Table of Contents
How Manual Data Entry Affects Accounts Payable The Problem with Manual Invoice Processing Workflow Optimizing Invoice Processing with Automation Tools Creating Value Through Integrated Payables The Power of Digital Payment Methods in Accounts Payable The Power of Visibility in Automated AP Systems Other Ways Automation Benefits Your Business Accounts Payable Automation Software: Getting Started
The Problem with Manual Invoice Processing Workflows
A key concept to understand in regard to invoice processing is that just because an invoice can be received electronically doesn't mean it will also process automatically. Many businesses that accept invoices in this manner think they're making major process improvements eInvoicing, but it’s just a minor element of what automation can do in terms of efficiency and productivity.
The reality is, many businesses receiving invoices electronically simply print them out and then process them manually into their ERP or accounting systems. This doesn't entirely defeat the purpose of electronic submission, but it doesn’t drive process improvement ahead or optimize automation features.
While invoice receipt variations are troublesome, a key bottleneck that still exists for businesses today is that they continue to manually glean relevant data from invoices and reconcile those invoices manually into an accounting system after completing 2-way or 3-way matching— manually.
An end-to-end AP automation solution, on the other hand, alleviates these issues by simplifying document flow, eliminating manual data entry, and reducing or eliminating the need for manual validation. In the end, a business's goal should really be to optimize processes and make the technology encapsulating enough to make touchless invoice processing a reality.
As far as why financial leaders seek out process improvement methods, the reasons are varied, but here are the top AP priorities in 2024 according to the report The State of ePayables 2024: Money Never Sleeps by Ardent Partners:
Optimizing Invoice Processing with Automation Tools
AP automation systems vary widely depending on the AP software provider, and the level of integration will often relate directly to a business's budget, operational goals, and existing accounting system. The following technology primers will give you an overview of how automation integrates with data and existing financial systems.
Electronic Data Interchange (EDI)
Electronic data interchange has existed for decades and is considered the gold standard for integrating disparate data systems, although it's not without challenges. In many ways, EDI empowers an organization to bypass other automation methods thanks to its upstream bi-directional integration between a business and a vendor.
Long considered the best option for enterprise-level companies to tie supply chain relationships together, EDI can be difficult to set up and maintain with a vendor. Each individual EDI integration between a business and vendor requires technical effort from both parties, which is easier for multi-billion businesses to manage than it is for small to midsize businesses (SMBs) with fewer IT resources at their disposal.
E-Invoicing and Procure-to-Pay (P2P) Options
The invoice is recognized as legitimate, it will reciprocate and authenticate the transaction through a PO flip. This generates a purchase order dynamically and matches it to the invoice.
The function here is beneficial because it allows a vendor to avoid manual processes like generating hard copy invoices, mailing invoices, receiving invThese technologies are newer to the market than EDI and offer some great efficiencies. With these processes, a vendor submits an electronic invoice using a purchase order (PO)-based file exchange that utilizes a file structure such as XML to send the invoice to a business. From here, the invoice interacts with the eInvoicing or P2P platform, and ifoice paperwork in the mail, and other downstream activities such as scanning and filing. Furthermore, through an eInvoicing or a P2P platform, some of a business's general ledger (GL) coding components can be automated because the data exchanged via the acceptance and authentication process dictates how a transaction gets recorded.
All great, right? Maybe, maybe not. This approach makes a ton of sense, in theory, but there's still a caveat: difficulty with vendor adoption. The technologies behind eInvoicing and P2P software require broader adoption to work seamlessly.
In other words, these technologies require vendors to also make changes to their IT systems. For this reason, adoption has lagged due to deployment challenges, which emphasizes the need for more effective solutions like AP automation software.
Business Process Outsourcing (BPO)
Business process outsourcing (BPO) has become common over the past two decades, especially as large enterprises focus more on AP processes. For companies looking to avoid the complexities of document process transformation, outsourcing to regions with lower labor costs have offered significant economies of scale. While this may be initially appealing to some CFOs and controllers, relying on offshore personnel who may not be fluent in a company’s native language can lead to errors when processing data, which will compound if unresolved.
