I was recently shocked to read that CPA Practice Advisor reports only 10% of accounts payable (AP) operations are fully automated. I’m not sure how this is possible when we’ve been offering digitization and automation to AP teams for years. But, I do know that this represents a huge business opportunity. In fact, the AP automation market size was estimated at $2.9 billion in 2021 and will grow to $7.13 billion by 2030.
Many areas of the business have adopted digital records and automation more quickly than AP teams. However, the rush to work-from-home (WFH) during the pandemic pushed AP to digitize invoices and streamline approval processes when employees balked at the need to come in to the office to print checks. Digital invoices are easier to work with and offer better data security as well. When digitization is paired with automation, it offers significant time and efficiency savings in the highly routine and rules-based AP process.
Are you leaving money on the table and denying your customers desperately needed process efficiencies by failing to automate their AP processes when you digitize their invoices? If so, the current economic climate is driving demand for automation at record levels, and AP is a great place to start helping customers with their efficiency goals.
Down economies cry out for automation
Economists expect continued slow growth throughout 2023, with a potential recession in 2024. Given the layoffs and cost-cutting already going on in many organizations, it’s an ideal time to talk automation with your existing customer base and to update marketing and sales language to pitch automation with every new digitization deal. Why?
Any automation is beneficial in slow economies, because it speeds processes and better uses employee time. Fewer manual tasks means more accurate data (which is especially critical for accounting), reducing exception handling. Overall, automation reduces the cost of doing business. Plus, embedding automation in your customer base is a good hedge against declining revenues that may surface in other areas of your business this year. Digitech Systems CEO, HK Bain points out, “Companies lay off people, when they need to reduce costs. They don’t lay off systems.”
How much can automation benefit AP? The Institute for Finance and Management (IOFM) says more than half of invoices are still being processed from paper, and roughly 70% of AP costs come from document handling and manual data entry. According to their experts, AP automation reduces the average cost of processing each invoice from $11.76 to just $5.46 (a 53% cost reduction).
If your clients need automation but are hesitant to invest in new technologies, consider the following from Harvard Business Review: “Cost cutting is necessary to survive a recession, and investment is equally essential to spur growth. Companies that focus simultaneously on increasing operational efficiency, developing new markets, and enlarging their asset bases show the strongest performance … .” If they choose not to invest in necessary technologies, they’re going to fall further behind more growth-focused competitors.
What is a typical AP process?
Every business has bills to pay, so many of you are familiar with how invoice processing works. For those who may not feel confident in this area, here’s a quick primer on the basic steps for accounts payable. (If you’re an AP expert, forgive the details I’m leaving out.)
Step one: Invoices are received primarily through email but also via physical mail and digital invoicing systems as well.
Step two: Any invoices that are received on paper, are scanned so they can be processed alongside their digital-native counterparts. Invoice details are then hand-keyed into both information management and accounting applications.
Step three: Invoices are verified. In a process known as a three-way match, invoice details are compared against purchase orders and goods received receipts to ensure all three match and the company is being billed only for goods and services they actually received.
Step four: Once accounting is confident invoice details are accurate, they begin the approval process. For SMBs, approvals usually include the department head for the team who made the purchase and the company CFO, but they may involve many layers at larger organizations who often put spending limits on the dollar amount different leadership levels can authorize.
Step five: Checks are printed and mailed or electronic funds get transferred to vendor accounts.
Critical AP automation technologies
When automating AP processes, four technologies are critical. Make sure you’re confident in your offerings in each of the following areas.
First, intelligent capture enables invoice details to be extracted from both digital invoices and paper invoices as they are being scanned. Typically enabled through Artificial Intelligence (AI), these products eliminate the need for manual data entry of invoice details, saving clients significant time and dramatically improving the accuracy of financial records. Some will even sort invoices by vendor or amount for further classification within the ECM.
Second is your core information management system or enterprise content management (ECM). For AP processing, I recommend paying close attention to the vendor’s track record of information security and the flexibility of user permissions/user security options. One of the basic rules of accounting is that financial information should only be available to individuals who absolutely need to see it to perform their jobs, so security and access are critically important for this market. Given the move to WFH and hybrid work arrangements, I wouldn’t recommend you pitch any on-premise information management systems. Start with cloud, and offer software only when the customer requires it.
Basic workflow, sometimes called business process automation or BPM, is the third critical product needed in your tech lineup for AP. Workflow essentially automates the routing of documents within an information management system. For AP, this is most helpful for approvals, which can be set up to route to different individuals using rules for vendor, amount, and other factors that may impact who needs to sign off on spending. The best workflow applications offer visual design tools, so you can see the flow of steps through the entire process on one screen. Good systems also allow you to save “templates” for common business processes so you don’t have to start from scratch for each new customer.
Finally, some customers will find additional value in robotic process automation (RPA) technology. For invoice processing, RPA streamlines information sharing between ECM and accounting applications and can even automate three-way match with purchasing and inventory systems. These software robots act as digital coworkers, performing tasks that were previously manual and allowing teams to reassign human workers to more value-added and meaningful work.
One final note: To simplify your vendor relationships and the amount of time devoted to maintain them, I highly recommend you find a single vendor who offers all of these capabilities. Natively integrated products experience fewer glitches than solutions cobbled together from multiple brands, and you’ll spend less time with frustrated customers as a result.
As an industry, we’ve been talking about invoice digitization for decades. If you stopped there for your clients, it’s time to take the next step into AP automation. The huge market and current economic climate make this an attractive opportunity for 2023 and beyond.
Christina Robbins is Vice President of Communication Strategy and Marketing at Digitech Systems LLC, one of the most trusted choices for intelligent information management and business process automation worldwide. Celebrated by industry analysts and insiders as the best enterprise content management and workflow solutions on the market, Digitech Systems has an unsurpassed legacy of accelerating business performance by streamlining digital processes for organizations of any size. For more information visit www.digitechsystems.com.