AP Automation for Small Businesses

Small Business: whereas what can be considered “small” is debatable and highly subjective, the US Small Business Administration (SBA) chooses to label an enterprise as a small business if it is employing less than 500 employees.

Small businesses help keep local economies rolling and are a hub for innovation. But when it comes to driving change and digital transformation across sectors, one begs the question if automation is really needed for small businesses. In this blog, we’ll be specifically focused on accounts payable automation for small businesses.

Case for AP automation in Small Businesses

It is a good idea to automate jobs that are traditionally manually-driven and paper-based, and therefore laborious enough that they cannot be scaled or accelerated easily. For small businesses, these jobs can be found in the administrative sections or what is usually called as a back-office. Accounts payable and sales order processing are ideal for intelligent automation as they lower the dependence on manpower and paper dramatically — two factors responsible for introducing errors, inefficiencies, and delays.

Invoice Automation Software

Intelligent Process Automation Solution

We’ll talk about accounts payable operations and how, if done well, can impact small businesses positively. Accounts payable deals with payments to be made for purchases made by a company. For purchases made on credit, there is a set time-frame within which companies need to pay the vendor; and buyers choosing to pay early may benefit from certain early-pay discounts. The time it takes to settle payments with sellers, vendors, or even financiers over a given period of time gives an indication of a company’s financial health and liquidity. This duration is called Days Payable Outstanding (DPO) and can be a very valuable metric for companies to determine cash flows and in turn, gauge the health of their finances. DPO calculates the average number of days it takes a company, typically timed quarterly or yearly, to pay its bills.

DPO can be a very effective metric to monitor the financial health of a company. For small businesses equipped with limited resources and capital, this can be a helpful KPI to determine their progress and long-term trajectory in the market.

The rate of purchases made by an SMB may vary greatly compared to a large corporation, but the running costs of conducting business, which include manpower and operating costs, if not managed well, could be substantial. Not just that, a greater dependence on manpower for administrative functions may not be entirely viable when you are suddenly faced with a period of stagnation or on the contrary, a sudden rise in demand. Businesses are usually forced to either let go of their employees or add to staff. These disruptions can lead to a mismanagement of funds and reduced cash flows.

A good way to improve cash flows is by

Lowering the operating costs involved with managing accounts payable tasks (and)
Reducing the DPO to settle payments for goods purchased from vendors

AP automation introduces visibility and stability across processes, not to mention a habit of careful cash management that is good for small businesses. What you need at the end of the day is a healthy stash of cash to invest in future growth opportunities. An accounts payable automation software affords companies the leeway they need to distribute and spend cash strategically.

A high DPO indicates low liquidity. Also, manual, paper-based accounts payable operations always incur high costs due to inefficiencies. Both these problems can be tackled using intelligent automation to improve cash flows.

Accounts payable automation software, based on intelligent automation, combines Robotic Process Automation (RPA) with cognitive technologies like AI and machine learning to automatically capture and process vendor invoices and receipts, and post validated purchase data in an integrated accounting software or ERP system for final tallying and payments.

The software ensures two things: a) straight-through, hands-free invoice processing, which lowers the inefficiencies and costs associated with manual effort and b) accelerated payments processing, which lowers DPO dramatically.

To understand the impact an accounts payable automation solution has on a company’s AP operations and cash flows, we’ll look at a real world example. We’ll study a relatively large company and later, compare the impact automated accounts payable has on a small business as well. CANAC Inc. is one of Canada’s largest hardware retailers and a leader in renovations. For a while, they were struggling to get a grip on their AP operations, having to handle over nearly 200 vendors on a regular basis and manually perform data entry, document sorting and filing, before re-keying verified invoice details to their Laserfiche document management system. Their AP staff was having to handle a huge influx of vendor invoices annually — nearly 120000 and growing! The physical labor involved in processing incoming unstructured or semi-structured documents in the thousands plus the redundancies of double data entry and repeat processing, in case of any errors, was taking a toll on their staff. The CANAC management sought ways to reduce the burden on their talented staff and landed upon Artsyl’s intelligent process automation technology docAlpha.

docAlpha is a digital transformation platform upon which Artsyl has built its accounts payable automation solution InvoiceAction. InvoiceAction drives AP automation, processing any number of diverse invoice document formats using built-in generic knowledge as well as self-learning knowledge of new document types. With a hybrid data and capture and document processing logic derived from generic and self-learning knowledge, InvoiceAction is able to perform straight-through vendor invoice processing including the capture, extraction, validation, verification, and export of the final approved invoice data and documents to the client’s Laserfiche document management system.

Tight integration with Laserfiche means extracted invoice details including metadata from Artsyl’s intelligent automation workflows is used to automatically index and file documents in Laserfiche. The company has realized considerable cost savings from eliminating manual effort for most of the jobs in accounts payable, with a whopping 95% elimination of manual data entry work. As far as impact is concerned, consider this: Artsyl’s InvoiceAction for AP automation has made possible hands-free process automation and enabled CANAC to accelerate vendor invoice processing from 2 weeks to 2 days. If we are to equate that in terms of daily manpower costs and operating time, it is a significant achievement.

Now, when it comes to a small business, like for example, Upper Grand District School Board, which is tasked with processing around 5000 vendor invoices annually, their utility billing challenges seem insignificant compared to those of CANAC’s. However, the inefficiencies and process latencies that set into the AP system from manual data entry work delay AP processing by weeks, lowering any chance of making early payments or securing discounts. The workload of manual AP processing is as cumbersome and unproductive in a small business as it is at a large corporation.