End-to-end accounts payable processes are the closely linked operations required to capture, verify, reconcile, approve, and pay every invoice your company receives.
Why are these processes important? Because your company most likely receives hundreds, if not thousands, of invoices a quarter. That means even relatively small improvements to how each invoice is handled can scale up to big gains in speed and process efficiency.
In this blog, we’ll take a closer look at why so many companies are looking to better connect individual links in their accounts payable processing chains through increased automation. We’ll also outline the five essential steps typically considered to make up an end-to-end accounts payable implementation.
We’ll finish by considering three trends driven by increased automation and integration of AP processes and how these could potentially benefit your business.
End-to-End AP Processing and Your Business
Ever shorter lead times and just-in-time low-inventory ordering systems are forcing businesses worldwide to tighten their supply chains. That puts increasing pressure on the business-to-business (B2B) payment systems, and the accounts payable (AP) departments responsible for processing an ever-growing number of invoices.
It shows. While business is moving faster, average invoice processing times in the industry remain stubbornly slower at more than 10 days. And while front-end managers are under pressure to slash delivery and fulfillment expenses, the average cost of processing a single invoice from a supplier remains well above $10.
Back Office Blues
The B2B payments system also remains heavily reliant on paper invoices and payments by check, even though most of the payments are sent to established providers who supply the same product or service repeatedly.
These challenges are only making a long-term shortage of trained, experienced accounting staff even worse. In fact, the cost of staffing and supporting a traditional accounts payable office continues to rise, even as companies are looking to draw down their support infrastructure and limit on-site operations as remote and hybrid work models take hold.
It’s no surprise then that companies have been rethinking how they handle payments for some time now. Many had already begun making piecemeal changes even before the pandemic tore up the playbook on customer and supplier relationships.
The Automation Challenge
There is now a renewed focus on rethinking AP processing end-to-end as well as taking advantage of opportunities unlocked by smarter scanning, digitization, document-handling technologies, and data-management systems—many powered by emerging artificial intelligence capabilities.
There is also an increased awareness of the strategic value of payment data itself for optimizing cash flow, identifying potential savings, and even building closer relationships with key suppliers.
While the future looks bright, the present can seem daunting. Many AP departments remain in a technological middle-ground, where they are moving to embrace electronic billing and payments systems and automated handling, but are still heavily dependent on manual handling and paper-based reviewing, processing, and storage.
Many are looking at major capital investments in dedicated digitization and payments processing technology as well as the cost and disruption of retraining staff and trying to rethink a core business process on the fly.
Call in the Professionals
For this reason, many savvy businesses are seeking out an AP automation partner rather than choosing to go it alone.
While outsourcing a core business function like payments processing may seem bold, working with an experienced AP managed services provider like ILM Corporation allows you to rethink your AP process from end to end while limiting risk, capital expenditure, and disruption to your critical revenue-driving operations.
Let’s take a closer look at how an end-to-end process of accounts payable system typically functions and how increasing automation and smart analytics are changing the AP landscape.
The End-to-End AP Processing Model
Payments processing touches many parts of your company. Here’s the route a payment order takes from invoicing to final payment.
1. Capture
Invoices typically arrive in any one of a range of formats including paper mail, email, fax, or uploads to an electronic payments system. The first step of any AP process involves capturing the invoices into a single, standardized electronic format, such as PDF
Capture of paper documents should ideally be done by a high-speed automated handling process. While manual entry is often the norm in many companies, AI-powered systems are now cheaper, faster, and more accurate than human operators. The best systems make use of AI, optical character recognition, and machine learning technologies for maximum accuracy.
2. Data Extraction
The information contained in scanned invoices is only accessible once it is extracted and digitized. Data extraction software identifies and classifies data into usable categories including dates, order numbers, amount due, line item details, and vendor contact details.
AI is being used to make data extraction systems increasingly capable, but most systems still rely on a combination of human verification and machine learning. Still, automation of data extraction saves AP staff thousands of hours of tedious labor and frees clerks to handle higher-level tasks.
3. Matching Purchase Orders
Matching each invoice to a purchase order (PO) generated by your procurement department adds an additional layer of security and control to your AP. PO matching is widely considered an accounting best practice but it requires an additional point of integration with your existing procurement processes.
