Relevance of Accounts Payable Automation
Relevance of accounts payable automation? Currently, there is a lot of talk about digitizing companies, or automating processes, but this is a very broad concept that needs to be narrowed down into different types of actions. Of all the processes to be digitized, there is one process that is present in all types of companies, regardless of the type or sector in which they operate.
Specifically, we are talking about the accounts payable process, since all businesses receive invoices associated with the costs of the company’s activity, and sooner or later, they will have to be paid. Surprisingly, despite being present in all organizations, it is one of the least digitized processes. However, the relevance of accounts payable automation is huge. In this article we will try to delve into the relevance of Accounts Payable automation and how it can be accomplished.
Accounts payable process
By accounts payable process we mean the natural flow that a company goes through from the moment it receives an invoice from a supplier or service provider until it is paid, all of which is recorded in the corresponding systems and reconciled.
This process is done in a very similar way in all entities, with some having less or additional steps, depending on the size. But what is common in 99% of them is that it is a highly manual, tedious and time-consuming process. The process is as follows:
- Companies usually receive the invoices at an email inbox (usually a firstname.lastname@example.org) created specifically to receive invoices. This email inbox which is created specifically to receive invoices, is managed by people in the financial or administrative department. There are even companies that receive some invoices, believe it or not, by mail. There are certain invoices, which are not received, but the user himself must connect to the supplier’s website and download them manually.
- Depending on the size of the entity (if large there will be a team and if smaller there will be a single person (accountant, finance and accounts payable team)) a team or someone will proceed to download those invoices. Once downloaded, will register the information manually in the ERP/Accounting software one by one wasting a lot of time, and what is worse, in some cases making mistakes (manual processes have a higher likelihood of misstatement). Once they have finished recording the relevant data, they proceed to file it in a digital repository, and if they don’t have one, they usually print and archive them.
- In order to avoid potential fraud and due to internal control requirements, the entities create internal approval processes. As a company gets larger and more sophisticated, these controls become more complex. In most cases, the process is that a member of the finance team prepares an approval email each week with a list of outstanding invoices and attaches them. The recipient of the email, who is usually a senior manager, must review the invoices and reply with an approval or disapproval. In larger companies, the head of an area or department is the one who must approve the invoices corresponding to that area or department, so the process is multiplied. And even in those cases, it may not end, because if the invoice is of a significant amount, it may require an additional layer of approval. So, this process can involve an overwhelming number of communications, with cross-communications in which the thread of what is approved and pending approval by each responsible is lost. In addition, it requires an employee in charge of managing and monitoring this entire process, investing many hours in it.
- Once all the required approvals are obtained, when the invoice is due payment must be made. The treasurer or the accountant in smaller teams, has 2 options to perform it:
- Enter in the bank application from which you want to make the payment and open the transfer section to make the transaction. Then, find and open a transaction made to the same supplier that is the recipient of the actual transaction so at least you do not need to type in the account information. Later, update the amount, concept and other relevant data and perform the payment by proceeding to the signature with the double authentication factor. This is a completely manual process which involves a high risk of misstatement. This process must be repeated as many times as payments are due.
- The other option available consists of exporting from the ERP system or the system used by the company a list of the payments to be made in an excel, text or XML file. This process is normally done by the accountant. Once downloaded, it is uploaded to the bank application and signed using the two-factor authentication. This process is known as remittance of payments or batch payments.The main problem with this payment method is that this batch, once made, will not be disclosed in the account at a transaction level, since all payments come out aggregated and this makes reconciliation much harder. In addition, in most of the occasions, it does not allow to obtain individualized payment receipts, which can generate problems or additional steps when having to provide transaction receipts to different agencies.
- Finally, once payments are completed, companies often send manual emails to the recipients of the funds just to check if the funds were received. This is again a very inefficient and time consuming task.
Relevance of Accounts Payable automation
Relevance of accounts payable automation? In an increasingly competitive environment, regardless of the sector of operation, efficiency is the key to preserving margins. Thus, CFOs and their teams are aware of the need to be more efficient.
