Estimated reading time: 9 minutes
We thought you might be interested in an innovative way to avoid late payments, invoice approval delays and inefficient, outdated processes. Allow us to explain the benefits and steps needed to make the dream of accounts payable workflow automation a reality.
What is a workflow?
First thing’s first. Think of a workflow as the sequence of steps to get a task or process done from start to finish.
In the AP world there are manual and automated workflows – and they’re dramatically different.
What is the manual workflow in accounts payable?
A manual AP workflow happens when people get directly involved in the entire step-by-step process of receiving invoices and making payments. Let’s look at the steps:
- AP departments receive paper invoices, type the invoice data into an electronic system and deliver the paper invoices to business leaders for approvals.
- Once approved, the AP department chases the appropriate signatures, cuts paper checks and send payments to vendors and suppliers.
But there are a handful of flaws with this process.
- Businesses often have to process hundreds or thousands of invoices a month and keeping track of all the paper invoices can be overwhelming.
- Paper processes tend to generate invoice errors. Frequently, they aren’t caught so invoices get sent for the wrong amounts.
- Frauders steal information from paper invoices and can therefore take money from companies.
What’s the price to your business of these flaws?
A Comindware.com article says “manual operation has great tendencies for mistakes and failures which cause undesirable effects to the production flow, time, and cost.”
What does accounts payable workflow automation look like?
An AP workflow is a series of sequential steps. Picture a left-to-right, 1-2-3-4-5 image. The workflow starts when the invoice gets received. It ends when the payment gets sent.
If the invoice comes to you in paper form – which is often the case — the automated system pans out like this:
- AP automation software converts paper documents into digital format using optical character recognition technology. Automatically, the technology inserts invoice data into an electronic digital file that your finance team can easily find and search.
- The system checks to make sure the data on the invoices equals the data on the purchase order and sales receipt. Automated workflows catch exceptions faster and more reliably than a manual check with human eyes.
- If the system finds mistakes, the document is forwarded as an “exception” for a person to review.
- To fix the exceptions, they’re electronically routed to people and business units based on rules set up in the AP software. You no longer need to send paper around to people or chase them via phone calls and emails. The software takes care of all that. Disputes and exceptions get fixed faster. Collaboration across various corporate departments and suppliers improves.
Once approved, invoices move electronically into the company’s accounting and enterprise resource planning (ERP) systems. Then payments get sent electronically or by paper check.
As part of this process, your finance team also uses a consolidated financial dashboard. There they can see the status of invoices and payments, generate better insights and make quicker payments.
There’s more. Business leaders can also more effectively check staff performance, identify workflow bottlenecks and balance workloads across various corporate locations.
What are the benefits of accounts payable workflow automation?
As we said, there are dozens of benefits of accounts payable workflow automation. Let’s explore nine of the most important
Benefit 1: Mitigated fraud
This scenario might happen in your finance department. It receives an invoice from Vendor X. During your manual AP workflow process, however, no one notices Vendor X isn’t a legitimate vendor. Your business pays the invoice and never sees the money again.
It’s much more likely the automated system will catch the illegitimate vendor and you wouldn’t make the payment. What does this mean? To put it simply, AP automation workflows help prevent fraud.
Benefit 2: Make payments on time and don’t miss payments
Here’s a situation you may be familiar with: Many manual systems remain vulnerable to mistakes and disorderly processes such as invoices you can’t find. That leads to late or entirely missed payments.
The good news?
Automated systems minimize those mistakes and bring more checks and balances to the process. So, you’re less likely to miss payments.
Benefit 3: Avoid late payment penalties
When you pay vendors late, you often have to pay a financial penalty. But that’s not likely to happen using automated workflows because the system keeps you up to date on the statuses of invoices and payments. If a deadline approaches, the system will let you know in plenty of time.
Benefit 4: Centralized accounts
Of course, you don’t want to chase down scattered papers. You also would rather use several different softwares to handle your financial transactions.
