6 tips in planning and executing a successful Accounts Payable (AP) automation project

Nalaka Withanage Accounts Payable Automation

Accounts Payable (AP) invoice processing is one of most proven automation areas that yields a higher ROI to any organisation when done correct. However it requires bringing the right software tool, right level of automation and implementation methodology together to succeed.  In this post I am going to share with you 6 valuable tips that we have gathered though numerous AP automation project implementations. I hope you will find these tips valuable in planning and executing your AP automation project or taking your current solution to the next level.

What is Accounts Payable (AP) automation?

AP automation is the process of digitally handing a supplier invoices from the point it is received until it is processed, paid and archived in the most efficient and effective manner. It essentially allows you to manage the lifecycle of an invoice with least amount of manual interaction and effort. Every organisation have invested in an ERP or a finance system which handles the AP process. The goals of AP automation is to identify the missing pieces of your ERP or finance system and fill the gaps which are repetitive, labor intensive and error prone when done manually.

Why AP automation is required?

Accounts Payables function is an information intensive business process that usually requires a lot of manual data entry and data validation.  AP teams needs to deal with a verity of invoices that arrives from suppliers in different formats.  When an invoice arrives data needs to be keyed into the finance system. If you are processing a large number of invoices per month this is a time consuming and an error prone task. Once invoice data is entered it needs to get approved from line of business managers before it is made available for the payment process.

Therefore automating this process allows organisations to reduce costs, improves process visibility and improves supplier relationships and interactions. Most AP automation projects when done right brings return on its investment (ROI) within 6 -8 months.

What level of AP automation do you need?

There are different levels of AP automation solutions. Your current AP process analysis will reveal the process intensity points where your team spend most of the time. Your goal is to identify those repetitive process intensity points and bring the right level of automation. Process automation increases the process visibility, efficiency and ensure compliance. The level of automation you need depends on the number parameters such as the volume, velocity and variety of supplier invoices. In addition to the volumes, questions such as; is AP currently centralised? out of  all invoices, what percentage is PO based? Do you key the line items of the invoices that are NON PO based and perform GL code matching?  Is there a current hierarchy structure of approval? Are the line of business managers centralised or distributed which require mobile access? determines how the workflow should be configured to support your unique business process.

A workshop with the key stakeholders and the AP team leader is what we need to find answers to the above questions. Depending on the AP module functionality, once you find the answers to the above questions you need to plan your project. As there are multiple technologies out in the industry that brings different levels of outcomes it is important to select the right technology.  The following tips will help you assess, evaluate and make a knowledgeable decision in making your project head in the right direction from the beginning.

Tip #1: Ability to process E-Invoices and pdf invoices in a single solution 

Electronic invoicing (or e-invoicing) is the digital exchange of invoices directly between buyers and suppliers. E-invoicing will replace paper-based or PDF invoices from the process. Buyers will no longer need to rely on Scan or OCR data capture to extract invoice data.

AP departments have to deal with a variety of invoices and related documents from different suppliers.  The general rule of thumb is 80% of the invoices come from 20% of the suppliers. If you focus on identifying that 80% of the workload and treat it carefully you will naturally move in the right path. 20% of the workload always requires case by case handling due to the nature of the AP process. Depending on how the business is structured invoices would arrive at a central location or branch offices.  Most AP operations today are distributed and multiple teams are collaborated from different geographical locations. Your AP automation solution must be flexible enough to support distributed invoice capture and centralised processing model. It also should be flexible enough to support to distributed AP teams.

Tip #2: Planning for exceptions and invoice allocation/approval workflow

Planning to handle exceptions upfront is very important step in AP Automation. The system should be able to route rejected invoices back to suppliers with reason for rejection in an automated manner. What’s your strategy in handling non PO invoices?  How would you handle credit notes, multi PO invoices in the automated world? How would you handle suspended invoices waiting internal buyer approval? You would also need an audit log of all inbound and outbound supplier correspondence in a centralised and compliant manner. Once invoices are digitised and invoice data is extracted it needs to be sent to the right departmental manager for approval. This allocation is sometimes decided by the value of the invoice and delegation of authority established within your organisation. Unless this functionality if handled well within via your ERP module invoice allocation and approval workflow needs to be part of the AP automation solution.

Tip #3: Finance system integration

The goal of an AP Automation solution is to extend the functionality of your ERP or accounting application. Therefore it is important to get the right level of integration between two systems for data lookup, data validation and data injection purposes. XML based loosely coupled data integration is more popular with ERP systems.

Tip #4: AP process analytics and process compliance

What gets measured gets managed. It is important to measure the success of automation though process analytics. Constant process analytics help you identify bottlenecks early and resolve them as early as possible. Process analytics should be part of the AP automation solution that provides 360 degree visibility of the overall end to end operation. Top performing AP departments has SLA’s and key performance metrics that they need to report on. I will cover more on this in another post.

Tip #5: Invoice search, retention and archival

Once invoices are captured, processed and sent to the ERP system those digitised invoices must be retained for 7 years in most cases as per the organisational document retention schedule. Even though most ERP systems allows you to attach the invoice copy to the transaction it has never been an efficient or practical solution.  Having all supplier invoices organised in a meaningful manner in a document management system then reference link it from the ERP module gives you the best experience and efficiency when retrieving digitally filed invoices.  It also gives your AP and customer services team the ability to retrieve invoices quickly and easily without having to access your ERP system with powerful search and meaningful index fields

Tip #6: On-premise, in the cloud or as hybrid solution

Today you have the flexibility in selecting an AP solution as an on-premise solution or as cloud based solution. Your ERP solution can be an on-premise solution. AP solution in the cloud can connect your on-premise ERP application in a secure manner. These kind of hybrid solutions are becoming more popular and provide you more flexibility in solution scaling when you need it.

In summary Accounts Payable supplier invoice processing is a highly unstructured process. Due to the complexity in volume, variety and velocity of invoices, detail analysis and process modelling both at functional and non-functional level is required to identify the gaps and achieve the full benefits of the automation. It always require a tailored solution that meets your specific needs. Intelligent invoice scanning software and tools can do the heavy lifting however you should also be flexible in changing your current process for very good reasons.

Whether you are planning to automate your accounts payable process or looking at taking your current solution to the next level I hope the practical tips shared above are useful. If you need help in any of the steps above please do not hesitate to contact us. Our AP automation assessment workshop will help you quickly assess your current situation and you will know what to do.