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According to a study of 400 financial decision-makers in more than 12 industries, more than one-quarter of companies have already implemented some form of accounts payable automation in order to improve their AP performance. Nearly three-quarters of those that haven’t, plan to do so within three years. 74% of companies that haven’t adopted AP automation yet plan to do so within 3 years.
Modern Accounts Payable departments are responsible for so much more than making payments. As companies grow, AP managers are faced with growing expectations to own much more than processing vendor payments. They’re also expected to track down payment incentives, manage AP clerks, develop and optimize process workflows, create financial reports, prepare annual audits, and develop budgets.
As companies scale, the AP department is often left with the challenge of processing more invoices, faster, with fewer resources. At a certain point, adding more AP processors isn’t the best option for AP Managers.
AP Automation solutions are quickly becoming the solution for companies that:
There are lots of options on the market, with little explanation of what to look for in a solution, how to prepare, or the right questions to ask of the solution provider. That’s why we’ve built this comprehensive guide. If your company is part of the 74% of organizations that haven’t made the jump into AP automation software, this guide is for you. We hope this helps you in your journey to find the right AP automation solution for your company.
If your company still receives paper invoices, processes invoices by manually keying data, or pays bills via mail, you’re not capitalizing on the best practices of today’s accounts payable climate. AP automation has been shown to increase efficiency by reducing the costs and time resource investment in accounts payable activities. A strong automated process creates fewer errors and streamlines routine processes so your team can focus on value-added tasks.
Automating your AP also leads to quicker invoice processing times, more accurate data, and an increased vendor and client satisfaction – giving you a competitive advantage in your field. There are lots of benefits to automating your Accounts Payable department. Here, we’ve narrowed the top three most important areas of improvement you should expect from your AP automation software.
Each of these takes the burden off of your Accounts Payable staff so they can be more efficient, more productive, and spend more time on value-added tasks instead of manual data entry and validation.
There are tons of features offered by AP automation software that can help your AP department to do more with less. The specific features that will help your company the most will depend on your AP department’s unique challenges – there is no one-size-fits-all solution. However, there are some baseline features that you should expect your AP automation solution provider to solve for, including:
If you’re implementing an Accounts Payable automation solution, you need to make sure you do it right. Make sure to consider these points before investing too much time into the research phase of your project.
Potential partners will want to know what your workflow looks like. A good service partner will ask detailed questions like the ones below to get a full understanding of your true needs before recommending a solution.
Before starting the search for an AP automation solution, you should know where your current performance metrics stand. Understanding your metric benchmarks will help you identify your true core problem and help you measure (and show) meaningful performance improvements over time once you have a new process in place.
What KPIs should you be tracking? Below is a short list of the most important KPIs you should be tracking, followed by an extended list for companies that are looking to do a deeper audit of their invoice processing performance.
Pro tip: You can still track these metrics if you don’t have an automated process right now. Set up a basic dashboard in Excel and collect data for a few weeks to create your baseline. Below is an example of what that could look like. It doesn’t need to be fancy – your goal here is just to capture the metrics.
What are you looking to get out of an AP solution? What challenge will it solve for you? While many solutions solve a variety of issues, one may be a better fit depending on the specific challenge you’re trying to solve for. Is your company growing and needs to process an ever increasing volume of invoices? Is your biggest pain a lack of data storage and audit trails? Is your existing solution causing problems with lower-than-expected recognition rates or poor matching? A good understanding of your primary issue will help you ask the right questions of your potential partners.
If your Controller or CFO buys into your cost/benefit analysis, it creates a project with a much greater probability of approval. According to the Association for Image and Information Management (AIIM), the average cost to process an invoice stands at $12.90, with a median invoice processing cost of $7.90. The cost is even higher for invoices without a purchase order. Studies show a fully integrated AP Imaging and Workflow automation solution can cut your AP process costs up to 50%. Can you afford to not automate your AP department? Established AP automation solution partners should be able to provide you with reasonably accurate ROI estimations if you can get them the right inputs.
Perpetual vs. SaaS
Consider the differences between Perpetual Software and Software as a Service (SaaS) licenses. Cloud based solutions (SaaS) are becoming more the norm – they require less attention from your IT team, require less work to upgrade, and do not require server space. Running a total cost of ownership analysis is an important part of your due diligence.
Don’t forget to include other opportunities for cost savings. While they may seem trivial, these can add up significantly over time. For example, postage & shipping, paper supplies, document storage, climate control, offsite transportation and printing costs.
What does success look like for your project? Having a clear understanding of the goals for your implementation will help you get the most from your conversations with solution partners. We recommend making a list: what are three main areas you’d like to see significant improvements in? Consider using the list of KPIs listed earlier in this guide as a starting point.
Depending on the complexity of your organization’s accounts payable process (and your ability to influence change within it), a fully-integrated AP automation solution may not be the only answer. Imaging as a Service (IaaS) could be a good alternative to consider. With an IaaS service partner, your invoices are sent directly to their scanning and imaging facility via lock box, PO Box, or email for processing. The IaaS partner takes care of the invoice processing, including opening envelopes, removing staples and paper clips, sorting invoices by type, scanning, indexing and validating invoices to then be transmitted directly to your approval routing engine. This creates an AP environment that is now paperless without the worry of filing, storing, tracking retention dates and managing document destruction.
To be as efficient as possible, AP automation solutions should be combined with OCR (or data recognition) technology. OCR is a software that automatically analyzes scanned documents and extracts numerical and text data from them. OCR has become a standard part of many AP automation solutions on the market today. However, not all OCR is made equal.
Zonal OCR, also referred to as template OCR, is used to extract text in particular locations from a scanned document. To get the most from a templated OCR technology, “zones” need to be defined, set up, and adjusted if supplier invoices change. Zonal OCR can be sufficient for organizations that mandate specific invoice formats for their suppliers, or process a large number of PO-based invoices.
For organizations that process large volumes of invoices, zonal OCR isn’t powerful enough to support their need – since most suppliers format their invoices differently and place key information in different “zones” on the document.
Analytical OCR recognizes relevant information from structured and unstructured documents just like a person, but with faster throughput and consistent reliability. The advantage lies in an architecture that intelligently recognizes and isolates data using sophisticated algorithms and analytical processing.
Analytical OCR is better suited for organizations with a higher percentage of non-PO invoices. In the long run, it usually requires less maintenance than a templated OCR solution, since it’s much more likely to pick up on changing invoice formats (or layouts) from your suppliers on its own, instead of requiring a retune every time. If you can afford an analytical solution it’s often worth the investment.
AP automation solutions with third party OCR integrations typically require more touches on multiple programs. Third-party OCR integration sometimes mean AP clerks need to use separate applications for OCR and AP automation. In contrast, integrated AP automation software is built from the ground-up to include OCR and AP automation capabilities in a single cohesive solution, which allows users to do everything from one program on one screen. As you consider your options, it’s worth asking each vendor/partner about the makeup of their software and what that means for user experience, control and maintenance in the long term.
Preparing for Accounts Payable automation is the most important step in the process. Here are our tips on preparing for a new AP automation software.
The main tasks your Accounts Payable team focuses on are handling invoices, processing payments, and vendor/supplier relations. AP automation solutions allows organizations to efficiently manage large volumes of invoices and financial transactions between their suppliers and vendors. Organizations that need to reduce manual labor or grow their business without adding headcount to their Accounts Payable department can also largely benefit from an AP automation solution.
AP automation software produces more accurate data, speeds up processing time, and allows you to capture more early payment discounts by reducing manual work and avoiding human-prone errors. Cloud access allows anyone with authorization to view invoices, check status updates, and approve payments as needed so there are no bottlenecks in the process.
Through imaging, OCR, workflow, and real-time data – all part of your new AP automation software – invoices can be received, matched, and paid overnight. This increases your Accounts Payable efficiency and your company’s bottom line.