Accounts Payable Automation

Some companies are automating only parts of the process – such as using Optical Character Recognition (OCR) to recognize characters in paper invoices, or workflow to move the invoice through the handling and review/approval process. But the reality is that true automation must include all of that.

So, imagine receiving an electronic invoice that is automatically coded and entered into your invoice automation system, and gets routed through an electronic workflow that generates reminders for reviewers and enforces

compliance of your policies – such as who can approve invoices and at what financial thresholds. Imagine PO-matched invoices being passed straight through – without human intervention – to the ERP system for processing. Then, AP staff would just handle exceptions and have time to focus on other, more strategic activities.

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AP automation should not just be considered as an IT-only project. Finance and AP departments should also be involved to lay the groundwork for success. When these departments all work together effectively, implementation typically becomes very smooth and straightforward.

Before you automate, you should review the AP process and see how it can be optimized. On the right, there are 3 process development tasks that can help you improve AP operations – regardless of whether you automate or
not:

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1. Carefully review your AP process, with a focus on enhancing and streamlining operations.

2. Determine the best, most efficient way to organize and divide invoice processing activities.

3. Plan how you will implement controls and compliance over the entire process.

Take a look at your process. Really, take a long, hard look. What isn’t working? What needs to be changed? Are you duplicating work? Or are you struggling with an inefficient workflow?

Before trying to automate everything, stop and think about why a task is being performed in the first place. If the task is unnecessary, then you should just stop doing it – which would not only streamline the process, but also avoid the unnecessary time and cost of automating it.

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Also, consider how often you should be performing certain tasks in the process. For example, paying purchase invoices five times a week is inefficient and time-consuming. Each time you process an invoice you have to log into the software; prepare the payment batches; and check, approve and send payments.

If you were to handle a large number of transactions at once and send payments only twice a week, the workload would immediately be reduced by 60% – and your vendors would still get paid on time and never notice the difference!

"Stop and think why a task is performed in the first place."

– Sanna Kaarlejärvi, CFO, Dooap

1. Centralized processing enables mass handling, which is always more efficient than handling single transactions, since getting started always takes more time. Centralized processing helps to effectively identify repetitive and recurring events which can then be automated. If an approver only handles one or a few invoices a month, there is not a lot of motivation to improve efficiency. However, when the AP team handles 20 or more similar invoices per month, there is a clear benefit to improving the invoicing process.

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2. Centralize invoice coding and tax operations with the finance team. This is where the experts reside who are trained and experienced in bookkeeping and taxation. Coding purchase
invoices in the approval workflow can be burdensome for invoice reviewers across the organization, who typically view it as a difficult, boring task that gets performed under pressure, as the invoice due date approaches. They often code an account based on a guess or the (possibly wrong) coding of a previous similar invoice. When coding is centralized in the finance department, not only is the quality of bookkeeping improved, but the cumulative time spent on coding is reduced as well as the time to process invoices.

3. The number of invoices requiring approval can be greatly reduced by matching them against POs and contracts. Some companies route these matched invoices to the reviewer and approver to keep them informed of the cost – even though there are no discrepancies. Consider a company that routes telephone bills to every department head so that they are aware of – and can control – the charges booked to their cost centers. Processing an invoice this way is very costly, and can result in delays that can cause late payments and penalties. A better process would be to centrally approve the invoice to be paid, and make sure that all business units are informed of it in their cost reports so they can keep telephone costs within agreed-upon limits.

Control and compliance is a critical concern of all organizations.
Consider the internal policies that you need to implement to effectively control AP and avoid fraud. Do you need to have two approvers on invoices of a certain dollar amount? Who can add new vendors? How are duplicate invoices identified? How are exceptions reported and handled?

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Now, think about where you’re conducting business and all the regulations that you need to comply with in all of these areas – e.g., VAT taxes, SOX, 1099, GAAP etc. These can be built into your automated system. And, by implementing strict controls, you also help deter fraud.

Structured data

This type of data – which is found in spreadsheets for example – is structured in a way that makes the information easily searchable by an automated system.

Unstructured data

This is raw and unorganized data that lacks a basic structure, which makes search and information retrieval difficult. Text files, PDF, emails, social media and

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audio and video files are common forms of unstructured data.

Why does the data structure matter?

The processing system needs to receive
invoices in a structured data format in
order to automate invoice processing.
If the data is unstructured, you need to
manually input it into to a digital format
or use Optical Character Recognition
(OCR) software.