Invoices that fail to match with a PO or other records that goods were received or services were performed generate an exception that needs to be checked and reconciled, usually by a human. AI-driven software is increasingly adept at solving exceptions unassisted. Today’s top-performing systems can match 90-95% of invoices without assistance.
4. Autocoding to General Ledger Chart of Accounts
Autocoding replaces the laborious hand coding of your invoices by accounting clerks. Automated systems need to be able to recognize and invoice line items to the correct chart of accounts to ensure proper record-keeping and compliance with accounting standards.
But high-quality autocoding offers more than just a step change in productivity in your AP department. Digitizing your payment information makes it available to increasingly sophisticated business analytics software which can help spot valuable cost savings, optimize your spending and payment patterns, and spot opportunities that might have remained under the radar.
5. Payment Disbursement
Once payments are reconciled with POs and recorded in the correct ledger they can be signed off by an authorized payments manager and dispersed to suppliers via paper checks, ACH payments, or wire transfer.
Payment automation allows you to preauthorize payments to regular suppliers and sign off quickly on batch orders. It also allows you to fine-tune when and how you pay so you can take advantage of early payment discounts, and keep more cash on hand for longer, where it can earn you valuable interest.
AP Automation: Challenges and Opportunities
Seamless end-to-end integration looks great on paper but reality is always messier. Every implementation comes with its own unique set of challenges but can also open up new opportunities to improve cost efficiencies and improve performance across your entire organization. The following are some common examples of both.
Challenges
Getting indexing and ledger coding right: Automated, intelligent systems are increasingly good at recognizing and extracting pertinent data from image files, but every project throws up difficult edge cases, especially where one or more legacy systems are involved.
Integrate or ring-fence?: Building an end-to-end automated AP system may involve difficult decisions about integration with existing inventory control, financial ERP, and even HR systems. While deeper connections with your procurement systems will make PO matching easier, too much access to your payments system may risk security or just make your system more complex than it needs to be.
Opportunities
Get cozy with suppliers: End-to-end AP automation makes it possible to include suppliers in your ordering and payment so they can plan their own purchasing and production. There’s a real opportunity to turn solid relationships into tighter, smarter supply chains that can respond faster to shifts in demand or supply shortages.
Smarter cash under management: End-to-end AP automation is about a lot more than simply paying up faster. Processing payments quicker lets you avoid late payment fees or interest on accounts, but it also lets you choose exactly when you pony up your cash.
Business analytics: Strategic payment management is just one way you can leverage the information your AP system harvests. ILM Corp can help you integrate payment data with other sources of information, so you can predict patterns of demand or seasonal cost increases.
Empowering the dispersed office: Automation can help you lay the groundwork for shifting to a hybrid or fully remote work model. Digitizing payment information and making it accessible online allows more of your staff to work from anywhere, especially if your ERP systems are also remote-accessible.
Additionally, automation also reduces your AP staffing footprint while outsourcing your end-to-end AP operations saves on-site space. In addition, full-service providers like ILM Corporation offer managed storage and archiving services, so your data is available whenever and wherever needed for tax and compliance audits or business analysis.
ILM Corporation: Your End-to-End AP Services Partner
ILM Corporation is one of the leading providers of end-to-end outsourced AP services to companies, government agencies, and nonprofits. We’ve worked closely with hundreds of clients to develop tailored AP processing solutions that help cut costs and reduce risk.
Don’t try to swallow the end-to-end automation elephant “in one gulp.” We offer flexible, tailored outsourced AP services to deliver the processing power and systems integration you need.
Let us help you de-risk and optimize your investment in the end-to-end AP processing capabilities you need to improve productivity and cost-effectiveness. ILM Corporation offers:
- Off-site managed services including digital mailrooms, invoice processing, plus storage and archiving.
- Advanced scanning, plus indexing and reconciliation systems that are powered by optical character recognition and AI technology
- Value-added services, including tailored processes, out-of-the-box integration with most ERP systems, and business analytics.
Click below to learn how we can help you get more out of your AP operations.