Efficiency is achieved through cost savings, so the decision is focused on how to reduce costs. But not in any way, as such reduction cannot affect the ability to generate revenue. Therefore, the most logical way is to automate manual tasks that consume the time of dozens, hundreds or even thousands of staff members. This is where the relevance of Accounts Payable automation is noted.
This automation can occur in any process and has been going on for some time. However, there are certain processes that have lagged automation, the main ones being financial and administrative processes. This is striking given that the demands placed on these finance professionals are only increasing, especially as transaction volumes rise and the environment becomes more complex.
It is even more surprising when you consider that it is these same finance professionals, primarily the CFO, who are responsible for increasing the efficiency of the company in order to meet financial targets.
However, there is a certain reluctance to adopt technological solutions that digitize and help streamline the work in this area. This is mainly because ERP integrations have traditionally taken years and involved long-term management contracts.
Nevertheless, this very real need can no longer be ignored. This one is to prevent employees on both sides of a transaction from filling out forms, chase paperwork and juggle data contained in Excel sheets to reconcile transactions, spending hundreds or thousands of hours.
In addition, these processes are much more time-consuming when you consider that a large number of invoices contain some sort of error in favor of the vendor or supplier. And on many occasions, invoices are duplicated, which gives you an idea of the amount of wasteful spending that exists, often resulting in duplicate payments. Even if the error is identified once the invoice has been paid, a manual and tedious process of communication with the supplier must be started to recover the amount and make the corresponding adjustments in the systems. The same happens if credits are made for incorrect amounts, and these errors are much more common than it may seem, since a manual process implies a high risk of misstatement.
It is therefore essential from a cost point of view to digitize and automate accounts payable and make the process more programmatic and proactive, especially for companies with significant invoice volumes.
Process Automation and layoffs
A very common question or dilemma that can arise around process automation is, if I automate a process, do I fire the person in charge of doing it?
The answer is clear, it depends on the specific situation and size. Especially in large companies, if they automate processes that are currently performed manually by dozens of people, at least part of those jobs will not be needed.
However, it should be borne in mind that this will not always be the result of automation. If you automate the accounts payable process or part of it, consider that these tasks are often performed by people with technical qualifications in accounting or finance. Therefore, you can leverage that automation in a way that allows those people to focus on more strategic and skilled tasks.
How to automate accounts payable?
The process of digitizing and automating accounts payable is not unique, as there are different ways for doing so. However, the following is one of the ways in which can be done.
The first process in which changes can be made is the receipt of invoices. Centralizing the reception and having them all stored in one place is a first step. However, it is possible to go further and automate the downloading of invoices that a customer must download manually from the suppliers’ websites. There are technological solutions that allow this process to be carried out automatically so that they are automatically downloaded as soon as they are generated. In this way, all invoices would be available in a single place without requiring any employee to spend time in the process.
Another aspect that today’s technology makes it possible to automate is the recording of invoices. The key point in the recording of invoices in accounting systems or ERPs is the extraction of the information contained in the invoices. Currently, using optical character recognition (OCR) technology, the information can be extracted automatically. An additional step in automation is to have that information automatically recorded in the accounting system.
Regarding approvals, this can be professionalized and made much more efficient by using programs specially designed for this task. This type of software allows to establish approval flows totally customized according to the amount of the invoice, the department or other inputs. They allow knowing the status of each invoice, always knowing if it is approved, or at what stage of the approval process it is. In addition, it allows approvers to always know which invoices are pending approval. In addition, automatic reminders or alerts can be set up.
Lastly, another area where there is a lot of opportunity for automation is the area of payments. Using embeded banking solutions, invoices could be paid automatically from within the system in which they are registered. In this way, by simply selecting and ordering the payment of the invoices, they would be disbursed. If this payment is automatically registered in the accounting system, the payment process would be completely automated. In addition, by having the same integrated payment solution, the supplier can even be notified directly as soon as the payment is effective.
Snab as accounts payable automation software
Snab, is a technology solutions provider that allows, among others, to automate the accounts payable process. It is a plug & play platform, ready to operate from the moment the user registers, that allows you to connect bank accounts and your ERP in a few steps.
Snab automates from the receipt of invoices, the extraction of their data with OCR technology, digitizes the management of approvals of these invoices by creating approval flows and allows to make the payment of invoices in one click.