Processing invoices involves a great amount of time and manual labor for accounts payable (AP) operations. Indeed, one of our clients estimated that it was spending $15 per transaction to pay $300 to $400 invoices. Based on our data, gleaned from over a decade of working with clients, more than 28% of transactions are paid late or inaccurately because of data errors, process issues or both. Much of the work required to resolve these issues is high-volume, repetitive, rules-based and rote.
In other words, most AP processes are excellent candidates for automation.
Yet automation alone is not a complete solution to the high cost of AP. After all, automating an ineffective process doesn’t make sense. Organizations can achieve greater results by implementing what we’ve dubbed “touchless AP.”
Touchless AP combines reimagined policies and processes enabled with automation and intelligent technologies to streamline the entire payment value chain, encompassing invoice intake; indexing and data control; buying compliance; workflows; approvals; and debit posting. In our experience, by re-engineering and automating the execution of policies and procedures in each of these areas, organizations can reduce total cost to pay each invoice up to 80%, achieve over 70% first-time throughput of invoices, and improve delivery of accurate and timely payments by 90%.
Success with touchless AP requires organizations to combine upstream work on reimagined policies and procedures that set the stage for downstream processing efficiencies. We’ll explain the three key levers needed to implement successful touchless AP:
1 Policy
- Determine optimal workflows. Companies should base these on general ledger (GL) codes, type of purchase and invoice value. For example, routine office supply purchases likely need fewer layers of checks and balances (such as data verification and approvals) than would a capital transaction involving land, buildings or machinery.
- Build in compliance. Automated policies can help ensure purchasing and regulatory compliance. Organizations should use supplier catalogs on an internal purchasing website to ensure purchasers select only approved supplies and equipment — at the approved price. Defining appropriate reviews and approvals for contracted services, such as facilities management, can help ensure that employment laws and contractual obligations are followed. These rules can be tailored to local regulations, such as government-regulated payment terms and minority-owned business enterprise stipulations.
- Involve procurement and suppliers. Finance departments alone cannot ensure the success of touchless AP. Procurement specialists typically own supplier relationships and must help those vendors (as well as internal users) understand and follow new policies and procedures.
2 End-to-end process redesign
- Redefine buying channels and purchasing processes. Electricity, fuel and real estate purchasing processes are different from those for machine parts, laptops and office supplies. The channels and processes for each must be clearly defined before creating automation aligned with them. Catalog purchases, purchasing cards, purchase orders and capital purchases — all are buying channels to incorporate into touchless AP process planning.
Building processes and automation around these channels upstream ensures automated execution farther down the payment chain. One example is calling purchases off contracts. On the upstream side, the organization creates contracts with vendors that specify approved goods and terms. When an employee places an order via a catalog, the AP system automatically generates and submits a pre-approved purchase order, calling the item number, price and terms directly off the contract.
- Orchestrate processes. Touchless AP requires end-to-end coordination of the entire payment chain, with data flowing from a contracting system to a purchase order system to an invoicing system. No systems can be siloed, and relevant data must be standardized, including approved supplier information, contract terms, price, and purchase order numbers.
- Determine optimal approval flows. Approval processes should be commensurate with the value or sensitivity of the purchase. Flows can be configured based on GL codes, type of purchase, and invoice value. Lower value invoices may be automatically approved when invoice data matches purchase order (PO) data, while high-value invoices should be routed for additional review.
3 Technology configurations
- Orchestrate data between the enterprise resource planning (ERP) master data and payables systems. This key step builds on the process redesign rules and standards. We routinely see 44% to 53% of invoices become exceptions because they are not matched to a goods received note (GRN) that the ERP requires for record keeping. Automation of end-to-end processes can solve this in several ways. An arriving invoice can trigger an email to the person who received the goods, prompting them to create and send the GRN with a click. The system can also send follow-up emails; when acknowledged, the system routes the invoice for payment.
Another 18% to 23% of invoices land in exception queues awaiting price corrections. With automation, systems automatically check invoices against contracts and purchase orders to confirm prices and approve the invoice.
- Move to e-invoicing. Businesses should work with suppliers and procurement to eliminate manual invoice submissions. Creating and submitting invoices electronically is critical to reduce errors and streamline workflows. One option is using “PO flip.” When the goods or services are delivered, the purchase order may be automatically converted into an invoice, avoiding the need to rekey data. The process is fast and accurate. All purchase order data required to generate a pre-approved invoice is there: requestor, contract, terms, item and amount.
- Robotic process automation (RPA), artificial intelligence (AI) and machine learning. Organizations should apply RPA to complex processes with many keystrokes and work-arounds to streamline them and return time to AP employees for higher value tasks, such as pursuing supplier discounts. For one client, we designed an invoice approval bot that logs into an ERP; checks the internal organization number, account number, bank account and invoice status; and updates a process tracker. The bot also completely automates all data searches and updates. The results include 100% accuracy and compliance, a 70% increase in efficiency, and a 50% reduction in exception invoices.
In another case, a client’s analysts had to update approximately 40 fields in four different screens to rectify erroneous invoices. We designed a bot to perform rule-based validations. The bot extracts invoice details from the ERP system and posts the invoice entries in the relevant transaction platform. It then sends a detailed report of processed and unprocessed invoices for quality audits. Bots like these learn from yes/no, if/then decision trees, continually improving their efficiency. The result for this client has been zero errors and an 85% reduction in manual processes.