1. Paper invoices

Unfortunately, we are all too familiar with paper invoices and many AP departments are buried underneath them. These paper invoices can easily get misplaced, or lost, which can result in late payments and penalties. On top of that, processing paper invoices is very inefficient. Because these invoices contain unstructured content, AP staff
must spend a lot of time manually inputting the invoice data into a digital format for processing, which introduces the risk for human error. In short, paper invoices take too much time, and the faster you can move away from them, the better.

2. PDF invoices via email

PDF images of the invoice sent by email are a slight step up from paper invoices because they cannot be altered, reducing the potential for fraud. When they are sent by email they also have a slightly lower chance of getting lost. But, these invoices also contain unstructured data, so AP staff still needs to spend the time capturing and inputting the data into their processing system, and that has the same problems associated with manual processes.

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3. EDI

Because the data in EDI is structured, it reduces the need to
capture information from the invoice image. However, because EDI connections are usually set up pointto-point and the information is not complete, buyers and suppliers alike
must pay attention to the contents and mapping so the data is being received in the correct columns.

4. E-invoices are the ideal invoice
format.

An e-invoice contain the actual image along with structured XML information that a company needs to process the invoice through an automated system. While there are multiple e-invoice formats available, the network operators that deliver e-invoices between trading partners take care of mapping between different formats, so companies can always
receive the invoice in the format that best fits their needs.

Own

Optical Character Recognition (OCR) software recognizes characters in paper and PDF invoices. It is typically based on recognizing key words and teaching the software where the data
lies in different invoice templates. However, teaching the OCR itself and employees to use it takes a lot of time and resources. And to maintain the level of quality high, manual validation is required.

Rent

Capture as a Service (CaaS) – This is essentially the same as owning the software, but it outsources the process,
and frees up the company from having to complete the time-consuming work. Service providers focusing on CaaS have already built the invoice templates and taught the software – for years. This means that you get to reap the benefits
of high-quality data capture immediately and focus your time on more strategic tasks.

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Regardless of which of the two approaches you use, you need to
re-examine the cost-rewards benefits behind it. Having OCR technology in-house is not part of most AP departments’ core competencies and might not be a smart investment since
paper and PDF invoices, which are on the decline, may ultimately be phased out.

Structured data content is at the core of effective invoice automation. Because of the time and cost savings, decreased errors, and greater control over payments that e-invoices deliver, it’s worthwhile to put in the time now to transform your paper invoices to e-invoices.

You will need to work with your suppliers to help them transition to e-invoices. And you can educate them on how e-invoices enable faster processing, and potentially faster payment.

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By doing this, you not only improve supplier relationships, but you will also achieve greater internal customer satisfaction with the AP department, which will be free from the manual, time-consuming processes and can now focus on more meaningful, strategic activities.

Once you create e-invoices, a whole new universe of options is available. You can send and receive e-invoices
instantaneously anywhere around the world through the many, often interconnected invoicing networks. It not only makes everything transparent, but it also dramatically speeds up the entire process.

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And don’t forget, you’re not only a purchaser but you’re a supplier as well. You can also make changes in your
Accounts Receivable department to make sure you are sending e-invoices to your customers. That way, you’re not only doing the right thing and paying it forward, but you’re also helping to speed up the process when you get paid. After all, e-invoices offer a win-win scenario.

Why not automate the entire
process?

Some companies are just automating a partial process, like OCR (Optical Character Recognition) to recognize the characters in an invoice. While they will save some time and gain some efficiency, it’s minimal compared to what they could achieve by automating the entire process – from beginning to end. But, by going to the cloud, you can take a holistic approach and automate OCR, workflow, coding and matching, all with a solution that is seamlessly integrated with your ERP, to maximize your business benefits. That will provide greater efficiencies, reduce errors and streamline the invoice handling process.

No more headaches

A key benefit of end-to-end automation is that you always the access to your master data that you need for approval workflow, including coding and matching. Your vendor register, chart of accounts, sales tax codes,

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POs, product receipts, and more are all maintained and available in real time on D365/AX. This not only avoids
the headache of duplicate data, but it also supports a streamlined and faster invoicing process. For example, the
goods received can be authenticated in real time from the master data, enabling POs to be quickly matched to invoices.
And, as part of the Microsoft ecosystem you have easy access to Azure Storage and can take advantage of Azure AD.

A safe pair of hands

What does this mean for IT? It means that it is as easy as possible. There are no integrations to worry about, and future D365/AX upgrades can go smoothly without problems caused by broken integrations.

