email or paper approvals can contribute to slow invoice processing cycles.
Duplicate invoices — it’s easy to lose track of what’s been paid already. One report found that 63%⁵ of businesses had received duplicate invoices, of which 33% had actually paid them.
To introduce efficiency, look into document management software (DMS) and install optical character recognition (OCR) technology. DMS can speed up the approval process by converting paper documentation into electronic form and immediately pushing it into an approval workflow. OCR converts these documents into digitally searchable and editable text, eliminating manual data entry time — and errors. A smart AP system will target all these challenges, leveraging automation, through a central platform.
AI-powered data capture — automatically extract invoice details such as amount, due date, invoice date, vendor name, description, unit costs, and quantities with no risk of human error.
Automatically flag duplicate invoices — eliminate the hassle of double-paying and contacting vendors to claw back money.
Process visibility — track every invoice in real-time: from when it was sent for approval, how long it stayed in the approver’s inbox, when they requested backup data, to the date and time it was finally approved. This data can help identify and address any bottlenecks.
Strategic team focus — free up your AP team to focus on more important tasks in AP management than manual data entry or chasing down paper files and lost emails.
Workflow #3: Payments
Many organisations are still experiencing challenges caused by a low cash flow economy, supply chain disruptions, remote work conditions and more.
In our recent State of AP study6 surveying 600 finance professionals across North America, three areas within payments were the most impacted:
Late payments — in the first quarter of 2021, businesses in North America took up to 58 days to pay vendors and suppliers, up 5.5% YoY. Late payments can cause a domino effect: your business reputation suffers, your DPO increases and your supplier’s business takes the cash flow hit. Subsequently, some vendors might argue for less than favorable credit terms or simply end your relationship.
Remote access — in 2021, 57% of businesses were unable to make payments while working remotely. Reliance on paper invoicing and payments interrupts cash flow, which is not good for anyone’s bottom line. What’s more, employees tasked to manage all this paper from the confines of their temporary home office can quickly become fed up.
Fraud — sophisticated scams target companies of all sizes. Without a structured and secure process for managing payments remotely, valid actions such as expedited orders, change of banking information, and new payment methods can be points of risk.
Even the most experienced teams can run into these roadblocks. For increased security and efficiency, ensure these best practices are in place:
Separate the approvals chain for invoices and payments — this reduces the chances for funds to be rerouted or otherwise misappropriated.
Integrate third-party software — onboarding a platform that tracks, updates, and maintains payment data not only helps your business to monitor late or missing payments. It can also manage vendor data and accept full liability for payments.
Use a bank change form — you should always ask two or three questions to confirm any amendment to bank details to guard against fraudulent activities, such as their last payment date or the last invoice amount.
Train your AP team — the ability to detect common fraud threats, like phishing emails and scam phone calls is your first and most important line of defense.
To truly gain efficiency, accuracy, and strong customer relations in your AP process, automating payments will simplify and significantly improve your results.
Some of the key benefits include:
Multiple payment channels — a smart AP platform will help you manage your vendors’ preferred method of payments, whether that’s ACH/EFT, VCC, or even paper checks.
Reduce manual labor — allowing your software to chase approvals and send follow-ups frees up your team to focus on more strategic work. A smart AR system can also streamline complex processes such as customising the approval matrix based on the amount, department, city and vendor.
Reduce payment costs — electronic payment options reduce the expenditure of processing payments. The average cost for processing a paper check is GBP£10, versus GBP£1 for ACH. And when you factor in manual labor, reconciling errors, and postal mail, the actual amount can be much higher.
Mitigate fraud — a smart AP solution provides anytime, anywhere access to check real-time updates regarding invoices and accounts, and can flag any irregular activities that fall outside of the designed payment process.
Effectively managing this process allows you to become a perfect payer, completing transactions on time, every time. You’ll also be able to choose the least expensive payment channel and take advantages of incentives that will truly impact your business’ bottom line.