Any resulting errors can strain vendor relationships and require advanced workflows to manage problem transactions effectively. In some cases, this necessitates a hybrid approach: Offshoring basic data processing while handling more complex, relationship-driven tasks at the home office. Not surprisingly, this model has come under scrutiny in recent years, and for some, the lack of direct oversight and trust in offshore processes makes the approach untenable.
AP Automation Technology
With a more advanced technology stack than other automation tools, AP automation software eliminates up to 100% of manual data entry, reduces or eliminates accounting errors, and automates matching processes and approvals. It also gives accounting staff increased visibility with real-time transaction updates and allows staff to quickly expedite automated invoice and payment processing, reducing the risk of human error.
AP automation as a service option has been growing in adoption for over ten years, although for many companies, there's been a barrier to entry from a cost standpoint. When you consider the requisite technology stack to automate the AP document process, you have to factor in a number of components—which explains why pricing is generally higher.
Another thing to consider with AP automation is that you need full access to reporting and payment features in order to gain complete visibility of accounts payable. A combination of all these elements is required if you want to develop a true end-to-end AP automation experience.
The Institute of Financial Operations & Leadership (IFOL) conducted a survey of AP Teams in 2024 and found that the majority of them had adopted partial automation. Here is breakout of the degree of automation achieved:
Looking back 10 to 15 years, companies used to pay thousands (even millions) of dollars to bring these systems in-house. Maintaining them required large data centers, servers, and IT staff, in addition to costly license fees.
Today, companies have shifted to cloud and SaaS platforms, which offer the same technology as in-house systems without being wedded to those delivery models. Initially, the only barrier here for many businesses has been cost and the need to still manage intricate, disparate systems outside the scope of core business functions.
It's also important to consider that there is a big difference between adopters and non-adopters of automation technologies regarding KPIs, such as cost to process an invoice (CPI), time to process an invoice, and rate of early payment discount capture. The metrics tend to vary widely, but once automation is introduced into an accounts payable system, it can vastly improve efficiency, propel back office functions, and generate wins via increased savings and profits.
The chart below shows the difference between those who continue with manual tasks (novice) and those who have embraced AP automation (innovators).
Document Process Outsourcing (DPO)
We have an admitted bias towards this approach because we believe it represents the best of all worlds since you can fully offload your AP processes. When high technology is placed in the cloud, it gets managed by a dedicated team of technologists who understand the crucial nature of systems integration and who understand niche systems like OCR, therefore making it easier to implement AP software solutions.
This automation model enables a business to use technology tools to impact AP processes without having to manage the processes themselves. Document process outsourcing also harnesses BPO attributes in terms of taking manual processes away but without having to entrust a foreign company with all the labor, therefore reducing risk.
Finally, because the technology stack here is available in the cloud, infrastructure costs are drastically lowered all around and the cost of entry affords many companies the opportunity to utilize the technology. Many DPO models offer pay-as-you-go type options and bill you only for what you use, versus license-oriented models.
Creating Value Through Integrated Payables
The Power of Automated Payment Options in Accounts Payable
Beyond the obvious AP automation gains related to improving manual invoice processes, a layer of added value exists that's often untapped and paramount to the success of an AP department. This is where integrated payables come in, and it means automating payment processes as part of an overall back office strategy.
Success here will deliver tremendous impact for the visionary leader who progressively and proactively works to align front-end automation efforts with a back-end goal of optimizing payments. Few other areas offer such low risk and high-yield rewards.
When looking at the B2B payments landscape most businesses face, especially in the U.S., it's clear that many organizations are still dependent on costly, time-consuming, and outdated methods like issuing physical checks. Part of the problem here is that the U.S. has no mandated governmental compliance toward a payment standard. This isn't the case in other regions of the world.
In 2023, Insider Intelligence and eMarketer forecasted 2024 U.S. B2B payment transaction shares by percentage, and here were their projections:
Overall, because the B2B space has a myriad of payment options available, many businesses find themselves having to accept a variety of transaction types. For this reason, some savvy CFOs and Controllers have recognized the inefficiencies of paying with legacy methods and have begun working at creating value through better payment streams ... and it's to that we want to turn the attention now.