AP Automation is becoming quite the buzzword in the ECM space – and for good reason.
Today’s companies are moving quick – thanks to the help of workflow software, increasingly better OCR technologies, blockchain integrations, and artificial intelligence.
What is AP Automation?
AP automation is a touch-free way to handle and process invoices, and it’s come a long way since the term was coined. Modern companies today have accounts payable teams and the largest ROI is seen with companies with more than 5 team members in an accounts payable division.
In addition, AP automation handles both paper and electronic invoices despite them having a slightly different process. While paper invoices have a manual scanning part in the process, both use OCR (optical character recognition) to extract the information from the invoices. Even better, companies are beginning to offer capture software with artificial intelligence capabilities to become continually ‘smarter’ about extracting that information – like our Forms Magic product.
The benefits of AP Automation
1) Going Paperless
While this may not be top of mind for most organizations as the primary benefit, it is still worth taking into consideration. With today’s modern companies becoming more technology savvy, new ways to store information in digital formats is taking a high precedent.
There are a couple of benefits for going paperless from AP Automation outside of just not having to worry about paper costs. The storage costs associated with them – such as the retail space for having filing cabinets – as well as the unproductive time you search for a piece of paper also come in to play.
You also are able to collaborate exceedingly faster as well. Instead of either hand-delivering a document or transposing it in an email, you can now forward the image/document with just a few clicks.
Sounds like a dream, right?
2) Kicking off workflows
Workflows are becoming an increasingly vital part of today’s modern processes. The beauty of workflows come with how customizable they are. For example (at least with our Workflow software) you’re able to use a drag and drop builder to create whatever your organization needs:
This is an example of a fairly basic AP Automation process, but is still very powerful and overlooked by organizations. Just to clarify, here is the flow:
- Once the invoice is received it gets routed to either a manager, or an AP user, based upon rules that look at the total invoice amount.
- Electronic communication happens, between those two parties, to determine if the invoice should be approved to be paid, or rejected.
- Once the system gets both approvals, it’s put into an ‘Approval’ bucket
- From there the invoice gets paid (sometimes automatically)
- And then your AP system, like Quickbooks, gets automatically updated!
Pretty slick! A simple setup like this to just get started goes a long way from a traditional AP process.
You and your team can go on further to set up even more checks and balances – i.e looping in account managers, routing certain invoices from certain companies to key parties, etc..
Although these can sometimes take a little bit to iron out what the correct process is, workflows can save you hundreds of hours in the long run (and not to mention the headaches in between there too)!
3) Eliminating manual entry (and their errors)
In the old process, the majority of information was input manually into the accounting software (like QuickBooks). Meaning someone is responsible for inputting every piece of information for an invoice into a database. The average (discovered and reported by iPayables) was that the average person can manually enter 5 invoices per hour. In contrast, OCR can process 22 invoices an hour – a 340% increase in productivity! In addition to that, the hand key errors are significantly less since you’re utilizing a trained system.
For a bit more clarification, electronic processing is when the invoice goes straight into the payables system.
4) Early Payment Discounts
We probably don’t need to explain what an early payment discount is to you, but it is still a real, bottom-line benefit when AP automation is put in place.
But, we wanted to lay out some hard numbers to show you just the effect it can have on your business.
Some vendors offer an early payment discount such as 2/10, net 30. This means that the buyer may deduct 2% of the amount owed if the vendor is paid within 10 days instead of the normal 30 days. For instance, an invoice amount of $10,000 can be settled in full if the buyer will pay $9800 within 10 days. In this example, the buyer will save $200 (2% X $1,0000) for paying 20 days earlier than the normal due date.
Just imagine what you could do, if you were able to do this 10X this scale.
These all result in significant cost savings.
There are a lot of things to think about when it comes down to benefits of AP Automation, but companies are doing this today for one primary reason – increasing the bottom line. All of these actions are in direct correlation with saving and/or eliminating costs.
The different components of AP Automation
Scanning is the act of taking a physical document and making it into a digital copy. Normally these are turned into an image (like a JPEG, PNG, GIF, TIFF, etc.) so that you’re not bloating up your file storage with something like a PDF. Depending on how many invoices you’re manually scanning (and the ideal way is to have them electronically processed as mentioned above), this can become quite the task. However, luckily there are scanners specifically built for ‘high-volume scanning.’
We carry Panasonic Scanners in-house since we’ve found that the maintenance is less troublesome than other brands, and we trust the hardware. If you’re interested in finding a more efficient machine, check out these document scanners.
The reason we index them is to make them searchable later. Filling in these fields help them become ‘keyword’ friendly that when you’re looking for that invoice you processed 3 months ago, you’re able to find it in seconds – and not in a filing cabinet.
As you can see we’re pulling vital business data off the invoice and entering it into the system. That way, it not only helps you collect data and make it more ‘keyword friendly’ when searching, but it also eliminates any possible hand-keying errors that we humans like to make.
Some of the more advanced systems are now integrating Artifical Intelligence into these types of software – like our product Forms Magic.
The artificial intelligence is used to continually learn ALL the different types of invoices and their formats. This not only further speeds your system and how fast you can process, but also shows how confident it feels the accurate it’s pulling off of an invoice is accurate.
As you can see, Forms Magic is pulling the information and highlights it in different colors based upon its confidence level. Eventually, all your AP automation team needs to do is look for colors.
One of the last phases you enter when setting up your AP automation system is the ‘what now?’ phase.
Well, at least we hope not, but this is a possibility so we wanted to address it.
After you’ve got everything set up and you’re receiving all of these new documents (whether electronic or paper) it can be confusing on knowing what to do with it – especially with a capture system in place.
We recommend setting up or integrating into an ECM (electronic content management) system. It’s the same thing as a document management system – just a different term.
Here you can search for old invoices and it comes back with a ton of data. The reason we recommend a system like this is that they are secure, built for collaboration, and already integrate with your new AP automation processes.
Once a document is scanned in or you receive it in your email, there is a little prep work involved but essentially it goes right into Radix or your own document management system.
As a quick summary, here is a quick summary of the main components of getting this setup. In the optimal system, you’ll have all of these components working together:
- Capture Software – to capture the information and store it at a cost-effective rate
- Ideally, you’d use a capture with OCR technology (bonus points for our Artifical Intelligence software too) so that it automatically extracts the information
- A document management system – to store, catalog, and later find the information
- Workflows – so that you can route the information automatically and efficiently
- Integrations – which is our next topic, so stay tuned!