Workflow #4: Expenses
If expenses are not reimbursed promptly, not only can employees become more reluctant to spend their hard-earned money on business travel and/or subsistence, but management will not have full visibility of spend and ROI.
The most common expense management issues AP teams face include:
Unclear policies — without clearly-defined guidelines, employees may inadvertently claim for unauthorised purchases, and cost your business more in the long run.
Time-consuming processes — sifting through paper receipts to verify details take up valuable time, not to mention the added processing tasks like printing, scanning and coding. This is why 45%* of CFOs say minimising the administrative burden in expense processing is their number one priority.
Expense abuse — last year, 62%8 of businesses identified out-of-policy expenses.
Errors — according to the Global Business Travel Association*, one in every five expense reports contains errors. This can cost both the employee and the employer time and money, and cause pointless frustration.
Lack of reporting — the absence of proper data can inhibit your ability to highlight abusive or inappropriate spending, and use the data to improve and refine budgets.
When you’re ready to remedy your expense management challenges, start with the basics.
Document or update your expense policy — ensure that your current guidelines reflect today’s hybrid and fully remote work models and that they are clearly communicated and understood.
Use document management software (DMS) — platforms that easily digitise paperwork optimise time, workflows and reduce data entry errors.
62% of businesses identified out-of-policy expenses
Automated expense management accelerates the approval process and reimbursement by:
Allowing employees to submit expense reports online or via the mobile app. Once approved by the manager, the AP team can reimburse them electronically.
Flagging expenses that exceed your set limits or are outside of policy. These can be customised based on factors such as department, budget, and role, giving you greater control and visibility over employee spending.
Eliminating errors — such as double data entry — by mapping expense categories directly to your existing GL codes, saving your accounting team time and resources.
Ensuring reports are submitted in a timely fashion and that approvals are reviewed promptly, keeps both the employee and the company’s budgets up to date.
Providing customised, detailed reports for smarter decision-making about expense policies, department spend, and other factors that impact fiscal health.
Whether it is a significant — or smaller — aspect of your business, enhancing your expense management with an automated AP platform will create a noticeable impact. From generating an efficient cash flow to promoting reinvestment in your business to empowering your employees.
A frictionless world
Today, AP managers handle much more than payments — they’re expected to take advantage of incentives, connect to different banks, streamline processes
for vendors, transmit remittance advice, track the different payment channels, forecast and anticipate cash flow and monitor overall data to identify money-saving opportunities. And, of course, drive their team’s success. The true test of a company’s agility is heavily reliant on an AP manager’s ability to quickly analyse data and gather insights that will help to inform strategic decisions across other areas of the business.
According to Goldman Sachs:
Manual labor is the most significant single driver of cost in AP — automation can generate a time saving of 70-80% and lead to a cost saving of 33%
With the right AP automation system, your business profits from:
Efficiency: Consolidate your AP workflows into one centralised platform, reducing the time team members spend in siloed systems so they can focus on more strategic projects.
Cost savings: In addition to saving labor costs for manual data entry, automated systems reduce errors and accelerate the AP process, ensuring your cash flow process is streamlined without accruing late fees or expensive fees incurred by paper checks.
Visibility: Access to reports and real-time data helps you monitor the health of your business and drives timely, data-driven business decisions. Accessibility: Whether working remotely or in the office, your teams can access the data they need on one easy-to-use platform, eliminating delays due to the need to be “on-site”.
Fewer errors: Working backward through files and documents to correct a “fat finger” error or searching ages for missing information quickly becomes a thing of the past.
Customer satisfaction: By offering your customers multiple channels to manage invoices and payments according to their business needs, it helps to foster trust and boost your company’s overall reputation.
Employee satisfaction: not only does technology help support your employees, having access to the right smart tools will help increase their sense of feeling valued and in turn, their loyalty.
Finding the AP solution that works for your business is simple. Document what your highest priorities are in managing a frictionless process, then talk to the vendors who meet those goals. It may take some time to vet the right platform to support your needs, but it will be well worth it in the long run.
*Download this white paper for more information
