The main responsibility of accounts payable (AP) departments is to ensure all valid invoices from vendors are approved, processed, and paid.
That sounds pretty simple, doesn’t it?
Well, in practice, it’s not always so.
From arrival to payment, invoices often go through several processes depending on an organization’s business rules. These processes can be tasking, especially if the company has a whole slew of invoices to process.
However, through workflow automation, these processes can be streamlined for efficiency, quicker turnaround time, and cost reduction.
While business rules may vary from organization to organization, some accounts payable processes are common among organizations. In this post, we will be discussing those processes which, if automated, will give you a high return on your investment, reduce costs of time and money, and increase your team’s efficiency.
Let’s get to it.
1. Invoice arrival and categorization
The process of receiving incoming vendor invoices can be very complex, depending on how suppliers send them.
Vendors usually send invoices in different formats and mediums — through different mediums like email and fax, invoices can arrive in different formats like PDF, DOCX, XML, PNG, JPG, TIFF, fax files, and even conventional paper.
This can be complex for most organizations.
The problem is compounded when these invoices, sent in multiple formats and mediums, are to be sorted and classified into different categories. Any company that values their employees’ time shouldn’t do this manually, especially if they have a significant number of invoices to process.
Automating invoice arrival, sorting, and categorization will simplify your accounts payable workflows.
You can start by getting your vendors to only submit invoices electronically. This eliminates paper from the process and cuts back on the time you would have otherwise put into sorting different formats of invoices.
Unlike paper invoices, electronic invoicing (or e-invoicing) makes it possible to automate your accounts payable workflows from an early stage of the process, including sorting and categorizing invoices.
This means you won’t have to put in extra time scanning and trying to get your OCR system to read a scanned document.
2. Routing and approval
Before an invoice is posted for payment, it has to go through series of approvals for exception handling and authorization. You also need to ascertain the invoice’s validity and accuracy. Without such assurances, it cannot be paid.
These approvals often occur at different stages and are often handled by different people.
For instance, the purchasing department or the person who placed the order might have to approve it to confirm the vendor’s billing is accurate. And just before payment is disbursed, someone in management, (say, the CFO) might have to give it a final approval to ensure that the correct amount is paid into the right account.
For an invoice to be approved, it has to be routed; that is, it must go from approver to approver.
If a company processes invoices manually, it means that a paper invoice would have to go from desk to desk for the series of approvals.
This usually takes time and is one of the major causes of delay in payment, which ultimately leads to late payment penalties.
An accounts payable workflow automation tool can help quicken and simplify the routing and approval processes, leaving you more productive at the end of the day.
With workflow automation, just a few clicks of the mouse will automatically route an invoice within seconds to the right approver with your comments.
This makes communication easy and adds a great deal of efficiency to your workflow.
3. Data capture and validation
Manual data entry is one of the most tedious accounts payable processes. It’s time-consuming, costly, error-prone, and downright boring.
Most workflow automation software come with handwriting recognition systems like optical character reader and intelligent character recognition (ICR), which allows you to easily capture data automatically instead of wasting precious time entering them by hand.
Unless you enjoy entering clumps of data manually every other day, this process is a sure candidate for automation.
Automatic data entry and validation not only improves cycle time but also enhances faster throughput of work. And since this repetitive task is automated, the potential for clerical error is stamped out while data consistency is completely maintained.
4. Invoice matching and verification
Before paying an invoice for goods or services acquired through a purchase order, the invoice must be matched against other relevant documents, including purchase orders and receiving reports, to ensure that only the correct invoices are processed and paid.
It can be either a two-way, three-way, or four-way match.
Either way, this process needs to be automated to eliminate the inefficiencies associated with manual invoice matching.
In automating invoice matching, the workflow automation software’s document management system will electronically store all necessary documentations including purchase orders, receiving reports, acceptance notes, and other supporting documents. When an invoice arrives, the OCR tool will capture and digitize the invoice’s data. Once these two are set in place, the accounts payable workflow automation tool will intelligently extract the requisite information from each document and verify it according to pre-defined rules. It’ll match numbers, GL code, line item information, terms, amounts, and so on, based on instructions you already gave it.
This automatic invoice matching cuts out bottlenecks, speeds up AP business processes, curbs mistakes that could have otherwise been made by a human, and liberates your AP staff to be engaged in more worthwhile activities. All in all, it makes meaningful contributions to your organization’s bottom line.
5. General ledger (GL) coding
In the process of classifying payables before posting, you will need to GL code based on different criteria like vendor, amount, invoice category, or other classifications.
Based on an organization’s business rules, a GL coding process may need to reference different numbers that point to a product line, a country code, a freight direction, a business unit, a warehouse, and so on.
If an organization processes a large number of invoices, it means there’ll be literally thousands of numbers to code.
This makes the GL coding process very regular but unwieldy, another prime candidate for automation.
Manual GL coding requires a lot of time and attention to properly apply established rules, especially during ERP entry, to avoid mistakes like duplicate payments.
A dependable workflow automation software should be able to auto-code invoices to the proper accounts, following set rules.
When fully implemented, accounts payable workflow automation should cover every processing step from arrival to the final payment, including supplier invoicing, capture, line item information extraction, price checking, validation, verification, routing, approval, posting, payment, and archiving.
The five processes discussed above will give you a leg up as you work to automate more of your business.
If you decide to handle your accounts payable processes manually, it will lead to lost invoices, human errors, longer total processing time, incorrect payments, and so on. These and other problems costs you efficiency on your per-invoice metrics, and can lead to bigger issues.
A fully automated system not only solves these problems, but also allows you to process invoices swiftly.
Pyrus is a well-designed workflow automation software that lets you seamlessly automate all your accounts payable processes. It’s easy to use, available for different platforms (including mobile), and comes with features that are entirely relevant to your accounts payable team. Request a demo today by filling the form below. It’s free for teams of any size.