29
Fri, Nov
0 New Articles

Why Automate Accounts Payable Processes?

General
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

 

Come for the ROI, but stay for the efficiency, security, and compliance benefits.

 

Since the birth of the Industrial Revolution in the mid-1700s, automation efforts have proven to be one of the key catalysts of successful business growth and innovation. One of the most celebrated models of automation and business success was Henry Ford's car company. His implementation of the assembly line is seen as the automation success model of his century. Of course, the advent and proliferation of advanced IT systems have automated nearly every aspect of a business. Surprisingly, however, despite the tangible and rapid ROI of automated accounts payable (AP) processes, a majority of companies have not taken advantage of the technology.

 

In a 2007 AP Department Benchmarks & Analysis survey conducted by IOMA's Institute of Finance & Management, only one-third of companies surveyed have implemented document capture and only 25 percent use some form of e-invoicing. This indicates that many companies are still tied up in manual paper processing. The same study notes that those companies that have implemented automation systems are twice as productive.

Part of the reason a surprisingly large number of companies are still manually processing their AP transactions is they are often not aware of the factors that are sucking time from staff and costing the company money. One of the more costly elements of getting an invoice paid is the waiting involved in gathering all of the necessary approvals and associated paperwork. This workflow typically runs across multiple departments and requires the attention of busy decision-makers. By automating the AP workflow, most of the waiting periods are shortened as the system simplifies, automates, and secures approvals and decisions. But saving money by saving time is just the start of the benefits of AP automation. Other significant benefits include improved efficiency, improved protection from fraud, reduced errors, reduced need for storage space, strengthened internal controls, as well as better analysis, planning, and forecasting capabilities.

To set the context for the benefits that AP automation processes can bring to companies, consider this example of a typical manual payment process:

The McDuck Widget Company gets an average of 100 invoices each day from its various vendors that supply its production plants. The mail room receives these invoices, stamps the received date on each, and then stacks them together for delivery to the AP department. An AP clerk then starts the work of matching each invoice to a purchase order or some other pre-approval form to document which department manager made the purchase request. Once that's done, the appropriate transactions are entered in the ERP/Accounting software. If no matching approval form is found, the invoice is copied and filed, and then a copy is sent to the department manager for justification of the expense via the completion and return of the required purchase approval forms. The AP department then reattempts processing the invoice.

After the invoice has been recorded, it is sent to a senior accounting manager or executive for check-run approval. Typically, each invoice is reviewed and checked against the budgets and then approved or disapproved for the check run. Once each day, the check run is executed, and checks are printed, bundled, and sent to the mail room to be folded, stuffed into envelopes, sealed , stamped, and sorted for delivery to the post office.

As you look into this scenario, you can see that although the process of manually managing the payment of vendor invoices is well-organized and can be completed within a few days, real life happens and things don't always work as planned. Mailroom clerks typically have multiple responsibilities and when the work load gets to be too much, invoice routing can get delayed or otherwise fouled up. AP clerks are often spread thin, adding to delays and errors. Department managers are always covering multiple bases, making it difficult for them to sit down and work through their stack of invoices. Senior executives have many heavy responsibilities and, when traveling, find it a challenge to consistently review and sign the stack of waiting documents.

In short, the above scenario is not unusual, and given the imperative of many companies to do more with less, manual processes put an increasing burden on all participants. In the case of AP processes, there are inevitable delays and errors, and worst of all, and the compromised accuracy and speed of the process means critical decisions get made on compromised information.

And yet this is still not the whole problem. The costs that could result from the opportunities for security, privacy, and financial fraud in manual AP processes stand to well eclipse the costs resulting from AP delays and errors.

 

Core Compenents of AP Automation

With the introduction of AP automation covered, let's now look at the basic components of AP automation solutions in the context of how these are used to streamline AP processes.

Document Scanning and Data Extraction
When the mailroom receives invoices, they are scanned into the document management system and the image is automatically date stamped. The scanned invoice is passed through an automated optical character recognition (OCR) process that extracts the invoice number, vendor name and address, and associated PO number. The paper invoice is stacked by batch date and stored for 30 days before being shredded.

In an ideal world, a vendor has electronic document processing systems of its own, so it simply sends electronic versions of invoices to customers, which can automatically be received and processed by the customer's AP automation system.

Archive/Retrieval in Content Management Systems

In fact, some document scanning systems can index any information that's on the invoice for electronic archive and retrieval capabilities. Because the invoice is scanned, images are indexed and archived by date, invoice number, PO number, vendor name, or just about any information on the invoice for quick future retrieval by any department needing access.

Matching and Workflow

Within seconds of being scanned and OCR-captured, the electronic data from invoices is automatically brought into the accounting systems and matched against outstanding purchase orders.

If there is no PO match, the transaction is put in a separate queue for review by an AP clerk or, if required, department managers who instantly review invoices and approve or deny them online.

For the bulk of the invoices with a positive match, AP clerks are notified via email that the batch is ready for processing and the successfully matched invoice information is automatically forwarded to senior management to review prior to the initiation of the check run. Because of these automated electronic systems, even if a manager is out of the office, the information can be easily and quickly accessed online so that delays are minimized.

