Accounts payable management and resolution can be a very complicated process prone to human errors, which takes away valuable time from your financial department. In theory, it is a simple process; however, managing a ton of paperwork and ensuring the team gets all numbers right can be very tedious.
With the emergence of embedded payment solutions and the focus on different types of embedded finance technologies, B2B payments in the form of accounts payable have not been forgotten.
Plenty of SMEs and large companies plan to or have already introduced a form of automated accounts payable.
But why are accounts payable automation solutions so sought-after?
Accounts Payable (AP) is the part of a business's finance department responsible for handling money owed to suppliers and vendors. Here is a common example of how the AP process works:
Accounts Payable is one of the core operations for most organizations. Here are some reasons why AP is such an important part:
Cash Flow Management: Good AP practices ensure that the company has enough cash on hand to meet its obligations without running into shortages.
Cost Control: By carefully checking invoices, AP prevents overpayments and catches billing errors, saving the company money.
Supplier Relationships: Paying suppliers on time builds trust and can lead to better terms and conditions. This trust can often mean it’s easier to negotiate invoice due dates which are further into the future, which can help with cash flow and cost management as well.
Accurate Financial Reporting: Precise AP records ensure that financial reports reflect the true state of the company's finances, aiding in decision-making.
Compliance and Audit Readiness: A well-organized AP system helps the company stay compliant with regulations and makes audits less stressful and less time-consuming.
Operational Efficiency: Streamlined AP processes reduce the time and effort spent on manual tasks, allowing staff to focus on more important activities.
To maintain healthy cash flow and ensure operational continuity, a company must have a consistent supply and production flow.
For instance, Accounts Payable (AP) is crucial for businesses dealing with physical products, as it prevents supply chain disruptions and ensures smooth business operations. It's common for many companies to have a dedicated department to manage their AP operations.
Dealing with paper in accounts payable can be a daunting and environmentally unfriendly task. Imagine the stacks of invoices, receipts, and forms that pile up, each needing careful attention and manual processing.
Classic accounts payable processes, compared to automated versions, waste valuable time and resources. If paper-based and not digitized, they can also contribute to deforestation and increase the carbon footprint of the business.
Using a digitized, non-automated AP system can be a viable option for reducing the carbon footprint, but it does not significantly increase process efficiency and remains prone to human error.
While digitization and eliminating paper processes is the first step, automating the process goes even further. Automation offers a greener and more efficient alternative, reducing reliance on paper, lowering manual work, and streamlining the entire AP process to make the AP department more efficient.
In a paper-based traditional AP setup, invoices are typically received in paper form via mail. Each invoice must be manually opened, sorted, and entered into the accounting system. This labor-intensive process is prone to errors, such as incorrect data entry or misplaced documents.
It is true that most companies who still use a form of manual AP switched to a digitized version, while the process became easier and more eco-friendly the time spent, and possibility of incorrect data entry and other errors is still there. In many cases, there is more than one source of data which brings an extra layer of complexity to the whole process.
Once entered, invoices must pass through multiple hands for approval. This often involves physically moving paper documents from one desk to another, waiting for signatures or stamps of approval, or sending them over email and digitally signing them.
The workflow can be slow and inefficient in both cases, especially if approvers are unavailable or documents are lost.
After approval, payments are processed manually. This might include wire transfers, credit card payments, or even writing checks, mailing them to vendors, and keeping records of transactions. Each step requires careful attention to detail, increasing the risk of errors and delays.
The manual nature of traditional AP processes means that each step takes significant time. From data entry to payment processing, employees spend countless hours handling digital and paper documents, which could be better spent on more strategic tasks.
Manual data entry and processing are fraught with the potential for human error. Mistyped numbers, misplaced invoices, and overlooked details can lead to discrepancies that disrupt the entire process, requiring further time to identify and correct.
The costs associated with intaking invoices from suppliers by different business units, sending them to the accounting department (or directly being received by accounting departments), transferring them from a PDF to an ERP or accounting software, approving them, and then paying them is very high in terms of labor cost. If this includes any paper processes, then printing, mailing, and storing physical documents costs also add up quickly. All the labor costs and some additional physical costs for manual processing are substantial, making traditional AP an expensive undertaking.
