Kick-Start Your AP Automation Initiative with This Handy Check List

Automating Accounts Payable Processes

Automating accounts payable processes isn’t rocket science; these days the technologies, systems and practices to achieve a fast return on investment from AP automation is well-established and well documented. For companies that may be late to the automation game, the good news is that the pioneers have blazed a trail that by now is well paved.

Regardless of the partners, vendors or technologies your company chooses when electing to streamline and automate a process like accounts payable, the basic questions remain the same.

The following list of questions/issues to consider early in the process will likely come up again and again as your explore the right options and best solution for your firm.

1. How are your AP Operations Structured (Centralized or Distributed)?

By now, the majority of organizations have consolidated their AP organization and have centralized operations. Industry research confirms that 90 percent of businesses today already maintain a centralized AP department–30 percent of which are organized in a shared-services environment. The economies of scale derived from a centralized AP department are clear: there is no need to replicate the same functionality at different locations or to invest in redundant equipment or personnel.

According The Accounts Payable Network, the single most important practice that should be implemented into a centralized AP department is the centralization of invoice receipt. By directing suppliers to send their invoices directly to AP, the delays inherent to manual handling are eliminated and the foundation is set for the standardization of processes.

Companies that choose to maintain distributed accounts payable operations for any number of reasons should consider ways to standardize systems, practices and policies to ensure visibility across the organization.

Those that choose to consolidate and centralize should focus on drawing from the experiences and practices of each group when defining a centralized process.

2. How long does it take to process an invoice?

The question of how long it takes to process an invoice should be followed by “How long do you think it SHOULD take?”

Industry studies have shown that process and technology laggards generally require 14-24 days or more to process an invoice. The average is 8 to 13 days. Best in class companies are able to reduce that time down to 1-7 days.

According to the Aberdeen Group, AP automation can reduce invoice processing time from 20 days to 3, empowering the A{ “laggards” to jump to the head of the class.

According to the Aberdeen Group, manual invoicing often requires at least 15 steps before posting is complete. A thorough process review and process automation can often cut those steps in half.

3. How Many Invoices Are Processed Per Full Time Employee (FTE)?

This assessment provides valuable insight into overall productivity of accounts payable and defines a company’s ability to scale its operations as the business grows. Employee productivity can vary by size and industry, but on average for a manual AP organization, 50 invoices per day per employee–or a little over 1,000 per month—is common.

According to the Aberdeen Group, organizations with AP automation can process over 4 times as many invoices as those without automation.

Often, the growth or merger of a company that has outgrown its current AP staff becomes the decision point for AP automation. Companies that have gained these levels of efficiency through automation either empower their current staff to handle the increased velocity, or they are able to assign staff members to other areas of the business, dedicating their time to more value-added tasks.

4. What percentage of invoices are paper? What other channels do you rely on for invoice Receipt?

Paper is surprisingly prevalent for many firms—particularly when it comes to invoice receipt. According to the Institute of Financial Operations, nearly 80 percent of companies said that at least half of the invoices they receive are on paper.

Not surprisingly, TAPN reports that as the percentage of paper invoice decreases, the number of invoices processed per FTE increases. But the problem with paper is typically the manual process that most companies rely on to file, sort, extract data and route documents for approval—creating all kinds of inefficiencies, bottlenecks and sources of error.

Data entry mistakes, matching errors, duplicate or even disappearing invoices that result from manual processes drive up costs, cause confusion and create delays. Add to the equation the strategic decision-making implications of inaccurate accruals and the hidden costs of manual, paper-driven processes are too big to ignore.

Thanks to intelligent capture solutions that can extract transaction information from paper invoices, along with digital files, companies can achieve high levels of efficiency, reliability and predictability, regardless of the media or channel by which they receive invoices—so long as they have a well-designed, automated process supported by the right technology.

5. How Many Invoices are PO-based?

According to the Institute of Financial Operations, most organizations report that half to three-quarters of their invoicing is PO-based, though this number varies by industry.

Due to the lack of visibility and spend control associated with non-PO invoices, many companies are finding ways to increase their percentage of PO invoices. PO-based invoices allow for faster processing and greater accuracy because the approvals occur at the front end and matches can be made between the invoice and the PO and the goods receipt.

Smart process platforms can automate the matching process for PO-based invoices, directing them to payment–or, following business rules to route and manage exceptions.

For companies where the majority of invoices are non-PO-based, including service-based businesses (where 90% of invoices are non-PO), automated, rules-driven approval processes can deliver visibility and spend control.

In either case, defining processes for approval, validation and reporting that reflect the company’s practices is key.

For more information about re-defining processes and defining opportunities for greater and efficiency and control through process automation, read the Artsyl 3-part Blog series on defining and managing AP Automation Initiatives.

Open in PDF

Optimize Your
Invoice Processing
with Artsyl InvoiceAction