A scheduled daily check run triggers bank-to-bank electronic payments where possible, and for the rest, a file is automatically created that goes to the AP group (or even a designated third party via secure FTP), where the checks are printed and mailed. An electronic image of the check is automatically associated with the invoice and archived in the content management system.

Because of these automation steps, invoices are often turned into checks or electronic payments the same day, and very few hours of human intervention are required during the process.

Reporting and Analysis

Reports are generated and automatically routed to managers, showing the status of all incoming invoices, unmatched POs, outstanding approvals, and other information as needed. Analysis reports on financial performance by department, turnaround times, discounts missed, etc. are also automatically generated and routed to management.

Rapid ROI…and More

It's not difficult to see that these components of AP automation significantly impact the efficiency, security, accuracy, and speed of payment processing in an organization. Directly and indirectly, an organization can clearly save a lot of money, which quickly pays for the necessary AP automation technology. The Aberdeen Group recently released a study that calculated the average cost of invoice processing in AP departments at $16.33 per invoice for companies that don't automate payment processing systems. On the other hand, those that have AP automation processes in place can bring the cost down to around $4.80 each. Based on this, if a company processes 100 invoices a month, they will realize $13,836 in saving each year once AP automation system is in place.

In addition, AP errors are costly in dollars, productivity, and reputation. Paper-based processing is known to have higher error rates, which in turn affects quality of service. The wasted time caused by errors ripples down through other processes, multiplying the cost factor. By implementing quality-improvement programs in conjunction with AP automation technologies, these improvements can drive costs down and improve quality measures.

Some of the other obvious benefits of AP automation include these:

Increase Visibility

Visibility entails the ability to see and understand all current and outstanding invoice transactions. Paper trail processes limit visibility as invoices and PO requests sit on various management desks waiting for approval or for forwarding to appropriate channels. This can be addressed by AP automation systems, giving decision-makers instant, secure access to invoice images and status notifications even during times that they may be traveling.

Strengthen Internal Controls; Eliminate Fraud

Increased visibility means decreased fraud. A PricewaterhouseCoopers crime survey found that 45 percent of companies worldwide deal with the issues of fraud, and many fraud issues are AP-related. By applying AP automation technologies, internal controls are simplified and centralized, and additional layers of security access controls are put in place. All of this decreases the exposure to fraudulent activities.

Speed Up Closing of Accounting Periods and Give Managers Better Decision-Making Information

Sarbanes-Oxley (SOX) regulations mandate that companies close their books quickly and accurately. In addition, speeding up period closing allows management to make timely tactical decisions. AP automation systems provide the standardization and infrastructure for more rapid closings. Of course, the more quickly accounting periods close, the more accurate the financial information that executives have. This results in faster and better decision-making, which on its own has huge benefits in terms of saving money and being more nimble to seize opportunities.

Reduce Storage Space

One small health insurance provider implemented technology to scan invoices (claims), turn the scanned invoices into readable data (OCR), and interface with their claims accounting system. This saved them $50,000 a year simply in the costs of storage space for all their paper claims.

Centralize and Standardize

Large companies can centralize all branches on one system to implement best practices, streamline financial services, and have necessary oversight controls. Such systems force companies to implement standardized vendor records and approval processes throughout the company, which can have a large benefit on its own.

Making Henry Ford Proud

The challenges of competing in today's business climate requires the ongoing application of automation technologies in all aspects of an organization. Because of advanced IT systems and the falling costs of implementing technologies, AP automation for many organizations is among the "low-hanging fruit" when it comes to realizing an attractive ROI. Certainly this would make Henry Ford proud, but the benefits to an organization reach well beyond just simply being able to quickly recover the cost of the technology.

 

Dan Forster

Dan Forster is president of inFORM Decisions, a company he founded in 1994 after working 20 years with producers of other leading electronic document management solutions. Dan was part of a team that introduced IBM midrange users to the first implementations of AS/400 laser form, check, and printer connectivity solutions in the mid-1980s. His company, inFORM Decisions, was one of the first to implement a comprehensive iSeries host-based e-document distribution system powered by intelligent routing capabilities for fax, email, archive-retrieve, and laser forms. inFORM Decisions' iSeries document management solutions address the costs and inefficiencies of paper based business workflow. Dan can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or 949.709.5838 x102.

 

 

 

 

 

BLOG COMMENTS POWERED BY DISQUS

LATEST COMMENTS

Support MC Press Online

$

Book Reviews

Resource Center

  • SB Profound WC 5536 Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application. You can find Part 1 here. In Part 2 of our free Node.js Webinar Series, Brian May teaches you the different tooling options available for writing code, debugging, and using Git for version control. Brian will briefly discuss the different tools available, and demonstrate his preferred setup for Node development on IBM i or any platform. Attend this webinar to learn:

  • SB Profound WP 5539More than ever, there is a demand for IT to deliver innovation. Your IBM i has been an essential part of your business operations for years. However, your organization may struggle to maintain the current system and implement new projects. The thousands of customers we've worked with and surveyed state that expectations regarding the digital footprint and vision of the company are not aligned with the current IT environment.