Tracking the status of invoices and payments in a traditional system is challenging. Lack of real-time visibility into the AP process can lead to missed payments, strained vendor relationships, and difficulty in managing cash flow effectively.
By transitioning to an automated accounts payable system, businesses can eliminate these inefficiencies. Automation saves time, reduces errors, and in some cases, it supports environmental sustainability by cutting down on paper use. It offers a streamlined, transparent, and cost-effective solution to the cumbersome traditional AP process.
Automated accounts payable (AP) refer to the use of technology to handle the entire accounts payable process electronically, reducing or eliminating the need for manual intervention. This approach leverages software solutions and/or AI to streamline invoice processing, approval workflows, and payment execution.
In an automated AP system, invoices are received and either processed directly or digitized if received in paper form – both of which either use technologies like Optical Character Recognition (OCR) to read the documents or AI solutions like LLMs to read and extract the relevant information. The necessary data extracted from the invoices is then entered into the accounting software. Automated workflows route these invoices to the appropriate approvers based on pre-set rules, allowing for electronic review and approval.
Once approved, the system schedules and processes payments to vendors, often integrating directly with the company’s banking and financial systems. While each step can still be configured to require human approval – especially for larger amounts, this end-to-end automation reduces the time and effort required for each step, minimizes errors, and provides greater transparency and control over the accounts payable process.
By automating AP, businesses can improve efficiency, reduce costs, enhance accuracy, and gain better visibility into their financial operations, all while supporting a more sustainable and paperless environment.
Automated accounts payable systems consist of several key components that work together to streamline the entire AP process.
Here are the main elements that make up an effective automated AP solution:
Use of Optical Character Recognition (OCR) Technology
OCR technology is employed to scan and digitize paper invoices, converting them into machine-readable text. This technology allows for automatic extraction of data from physical documents, minimizing manual data entry and reducing errors.
Handling Electronic Invoice Submissions
Electronic invoices can be submitted directly to the AP system via email or electronic data interchange (EDI). The system captures and processes these invoices automatically, further speeding up the initial stages of the AP workflow.
Customizable Workflows for Different Business Needs
Automated AP systems offer customizable workflows that can be tailored to fit the unique needs of different businesses. This flexibility ensures that the AP process aligns with the organization's specific approval hierarchies and operational requirements.
Automated Routing and Approval Processes
Invoices are routed automatically to the relevant approvers based on predefined criteria. This ensures that the approval process is efficient and consistent, reducing the likelihood of delays and bottlenecks.
Seamless Data Transfer Between Systems
Automated AP solutions are designed to integrate seamlessly with existing ERP and financial systems. Common systems include Microsoft Dynamics, Oracle, SAP, and QuickBooks. This integration ensures that data flows smoothly between systems, maintaining accuracy and consistency across the organization’s financial records.
Ensuring Compatibility with Existing Business Systems
For successful AP automation, it's essential that the new system integrates seamlessly with existing ERP and accounting software. This ensures a smooth transition and sustained functionality by allowing:
Automated Fraud Detection Mechanisms
Automated AP systems include advanced fraud detection features that identify suspicious activities and flag potential fraud. These mechanisms help protect the business from financial losses and enhance overall security.
Compliance with Regulatory Requirements
Compliance is a critical aspect of financial management. Automated AP solutions ensure that all processes adhere to relevant regulations and standards, reducing the risk of non-compliance and associated penalties.
Some notable regulations and standards are:
When developing an Automated Accounts Payable (AP) solution, it's important to prioritize data transparency. Instead of building a complex business intelligence system from scratch to handle AP data, consider using Power BI for dashboards, reporting, and analytics. Power BI is user-friendly, affordable, and integrates seamlessly with other Microsoft tools, making it an efficient choice.
Now, let's dive into why incorporating robust reporting and analytics capabilities is essential for building an effective AP system.
Automated AP systems provide real-time analytics and dashboard reporting, offering insights into the status of invoices, payments, and overall AP performance. This visibility helps businesses make informed decisions and identify areas for improvement. For instance, executives can use these dashboards to track key metrics such as:
Using tools like Power BI, these dashboards can be customized to display interactive visualizations and reports, providing a comprehensive and intuitive view of the AP process.
Automated AP systems can automatically generate detailed financial reports, providing a comprehensive view of the company’s payables. These reports support accurate financial planning and analysis, aiding in strategic decision-making. Examples of reports that can be generated include:
All these capabilities can be accessed using Power BI or similar solutions. Power BI needs to be integrated by Data Engineers in collaboration with Data Analysts. However, once implemented, it is a low-code solution. You can start using it for free to explore its capabilities and determine if it’s the right solution for your Accounts Payable automation.
Now you already know what are the necessary steps to building and integrating an automated accounts payable solution, but what are the benefits?
Automating the accounts payable (AP) process offers numerous advantages that can significantly enhance a company’s financial operations. Here are the key benefits:
Streamlined Invoice Processing
Automation eliminates the need for manual data entry and handling of invoices. Invoices are captured, processed, and recorded electronically, significantly speeding up the initial stages of the AP process.
Faster Approval Cycles
Automated workflows ensure that invoices are routed to the appropriate approvers quickly and efficiently. Approvals can be done electronically from any location, reducing delays and ensuring that invoices are processed and paid faster.
Minimization of Manual Data Entry Errors
By automating data extraction and entry, the risk of human errors is greatly reduced. This leads to more accurate records and fewer discrepancies in financial data. Based on a study conducted by Raymond Panko, for mechanical actions, such as typing characters or words, human accuracy is 99.5% to 99.8%.
At the level of complex thoughts, such as sentences or formulas, accuracy falls to 95% to 98%.
At the level of a document, accuracy is 0%, in the sense that any document of nontrivial length will contain some type of errors.
Based on these statements, a large company with a large volume of invoices to process might find itself in a situation where 3-5% of the input data might contain errors, and this can affect the business continuity of the organization.
Improved Accuracy in Financial Reporting
With precise data and streamlined processes, the accuracy of financial reporting is enhanced. This reliability is crucial for making informed business decisions and maintaining compliance with financial regulations.
Reduction in Processing Costs
Automation reduces the labor and resources required for invoice processing, leading to significant cost savings. Companies can minimize expenses related to extra workforce, paper, printing, and storage.
Improved Cash Flow Management
Faster processing and payment cycles improve cash flow management. Companies can take advantage of early payment discounts and better manage their working capital.
Real-Time Tracking and Reporting
Automated AP systems provide real-time visibility into the status of invoices and payments. This transparency allows businesses to monitor their payables more effectively and make timely decisions.
Better Compliance and Audit Readiness
Automation ensures that all AP processes adhere to regulatory requirements and are easily auditable. This reduces the risk of non-compliance and simplifies the audit process.
Handling Increased Volume Without Additional Resources
Automated systems can handle a higher volume of invoices without the need for additional staff. This scalability is particularly beneficial for growing businesses that need to manage increasing transaction volumes.
Adaptability to Business Growth
As businesses grow, their AP processes must adapt to handle more complex and larger-scale operations. Automation provides the flexibility needed to scale processes efficiently and supports business expansion.
After learning about the benefits of an automated AP solution, you might wonder how feasible it is for your company to develop such a solution and whether it's better to build it in-house or opt for a SaaS solution.
There are several pros and cons for both choices. Opting for a subscription-based AP solution is the easier of the two, but you need to thoroughly assess the provider to ensure it aligns with your company’s values and industry regulations. A SaaS product can be cost-effective in the short term, but over time, subscription costs can accumulate. Eventually, you might realize that it could have been more economical to build the solution in-house or with the help of a technology partner. Another downside of the SaaS approach is that, from a risk management perspective, you are giving a third-party access to your internal data, which can be a significant concern.
