Costs & Risks of Automating Your AP Process
If you are considering moving your manual AP process to an automated capture and workflow structure, there are three pains you should consider: Cost, Visibility, and Control.
A large portion of costs come from the manual entry of data from invoices. With a few thousand invoices per month, this work is very time-consuming and requires a dedicated staff just to perform data entry. Manual entry is error-prone, costs money, and adds latency to the process. For invoices that contain recurring charges, people have to do redundant work keying in the same information every time the charge occurs. There are also administrative costs in keeping track of paper documents and creating photocopies.
- Efficient Entry: This problem is addressed by introducing an automated invoice capture solution. With the capture software in place, the data from an invoice is extracted and validated automatically which helps to avoid mistakes and miskeys that are commonly made by humans. All correct invoices that match a purchase order or contract can be posted immediately, in a so-called “touchless” process. Invoices that do not correspond to a purchase order or contract can be automatically pre-booked and sent through an approval workflow. Only invoices that contain errors and discrepancies or violate business terms are brought to an AP clerk’s attention. Instead of doing redundant data entry, the AP staff can focus on overseeing the payment process and promptly resolve exceptions. Another benefit of having invoices in an electronic form right from the start is the ability of the AP department to reduce administrative overhead and the need to create copies of an invoice.
The second pain point has to do with the visibility of outstanding payments. Invoices sitting on desks present a problem for businesses. Data on those invoices is not in the ECM or AP system which means the AP manager does not have control over the current payables and cash flow. They don’t know what invoices have been received, what payments are due, and when invoices were received. This challenge impacts forecasting, can result in late payments, affects relationships with suppliers, and leads to higher costs for the AP department.
- Early Awareness Solution: The best practice is to automatically capture the incoming invoice directly at the point of arrival so that the AP department is made aware of the document as soon as it enters the organization. The invoice can be captured in the back-office / mailroom department, by the AP staff or by the ordering personnel. Invoices that are submitted by vendors electronically can be captured directly from the email messages. Upon its capture, an invoice is immediately and automatically read, validated, and queued in the centralized workflow and is then visible to the AP staff.
There is pain that comes from a lack of control throughout the invoice approval process. It can be difficult to determine who has control of a specific invoice and how long the approval process will take. There is always a percentage of invoices – smaller in some organizations, higher in others – that do not have a corresponding purchase order and therefore have to be approved before the payment. The approval process is oftentimes inefficient and expensive, especially if it’s manual. It involves deciding who should be involved in the approval – which makes the process vulnerable to errors and delays. Then, if there is no workflow system in place, the AP department loses the invoice from sight and no longer controls the process. The approval often causes delays, especially if more than one approver is involved. It is not uncommon for invoices to get lost at this stage.
- Controlled Approval: This problem is addressed by enabling early capture and classification of invoices by the “vendor” and deploying an electronic workflow system. This allows the organization to approve invoices based on the vendor, purchasing department, and the invoice amount. The capture solution supplements your AP system to provide complete control and visibility of the approval trail of each invoice. When invoices are captured early and consistently, they are controlled by the system. They do not get misplaced; AP staff knows where they are, how long they have been there, and where they need to go next. The process is then predictable, and due dates can be met with minimal resourcesFinally, with AP automation projects, there is always an underlying concern about the cost and risks that come from the disruption to the existing process. In many cases, the decision to automate AP leads to changing the entire AP infrastructure and creates a need to re-train the staff and change additional processes.
In order to keep costs under control, it is important to make sure that the components you choose improve your existing process and fit into your existing infrastructure. An economic capture solution should be deployable as a standalone module and able to work with your existing AP system. It should be agnostic to the infrastructure and not require you to replace your current backend, workflow, or business intelligence tools.
For more information contact the DoxTek Marketing Department