  • SB HelpSystems ROBOT Generic IBM announced the E1080 servers using the latest Power10 processor in September 2021. The most powerful processor from IBM to date, Power10 is designed to handle the demands of doing business in today’s high-tech atmosphere, including running cloud applications, supporting big data, and managing AI workloads. But what does Power10 mean for your data center? In this recorded webinar, IBMers Dan Sundt and Dylan Boday join IBM Power Champion Tom Huntington for a discussion on why Power10 technology is the right strategic investment if you run IBM i, AIX, or Linux. In this action-packed hour, Tom will share trends from the IBM i and AIX user communities while Dan and Dylan dive into the tech specs for key hardware, including:

  • Magic MarkTRY the one package that solves all your document design and printing challenges on all your platforms. Produce bar code labels, electronic forms, ad hoc reports, and RFID tags – without programming! MarkMagic is the only document design and print solution that combines report writing, WYSIWYG label and forms design, and conditional printing in one integrated product. Make sure your data survives when catastrophe hits. Request your trial now!  Request Now.

  • SB HelpSystems ROBOT GenericForms of ransomware has been around for over 30 years, and with more and more organizations suffering attacks each year, it continues to endure. What has made ransomware such a durable threat and what is the best way to combat it? In order to prevent ransomware, organizations must first understand how it works.

  • SB HelpSystems ROBOT GenericIT security is a top priority for businesses around the world, but most IBM i pros don’t know where to begin—and most cybersecurity experts don’t know IBM i. In this session, Robin Tatam explores the business impact of lax IBM i security, the top vulnerabilities putting IBM i at risk, and the steps you can take to protect your organization. If you’re looking to avoid unexpected downtime or corrupted data, you don’t want to miss this session.

  • SB HelpSystems ROBOT GenericCan you trust all of your users all of the time? A typical end user receives 16 malicious emails each month, but only 17 percent of these phishing campaigns are reported to IT. Once an attack is underway, most organizations won’t discover the breach until six months later. A staggering amount of damage can occur in that time. Despite these risks, 93 percent of organizations are leaving their IBM i systems vulnerable to cybercrime. In this on-demand webinar, IBM i security experts Robin Tatam and Sandi Moore will reveal:

  • FORTRA Disaster protection is vital to every business. Yet, it often consists of patched together procedures that are prone to error. From automatic backups to data encryption to media management, Robot automates the routine (yet often complex) tasks of iSeries backup and recovery, saving you time and money and making the process safer and more reliable. Automate your backups with the Robot Backup and Recovery Solution. Key features include:

  • FORTRAManaging messages on your IBM i can be more than a full-time job if you have to do it manually. Messages need a response and resources must be monitored—often over multiple systems and across platforms. How can you be sure you won’t miss important system events? Automate your message center with the Robot Message Management Solution. Key features include:

  • FORTRAThe thought of printing, distributing, and storing iSeries reports manually may reduce you to tears. Paper and labor costs associated with report generation can spiral out of control. Mountains of paper threaten to swamp your files. Robot automates report bursting, distribution, bundling, and archiving, and offers secure, selective online report viewing. Manage your reports with the Robot Report Management Solution. Key features include:

  • FORTRAFor over 30 years, Robot has been a leader in systems management for IBM i. With batch job creation and scheduling at its core, the Robot Job Scheduling Solution reduces the opportunity for human error and helps you maintain service levels, automating even the biggest, most complex runbooks. Manage your job schedule with the Robot Job Scheduling Solution. Key features include:

  • LANSA Business users want new applications now. Market and regulatory pressures require faster application updates and delivery into production. Your IBM i developers may be approaching retirement, and you see no sure way to fill their positions with experienced developers. In addition, you may be caught between maintaining your existing applications and the uncertainty of moving to something new.

  • LANSAWhen it comes to creating your business applications, there are hundreds of coding platforms and programming languages to choose from. These options range from very complex traditional programming languages to Low-Code platforms where sometimes no traditional coding experience is needed. Download our whitepaper, The Power of Writing Code in a Low-Code Solution, and:

  • LANSASupply Chain is becoming increasingly complex and unpredictable. From raw materials for manufacturing to food supply chains, the journey from source to production to delivery to consumers is marred with inefficiencies, manual processes, shortages, recalls, counterfeits, and scandals. In this webinar, we discuss how:

  • The MC Resource Centers bring you the widest selection of white papers, trial software, and on-demand webcasts for you to choose from. >> Review the list of White Papers, Trial Software or On-Demand Webcast at the MC Press Resource Center. >> Add the items to yru Cart and complet he checkout process and submit

  • Profound Logic Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application.

  • SB Profound WC 5536Join us for this hour-long webcast that will explore:

  • Fortra IT managers hoping to find new IBM i talent are discovering that the pool of experienced RPG programmers and operators or administrators with intimate knowledge of the operating system and the applications that run on it is small. This begs the question: How will you manage the platform that supports such a big part of your business? This guide offers strategies and software suggestions to help you plan IT staffing and resources and smooth the transition after your AS/400 talent retires. Read on to learn: