3 Steps for Easy AP Automation
Source-to-Pay, Accounts Receivable Automation
Accounts payable automation is a key goal for any finance department as they progress along their digitalization path. But how do you get there and what can make it easier?
There are no shortages of best practices for automation of your AP process, but it's very possible your current process is paper-based - which is so 2007. I've been in the business since 2007, and that was where I cut my teeth - paper digitizing. Fast forward to 2020, and it's all about digitalization. In this blog, I want to discuss three steps to take to create the most potential for automation within your accounts payable process.
The three steps relate to
1) e-invoices/supplier onboarding
2) three-way matching, and lastly
3) something I'll just call partial automation.
But first, the obvious - what's the goal of AP Automation? Well, on the surface, it's all about saving costs associated with the process, but there is more to it than that. Cost savings will be a crucial requirement, but the real driving force could be better control or process transparency, or even overall efficiency leading to more time spent on more value-adding tasks.
If we talk about the main advantages of automating your accounts payable process, the above are it. Cost savings, control, visibility, and efficiency are the classic hits, and yet in the days of Covid-19, we would have to be blind to miss the value of a digitalized AP process to a more nimble supply chain. Those are the advantages and benefits of a well-run operation but let's jump into the three steps described above.
Step 1: Less e-Invoicing and more Supplier Engagement
What do we mean by that? Well, it's all good and fair to want e-invoicing - e-invoices are great. The data from an integrated system to another is clean, and often the data in the invoice reflects the original order's data. It's highly likely the invoice matches the order with no problems. And it's speedy, the e-invoices tend to come from the supplier to your AP system in seconds, and you can approve it for payment in minutes or, at worst, a few days. There is potential for early payment discounts or supply chain financing programs. Still, wanting the e-invoice is not the same as having it.
In many cases, your suppliers still need to be converted to the e-invoice/Peppol program, which requires engagement. Your organization will need to communicate with your suppliers about your e-invoice or Peppol initiatives. You will have to educate some of them, help some of them, sometimes offer them options. In many cases, you will have to push, even demand an e-invoice as a requirement for doing business. You may even have to let go of some suppliers who struggle to meet a digital economy's modern demands.
The key to remember in step 1 is the word engagement. It describes interaction, communication, and support. It is the key to achieving supplier engagement for e-invoicing. You shouldn't take it for granted, or imagine that it ever ends. It's e-invoices, e-orders, Peppol, eCatalogs, Supplier Information Management requiring supplier self-service, and the list goes on. Get good at engaging with your suppliers. Build the relationship and set expectations early.
Step 2: Matching and full automation
It's an obvious point, but matching invoices to orders requires orders. You've heard of things like no PO, no Pay. Well, that's a process requirement that companies put in place when they don't have orders and find it challenging to automate invoice handling. POs (Purchase Orders) are great, but they are even better if your supplier is sufficiently engaged to accept them directly into their systems - meaning, not an email saying we want x, y, z.
Matching is the automatic process where
- The system interrogates an invoice.
- The system finds a PO reference number.
- The system searches internally for a corresponding PO and finds it.
- The system uses business rules to check that the invoice or item's value is within the PO sum or item sum's tolerance.
We can also compare quantities, use unit prices to calculate expected
sums, and then use validation rules to check if the goods have been received, and other checks.
The result is a quintessential 3-way match: Invoice → Order → Goods Receipt.
The only item which many organizations often miss is the recurring invoice. This invoice is contract-based or plan-based, but the point is, in most companies, 10-30% of all invoices are often recurring, with the same supplier, same cost center, same approver, and usually the same value. Think about rent, subscriptions, services, telecoms, utilities, etc.
These are all examples of monthly bills that virtually always look the same and get handled the same - they are easy to automate. Rather than a PO, you can create a plan/contract with a schedule or budget with anticipated invoicing. Add in the posting details (just like any PO would have) and the owner, and you've got the recipe for automation.
Here is an example of the process from real life:
- The system receives an invoice for my monthly Audi Lease.
- The system finds the contract/plan reference number on the invoice (the vehicle registration).
- The system finds the relevant plan/contract with the same number.
- The system finds the schedule row (September) in the plan and compares the invoice's value to its expected value.
- The system copies the posting and approves the invoice automatically.
- Should it fail for some reason, the system would still copy the posting, and the workflow automatically pushes the invoice to me.
Don't miss the opportunity to automate recurring invoices and raise the total volume of fully touchless invoices processed.
Step 3: Partial automation
Step one and two are pretty exciting, but step three is huge. Step three is all about the small bits of automation for those invoices that cannot be fully automated. Both order matching and contract/plan-based matching aim for full automation, but when the invoice finds the order/contract, and the value is off, what then?
Having found the underlying document, the system copies the posting and initiates a specific person's workflow. This way, the AP Clerk doesn't have to manually code the invoice or manually create a workflow for the invoice. From their perspective, the automatic copying feature is highly valuable.
Partial automation can also be done simply with business rules. Setting up a rule which is supplier-specific or invoice value-specific is not that difficult. Imagine a system that pushes all invoices from supplier X into a specific workflow. Or assigns all invoices above a certain value to the CFO. The system can also base postings on historical data. All of these features remove work from the AP team.
Not all invoices can be fully automated, but every bit of partial automation helps to reduce transactional costs while providing more time for your key people to do more value-adding work.
Those are the three steps to automating your AP process, perfectly attainable and relatively easy for a modern organization in an increasingly digitalized supply chain.
Rowan has more than 10 years of experience in the purchase-to-pay arena. During this time, he has managed the go-to-market for a diverse set of portfolios including Accounts Payable Automation, B2B Networks, Financing Services, eProcurement and Product Information Management.
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