Building an AP solution in-house can be challenging, and you might need a technology partner to consult and support you. However, if you consider the costs, you’ll recover the investment over time. Additionally, you’ll have peace of mind knowing that you have control over your data, which stays within your organization, and you can implement custom features tailored to your company’s needs.
It is up to you to consult with other stakeholders and decide which approach to use. If you need some help with your decision, we have an article about Custom Software vs. SaaS that you can read [here].
If you choose the Software-as-a-Service option, here are some excellent Automated Accounts Payable solutions that you can consider implementing right away in your organization:
If you are concerned about safety, and you have some necessary customizations in mind that might be hard for third parties to offer, let’s dive into building an automated accounts payable system in-house.
When considering the development of an in-house accounts payable (AP) automation solution, it’s crucial to assess your current AP challenges and understand your business-specific requirements. This evaluation will help determine whether building a custom solution is the best approach for your organization.
Identifying Pain Points
Start by mapping out your existing AP processes. Identify areas where inefficiencies, errors, and bottlenecks occur. Common challenges include slow invoice processing, frequent data entry errors, delayed approvals, and difficulties in tracking invoice status.
Quantifying the Impact
Measure the impact of these challenges on your operations. This can include the time spent on manual tasks, costs associated with errors and rework, and the financial impact of missed payment discounts or late fees. Quantifying these issues helps build a case for automation.
Analyzing Workflow Inefficiencies
Examine the workflow from invoice receipt to payment processing. Determine how much time and effort is spent on each step and identify redundant or unnecessary tasks. This analysis will highlight areas where automation can bring significant improvements.
Reviewing Compliance and Security Concerns
Consider how your current AP process handles compliance with financial regulations and data security. Manual processes are often more vulnerable to fraud and non-compliance. Assess the risks and determine how automation could enhance compliance and security.
Defining Business Goals
Clearly articulate your business goals for automating the AP process. Are you looking to reduce processing times, improve accuracy, cut costs, or enhance visibility? Understanding your primary objectives will guide the development of a solution that aligns with your business needs.
Customizing Workflows
Consider the specific workflows and approval processes unique to your business. An in-house solution allows for customization to fit these requirements precisely. Determine the level of customization needed and ensure that the solution can adapt to your workflows.
Integrating with Existing Systems
Evaluate the compatibility of an in-house solution with your current ERP and financial systems. Seamless integration is essential for efficient data transfer and consistency across your financial operations. Ensure that the solution can integrate smoothly with your existing infrastructure.
Scalability and Flexibility
Assess the scalability of the solution to accommodate future growth. Your business requirements may evolve, and the AP system should be flexible enough to handle increased transaction volumes and more complex processes as your business expands.
Budget and Resources
Consider the budget and resources available for developing an in-house solution. Building a custom AP automation system requires investment in technology, skilled personnel, and ongoing maintenance. Ensure that your organization is prepared for the financial and resource commitment.
While planning and designing can take a lot of effort, your team will need the proper tools to properly design and build your automated AP solution. Below you are going to find several examples of tools that can help you. Please keep in mind that it is not mandatory to use all the tools enumerated below, you should first consult with your technical team and discuss what tech stack you need to complete this project.
By integrating these technical details and structured processes, businesses can develop an in-house AP automation solution that is efficient, scalable, and tailored to their specific needs, ultimately enhancing their overall financial operations.
Nestlé, established in 1867, is a world leader in the fast-moving consumer goods sector offering nearly 1,600 products and employs approximately 5,500 employees across seven production plants and offices in Poland. Globally, Nestlé is the largest food company and a leader in producing baby food, powdered milk, instant coffee, ice cream, mineral waters, and pet food.
Nestlé aimed to shorten the time from receipt of an invoice to payment and reduce the labor intensity associated with document processing by automating processes. The company also needed to ensure data compliance between internal systems and provide a consistent reporting source.