IT doesn’t have to spend much time or many resources on deployment, since it only has to connect the solution – which automatically integrates to the master data – and add a few accounts. Together, these tasks would take only a few hours vs. the days it would take to deploy an on-premise solution. Streamlining your implementation is as easy as 1-2-3:

1. Keep it simple. Try to avoid
customizing your D365/AX
system, so upgrades will be more

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straightforward. It’s important that the AP automation solution you choose is compatible and validated by your Dynamics partner and Microsoft.

2. Use the master data in your D365/AX system. It’s easy when all your data is maintained and available in one central place.

3. Implement your AP automation through Microsoft Lifecycle Services (LCS).

System Maintenance. IT doesn’t have any new responsibilities for maintaining and monitoring AP automation. Updates are made
automatically to the AP automation system through LCS, requiring minimal IT involvement, and they don’t affect D365/AX system operations.

Security. When the data is in the cloud, it is protected with D365/AX security, so no additional security is needed.

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Uptime. AP automation is covered by the Microsoft Azure SLA, and is housed in the same data center with the same uptime as D365.

Support. IT does not need to take on any additional support responsibilities since the invoice automation system is implemented as one package in LCS, which provides a standardized way to deliver D365 extensions. With responsibility falling almost entirely on the AP department, the role of IT is even less than it is for implementation.

When you upgrade to a newer version of D365, it’s as easy as it can be. You simply get a new plug-and play compatible version of your AP automation software from LCS in the cloud.

And, even a major upgrade from AX2012 to D365 is easy because LCS automatically delivers compatible versions to the invoice automation system. Similarly, upgrades – or any D365/AX customizations for that matter – won’t impact AP automation in the cloud. You can continue using your automation system seamlessly as always, and the user interface will look and feel the same. The upgrade takes minimal IT time and resources

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When you purchase your AP automation solution, make sure it’s compatible with D365/AX so you can avoid the time, effort and cost of customizing it. But if you do require customization, you can outsource any compatibility issues to your ISV.

Security and support. No additional security or support is needed because everything is implemented through LCS.

While IT and the AP department would work together on an upgrade, the role of IT is minimal.

Let’s face it, people often resist change. We are all creatures of habit, and how people react can be a key factor in whether or not a new technology will be successful. Even with the best, most advanced technology in the world, if people don’t use it, or don’t use it correctly, then the value of the technology can’t be realized.

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Making the move from manual processes to automation can feel like a big change. But if you can get users on board, you can make the transition smoother

1. Engage Users Early and Often

Help users see what automation will mean for your organization. Before you talk specifics, talk about the “why” – why you are introducing new technology and processes, what you are hoping to accomplish, and what problems you are trying to overcome. You need to explain how this will make the life of AP professionals easier and better.

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2. Establish a Sense of Trust

It’s important to gain the trust of users. AP staffers need to feel confident that the new system will work well and will provide valuable benefits. They need to know that they can rely on the system, and that their documents will be kept safe and accessible in the digital archives.

Trust comes from knowledge and understanding. Set up system training so your staff can learn how the system works and its functionality. And, provide opportunities early on to allow them to jump in and experience automation for themselves. This will go a long way to getting them on board.

3. Explain What the Change Will
Mean for Them

With any type of change, users want to know what it will mean for them. Make sure you address that issue so they know what to expect.

AP automation primarily impacts the following stakeholders:

AP and financial management personnel. As automation makes paper-based processes and timeconsuming routine tasks become a thing of the past, it changes how AP and financial professionals work and what they do. Now, these professionals can use their time to focus on exception handling and provide better service and support to the greater organization. You can help them by making user interfaces and processes as easy and streamlined as possible to improve their user experience.

Invoice reviewers and approvers across the organization. While reviewers/approvers only deal with invoices periodically, they can be an unwelcome interruption to their work. Try to simplify invoice review and approval so these professionals can focus on their core responsibilities instead of financial management.

Here are six tips for simplifying automated invoice review and approval:

1. The easier invoice approval is, the better results you will get. Automatic matching and approval of PO-based invoices will reduce the number of invoices you need to handle. It helps if the system gives approvers an easy view into previous invoices from the same supplier or the same category.

2. Make sure the system offers mobile capabilities to support remote work.

3. Offer automatic approval of contract based invoices.

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4. Route only invoices that require approval before payment (avoiding, for example, intra-company invoices or consumption-based invoices).

5. Handle minor purchases within the travel expense process.

6. Avoid splitting approvals between several persons.

E-invoicing is one the most important initiatives impacting Accounts Payable and Finance today. By allowing businesses to get rid of paper and manual-based processes that are costly, error-prone and slow down operations, e-invoicing can provide tremendous efficiencies and cost savings, while enabling payment processes to become more strategic. In short, it can revolutionize the way invoices are sent, received and managed.

