Clearing the fog around AP automation. Can it really save you cash and drive business value?

Accounts payable (AP) automation is hot right now – a simple search for “AP automation” returns over 80 million results. In fact, a recent report identified that for many, especially in the enterprise space, automating and optimising procure to pay processes has become their highest, near term priority. Surprised? You should not be. The pandemic threw many core business processes, like payments, into disarray, as teams were unable to get into the office and follow their existing, often manual processes, so the need for change and improvement accelerated into focus and to the top of our to do lists.  

So, here is a question or two for you – is it time for you to automate your AP function? Will it help? How can you be sure if any transformation project will really drive business value? Can you expect a suitable return on your investment? To help answer these important questions, let’s break down some of key claims AP automation evangelists often make; identify some of the value drivers for many AP automation project; and pose the questions you should be asking yourself, and your platform provider, to ensure that you are on the right track to achieve a return on investment.

AP automation allows you to go completely digital – you need never deal with a paper invoice again! Well, this sounds perfect, especially if your accounts team is working remotely. But, in truth, going ‘100% paper free’’ is reliant on your suppliers being helpful, compliant, and joining you on your digital journey. The benefits that come from automating and digitising most of your invoices can be hampered by a handful of suppliers, who continue to use and send in paper invoices, perhaps, because they did not know about the new system or have not been transitioned over successfully.

Supplier onboarding therefore becomes central to any successful AP automation project, but unfortunately, it is often overlooked or mismanaged. A recent survey by Dow Jones Risk and Compliance found that a third of all new supplier onboarding undertaken in the last 12 months was “likely to have been executed incorrectly”. So, should you expect your platform provider to onboard all your suppliers for you? Probably not, although, some will. The ease of use, cost, and accessibility of the AP solution you choose to implement can have a big impact on how effective your supplier onboarding program is.

The key questions you need to ask yourself before committing to a project or expensive AP solution, include: Will your platform provider provide any support or guidance to onboard your suppliers? What value and experience do they bring to that part of the project? And how easy does your platform provider make it to receive digital invoices? Do they include email, e-invoicing (such as PEPPOL) etc?

AP automation helps to prevent fraud. Invoice fraud is a growing issue across the globe with scammers working on very sophisticated ways to intercept invoices and manipulate them. Digital invoice processing and accounts payable automation claims to solve this problem, but does it? Let’s take a look at how most platforms process and check invoices:

• A digital invoice is received usually via email
• Some basic invoice data is captured automatically - to varying degrees of success
• Basic data is checked and validated for duplication and active suppliers
• The invoice is routed to a reviewer for review and account coding
• The invoice is the routed to an approver for final approval
• Finally, the invoice is processed through for payment

All the above sounds great and will certainly keep you well covered against ‘fraud’, if we are only talking about reducing the risk of duplicate payments and stopping payments to suppliers that do not exist in your system. But if you ran the type of scam through this same process where the invoice is intercepted before it gets to you and the bank account details are changed – it would not get picked up.

When invoice processing is done correctly, data verification of invoice data can completely mitigate the risk of invoice fraud. You need to make sure you choose a platform that can perform the following invoice data verification checks:

• External supplier validation – providing checks against popular risk and fraud databases to ensure your suppliers are legitimate.
• Business Number validation – making checks against government records to ensure the business is who they say they are
• Internal supplier details validations – checking whether the supplier details on the invoice match your master supplier records.
• Duplicate check – making sure you have not received this invoice from this supplier before?
• Purchase order matching – identifying whether the invoice references a purchase order, and whether the supplier and purchase details match what is on the invoice.
• Bank account verification – validating that the bank account listed on the invoice matches the one in your supplier records.

AP automation will improve accuracy and reduce the level of manual work required. This is a commonly held assumption, and the key claim that is typically ‘sold’ to organisations by AP service providers. Amongst claims that you can ultimately reduce the headcount of your AP team by investing in such and such technology, or that with a ‘touchless’ accounts payable solution you will mitigate expensive mistakes and don’t need as many resources checking data entry.

In fact, most AP platforms use optical character recognition to read your invoices. Most OCR powered AP platforms can, at most, promise accuracy rates of 90%. Which sounds great, right? But let’s consider for a minute, what that really means. A 90% accuracy rate means that 90% of the fields that are captured on any given invoice are correct. Not that 90% of invoices are captured correctly. So, if you are reading / capturing a conservative 10 fields on each individual invoice (supplier name, ABN, gross sum, net sum, tax amount, reference person, invoice date, invoice currency, invoice number and bill to name) then this means that one in ten of those fields will need to be manually corrected. Not so good. Add to this the fact that manual entry of invoice data currently accounts for 3.6% of errors made on invoices (AP Association Facts and Statistics). You are still, or at least should be, spending a lot of time manually checking each invoice and correcting data.

Here are some key questions to ask your provider before you engage their services:

• What is accuracy rate of your platforms data capture service?
• What is the impact to your resource planning and business case?
• What data validations and logic-based corrections can be automated by your provider to ensure only true exceptions are handled by your AP team.

AP Automation drives greater control over how your invoices are processed. Ensuring that invoices are not missed, lost, payments delayed, and that your approval policies are adhered to. This may be true; however, any level of control is driven by the approval and exception workflows that exist in your system. Many (54%) businesses still see invoices being sent to the wrong place (AP Association Facts and Statistics); either, directly to individuals, rather than an accounts payable address; or to old and out of date email addresses. Which often results in lost or untraceable invoices, late payments, and relies on individuals finding those invoices and uploading them into the correct systems. A supplier’s bank account details often need to be validated against a supplier master list manually. A fit for purpose AP Automation solution should have baked in KYC processes, which eliminate the need for any validations, or any possibility for an invoice originating from a fraudulent sender.

Unsurprisingly many businesses find themselves in a situation where ‘silver-bullet’ technology cannot fix their bad processes.

To increase your control over how your invoices are processed and to ensure that the correct policies are being adhered to, you need have a clear delegation of authority and thought through, rule-based, invoice routing, approval process. You should use the opportunity to automate any process as an opportunity to apply best practice to those processes. Start by asking your provider the following questions:

• How does you provider configure your approval chain and what role do they play in trying to align with best practice?
• What routing logic can be put into place based on data that can be captured from an invoice e.g., supplier, reference name, business name etc

So, finally, is AP Automation worthwhile? Absolutely yes. But, as I have highlighted, it is important that you align the right technology with the right processes and that your teams and suppliers all realise the real business benefits of AP automation. Despite the issues I have identified in this piece, AP is one of the easiest areas of your business to automate, with new technologies making the data capture, validation, and workflow much easier. With 72% of organisations spending as much as 520 hours per year on manual accounts payable tasks the opportunity to drive real time cost savings is huge.