The solution built and implemented by ITMAGINATION targeted around 100 users working both in office locations and remotely, spanning various departments such as Sales, Controlling, Accounting, Finance, and Customer Service. The application implemented to address Nestlé’s needs handled the following processes:
The final outcome of the project included the effective handling of all defined business processes. The application demonstrated high performance, even outside office environments due to its web architecture. It enabled mobile acceptance of documents and integrated seamlessly with external systems like SAP. Additionally, it provided flexible role configuration, including user management.
By implementing this automated AP solution, Nestlé achieved:
Lidl is a major distribution chain with 1,500 supermarkets, 25 logistics platforms, and 2 service centers. They operate in a highly competitive retail market, handling a substantial volume of supplier invoices annually.
At the start of the project, Lidl was receiving around 72,000 invoices per year in paper format, with this number rapidly growing by over 120,000 invoices annually. This resulted in costly and time-consuming manual processing within their SAP system. Lidl's objective was to absorb this growth, increase the volume of electronic invoices, ensure data security, and make paper invoice processing as transparent as EDI.
Lidl conducted a comprehensive benchmark to evaluate various AP automation solutions. The implemented solution included:
The implementation of ITESOFT Streamline for Invoices led to good improvements:
Operation HOPE is a financial education nonprofit organization based in the United States. They provide financial literacy education and economic empowerment to underserved communities. Running a bi-coastal business, Operation HOPE faced challenges in consolidating accounts payable across different time zones, which necessitated a robust and efficient financial management solution.
Operation HOPE's accounts payable and reporting processes were plagued by human errors due to manual, paper-based systems. The organization needed a solution that could streamline and consolidate bills across time zones while offering deep financial insights through customizable, role-based reporting.
Operation HOPE implemented Sage Intacct, leveraging its AI-powered features to automate their AP processes and enhance financial reporting. The implemented solution included:
The implementation of Sage Intacct resulted in significant improvements:
MANN+HUMMEL is a global leader in filtration technology, specializing in the development and manufacturing of filtration systems for the automotive, industrial, and water sectors. The company is known for its innovative solutions and high-quality products.
MANN+HUMMEL faced significant challenges in their accounts payable (AP) and purchasing processes, particularly due to the high volume of supplier invoices received in paper format. With over 72,000 invoices per year and a projected growth of 120,000 invoices annually, manual processing in their SAP system became increasingly costly and time-consuming. The company aimed to digitalize and automate their AP system to enhance efficiency, reduce costs, and improve data security.
MANN+HUMMEL partnered with Siemens Global Business Services (GBS) to implement NextGenP2P, an end-to-end solution for order processing and invoice management. This solution includes:
The implementation of NextGenP2P delivered substantial benefits for MANN+HUMMEL:
An in-house AP automation solution allows you to create a system perfectly aligned with your unique business processes and requirements. Unlike off-the-shelf software, an in-house solution can be customized to handle your specific workflows, approval hierarchies, and integration needs. This ensures that the solution supports your existing systems and scales with your business as it grows.
Building your own AP solution gives you complete control over data security and compliance measures. You can implement robust security protocols tailored to your industry’s standards, ensuring that sensitive financial information is protected. Additionally, you can maintain strict compliance with regulatory requirements, reducing the risk of fines and enhancing audit readiness.
While the initial investment in developing an in-house solution may be higher, the long-term cost savings are significant. You avoid ongoing licensing fees associated with third-party software and can continuously optimize the solution to improve efficiency and reduce operational costs. Moreover, you eliminate the dependency on external vendors, giving you more control over future developments and updates.
An in-house solution can be designed to integrate seamlessly with your existing ERP and financial systems, ensuring smooth data flow and consistent financial records. This integration enhances visibility and control over your AP processes, enabling real-time tracking and more accurate financial reporting.
At ITMAGINATION, we have the expertise and experience to help you design and implement a custom automated AP solution that meets your business's specific needs. Our team of skilled developers, project managers, and AP experts work closely with you to understand your requirements and deliver a solution that drives efficiency, accuracy, and cost savings.
Our Capabilities Include:
Book a free consultation call with our team of experts and let’s discuss how we can help you kickstart your automated AP project.
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