Your job will be much easier with an automated AP workflow that centralizes your invoice and payment information into a single, well-organized database. You’ll be able to check the status of invoice approvals and payments faster than a manual, paper-heavy process.
Benefit 5: Eliminate data entry
Given a choice, your finance team will be more fulfilled and adding more value by focusing on strategic initiatives rather than typing in invoice data. By automating your AP workflows, they’ll have a lot more time for value-added work.
Benefit 6: Boost morale for employees
Your finance team will no longer have to spend countless hours organizing various pieces of paper such as checks from around the office. They don’t need to worry about chasing down leaders for invoice approvals.
Instead, they’ll have more time to do interesting work that sharpens their strategic and advisory skills.
Benefit 7: Secure online approvals
Your automated workflow will regularly remind business leaders they need to approve an invoice. With just a click, they’ll approve them and have more time to spend on more strategic tasks. And you’ll have much more time to spend on value-added work as well.
Benefit 8: Generate easy audit trails
From time to time it’s likely auditors will want to check on your financial team’s records. When they do, it’ll be easier for them to get the information they need faster using an automated workflow system.
Just as important, your finance team will be able to automatically share the specific information auditors need rather your entire set of financial records.
Benefit 9: Automatically match invoices to purchase orders to sales receipts
Just think of how much time you might have to spend manually checking all the data on an invoice to the purchase order and sales receipt. Now imagine having to do that for dozens or hundreds of invoices every day or week.
Using AP automation workflows, you won’t need to do that anymore. The system does all that fact-checking for you.
How do you automate accounts payable workflows?
There are several sequential steps to automate AP workflows. Let’s look at five that matter most:
Step 1: Map out your current AP processes
You might want to do a deep investigation of your current AP processes. Identify which ones work best. Try to pinpoint the inefficient processes.
Ask these questions: Are you better at handling invoices or payments? Where are you making the most mistakes, when typing in invoice information or matching invoice and purchase order data?
Figure out what part of the process costs your business the most money. Is it late payment fees? Or something else?
By nailing all these details down, you’ll figure out what workflow automation technology can help you most.
Step 2: Build advocacy
Building support for your move to automated workflows will be crucial. Ask your finance team what AP workflows they’re using. Find out from them which ones cost the most money, consume the most time and cause the greatest difficulties. Ask them what problems they most need solving in the AP process.
Their input will help you make the best automation decision for your business. And they’ll feel part of the solution and therefore will be more likely to support the shift to automation.
Step 3: Evaluate needs
Evaluate your AP department’s greatest needs. Calculate how long it takes to process an invoice using manual workflows and compare that to an automated system. Figure out the numbers that tell you how much you’re spending to process an invoice manually and how much less it will cost using AP automation.
Then decide whether your business needs to improve its workflows mostly to reduce costs, save time or reduce errors. Knowing this, you’re more likely to choose the best AP automation solution.
Step 4: Buy best software for your business
There are several types of software for automating AP workflows. Before buying one, however, you might want to figure out the biggest problems your business needs to solve. Then invest in the software that best solves those problems.
For example, you may have consistent problems with inaccurate manual checking of invoice data to purchase order data to sales receipts. If so, make sure the software you choose excels at 3-way matching.
Step 5: Get rid of paper
It’s best to stop using paper in your AP workflows. The less you use it the fewer mistakes you’ll make, the less susceptible you’ll be to fraud and the faster and easier your system will be to use.
An AvidXchange article describe it this way: “When finance departments shed paper-based approval processes, there’s less room for error. Automated invoice approval workflows give approvers clear visibility into all invoices and their location in the approvals process. The lack of paper means you’re not going to lose the invoice. Not to mention that it speeds up the approval time.”
Now is a great opportunity to find out how much automationcan help transform your AP to achieve goals in the months ahead.
And consider this: Our latest research, summarized in this new report Standout Strategies in a New Business Era, finds that improving automation across processes has become the number one priority for middle market businesses since the pandemic. Business leaders want to work in new ways more efficiently.
Using technologies such as automation, finance teams like yours have a great opportunity to reach new heights quickly.