While there is still much work to be done, countries across the globe are making strides in the adoption of e-invoicing. The EU, for example, passed the European e-invoicing Directive, requiring public entities to be prepared to receive and process e-invoices as of April 2019.

In the U.S., three federal departments – the Department of Veteran Affairs, the Department of Defense and the U.S. Treasury – are implementing invoice processing systems. The Federal Reserve has established The Business Payments Coalition and its e-Invoice Work Group, to promote B2B e-invoicing, among other goals.

A key part of these initiatives is to establish standards, which are critical to widespread adoption. Currently there are many different standards, which makes it difficult to conduct business. There are even different definitions of what an e-invoice is. While some may think PDF invoices are e-invoices, they are not. True e-invoices are transferred electronically in a machine-readable format, which requires invoice data to be sent and received in a structured format, such as XML.

As e-invoicing takes hold, it will open up greater opportunities for automation, freeing up AP staff to focus on exception handling, provide better service for their organizations and enable them to take on more strategic activities.

In recent years, Robotic Process Automation (RPA) has gained a strong foothold in a variety of industries, since software robots are well suited for repeatable, rules-based, labor-intensive tasks. Adoption of RPA technology will likely grow as organizations use it to handle more of these tasks to gain increased efficiencies and reduce costs, while increasing their level of automation.

Because Accounts Payable operations are rule-based, they are ideal for implementing RPA. By allowing software robots to handle the time-consuming and burdensome routine tasks, such as PO matching and invoice coding and routing, AP staff is freed to focus on more strategic activities, such as reporting and forecasting, which can have an impact on the bottom line and better serve the larger organization. In addition, by no longer requiring AP staff to handle tedious tasks, RPA can help improve overall job satisfaction.

Along with RPA, Machine Learning and AI will become widespread over the next several years and have a profound impact on our work, enabling us to achieve things that not too long ago seemed impossible.

Machine Learning enables systems to learn by themselves, for example by observing human actions or by studying historical data, continuously making the software more intelligent and accurate. In AP, for example, an invoice management system could review historical invoice data and make suggestions to an AP professional about how an invoice should be coded. Or better yet, if the system is able to predict the correct coding or routing with enough accuracy, increasing amounts of invoices could be automatically handled as the machine learns.

Machine learning falls under the larger area of Artificial Intelligence (AI) – intelligent systems that can mimic human behavior. Common examples of AI include speech recognition, learning, planning and problem solving. So, while machine learning allows systems to learn based on available data, more advanced AI, or Deep Learning, takes it to the next level. Machines equipped with such advanced AI technology are capable of cognitive thinking, enabling them to learn, work, and react like humans.

Future developments in AI will deliver greater benefits. For example, AP professionals could speak to an invoice management system that incorporates AI, and the system would not only understand but also be able to respond verbally. Or, for example, an AP clerk could tell the system to handle all the invoices from a certain supplier automatically. While we might imagine that these intelligent machines are still years away, the future might be closer than we think.

As consumers, we’re all used to the simple, intuitive and beautifully designed apps we see on our phones and desktops. Unfortunately, this isn’t typically what we see with business software. Most of the applications we use at work look and feel like a throwback to the 90’s, instead of the 21st Century. And with poor or limited functionality, it is not user friendly or as useful as it could be. But luckily this is about to change.

Companies developing enterprise software have started to realize the role user interface design plays when it comes to user experience and satisfaction. Professionals today are not willing to settle for poorly designed software and instead demand the same kind of usability that state-of-the-art consumer applications offer. Their requests have been heard, and many companies have responded. Microsoft, for example, has focused heavily on the design and usability of its Dynamics 365 enterprise software ecosystem to make it easier and enjoyable for users.

Yet, Dynamics functionality for AP is limited, and AP departments that want to improve efficiency, gain visibility into their invoices and save money are turning to third-party solutions. These solutions, which are making the user experience a key priority, not only make it more intuitive for users, but also increase adoption and discourage workarounds.

A key part of the user experience is being able to access applications on all mobile devices, anywhere and anytime. Unfortunately, business software has lagged behind in this area as well.

Mobility is one of the trends that business software developers need to focus on. We will be seeing more mobile applications that offer excellent usability as well as access to all of the same functionality that the desktop versions offer.

Mobility is particularly significant for AP. With a mobile app, AP tasks no longer have to be tied to a specific time or place. Expect to see invoice automation solutions that offer both desktop and mobile versions with the same functionality, so AP staff, reviewers and approvers can work flexibly and efficiently no matter where they are – even waiting to board a flight. Such flexibility will also help eliminate invoice processing delays and late payment penalties.