Efficient invoice processing is central to accounts payable (AP or A/P) teams’ stewardship of business cash flow. Where AP can optimize the invoice-to-payment cycle it enables organizations to take advantage of supplier discounts, maintain positive vendor relationships and strengthen their financial position through prudent management of liabilities.
Unfortunately, many businesses still rely on a manual process for some aspects of their invoice processing — from receiving, entering and verifying invoices to getting internal approvals or resolving discrepancies. For some, a supplier invoice still means a paper invoice. As businesses grow in scale and complexity, a manual approach becomes increasingly impractical, slow and expensive.
Which is why automated invoice processing solutions are increasingly popular. In this article we explore automated invoicing, its key benefits, implementation best practices and the transformative impact process mining can have on such automations.
Also known as "touchless invoicing," automated invoice processing refers to the use of specialized technology and invoice processing software to streamline and automate the workflow (or elements of the workflow) for handling supplier invoices.
Automated invoice processing software is used to automatically (and often autonomously) perform low-value, manual accounts payable processes. The scope of automated invoice processing can range from individual AP tasks (like extracting and inputting invoice data or matching invoices to purchase orders) right up to the automation of entire invoicing workflows.
The automation of these tasks — saying goodbye to some or all manual invoice processing — frees up accounts payable team members to concentrate on higher value, more strategic work that genuinely needs their expertise.
Automated invoice processing is something of a broad, catch-all term. So in which aspects of the invoicing processes can automation make the biggest impact, and what are the measures by which its success should be judged?
Aspects of the invoicing process that are commonly automated include:
Receipt and categorization of incoming invoices — simplifying the handling of diverse vendor invoice formats into a unified categorized workflow, eliminating the need for individual scanning and data capture.
Streamlined routing of invoice approval — efficiently directing invoices to the appropriate approver (this is often supported by one-click validation for enhanced efficiency).
Expediting invoice data entry and validation — reducing manual data entry and mitigating the risk of human errors.
Automated invoice matching and verification — seamlessly associating invoices with purchase orders and accompanying documents, removing manual bottlenecks.
Facilitating general ledger coding — ensuring that the information from supplier invoices gets quickly and accurately entered into the business’s general ledger system.
Successfully implemented, invoice processing automation can generate significant business benefits. As an indication of the size of the AP efficiency prize, Celonis discovered that the average company spends upwards of $15 to process a single purchase order, while the most efficient organizations spend just $1.35. Multiply that differential by your thousands of purchase orders…
In fact there are a number of relevant KPIs against which you can measure the business impact of your automated invoicing that are worth monitoring:
Days Payable Outstanding (DPO) — a key strategic KPI measuring how long a company typically takes to settle its debts, with a higher DPO indicating longer payment times and more cash on hand to invest.
Touchless Invoice Rate — the percentage of your invoices processed without need for human intervention (stellar performers in this category achieve a rate of around 85%).
Paid on Time Rate — while early payment ties up cash reserves unnecessarily, late payments risk fines, so monitoring the timeliness of your payment processing is a useful measure.
Cash Discount Realization Rate — the percentage of invoices paid at beneficial rates negotiated by your business (the most efficient businesses capture around 80% of their cash discounts).
Cost per invoice / PO — a measure of an AP team's efficiency at processing invoices.
Invoice Processing Cycle Time — the average cycle time from invoice receipt to payment transmission is a good measure of accounts payable workflow efficiency (particularly if you measure it before, during and after automation).
Duplicate Payment Rate — the percentage of duplicated payments (usually as a result of vendor error, the impact of multiple business entities or occasionally fraud).
With business benefits achievable across each of these KPIs, invoice process automation can make a real difference to an organization’s financial performance.
In all likelihood your business has implemented some degree of automated invoice processing already. Ever run macros in accounts payable spreadsheets? Ever used Optical Character Recognition (OCR) software for data extraction or to ‘scan in’ invoices (as we used to say)? These are forms of automated invoice processing.
The point is, AP automation has a spectrum of sophistication, use cases and deliverables — it doesn’t have to be big or scary, nor does it have to start with robotic process automation (RPA) or intelligent workflow automation.
It’s down to business leadership to determine where, how and in what form the greatest benefits can be gained from touchless invoicing. Here are some tips and best practices to help you shape this journey:
Prioritize. Be absolutely clear on what invoicing or accounts payable issues need to be overcome and why (the specific business benefits of a successful implemented automation initiative). When you have this what and why, you can shape your invoice automation strategy and implementation around the how. As tempting as sunsetting manual invoice processes may be, automating your AP without a complete end-to-end view of your entire process could be counter productive. No-one wants to automate broken or inefficient processes. Process mining, especially solutions that use object-centric process mining (OCPM), provides a 360° view of your processes.
If you’re unsure where to start or how to prioritize the invoice process automation, go back to basics. Consider which are your most time consuming, manual invoicing processes. Then think about your most straightforward requirements for improvement. And start there. Celonis has outlined six of the most common accounts payable invoicing challenges that might help orient your starting point.
While automating invoice processing is an AP project, its success relies on cross-business support. It’s particularly important to tap the expertise of IT teams when building the automation strategy, which will also generate their buy-in. Their technical know-how, including the number, configuration and sophistication of any Enterprise Resource Planning (ERP) systems you’re running, will help inform the optimal type, scope and speed of automation.
Process mining can significantly improve the impact and likely success of invoice automation initiatives by giving you solid data on which to validate any execution gaps. It turns event log data from your own transactional systems into a high-definition MRI of your business processes, systems and functional interactions. It shows you how your AP function actually runs (not how it was designed to run), evidencing where your greatest invoicing inefficiencies exist and the greatest opportunities for improvement.
Beyond this, however, simulation analysis in process mining also provides insight into the likely business-wide impacts of different process automations — before any changes are actually made with accounts payable. This level of actionable insight provides a robust, data-driven framework for your invoice automation strategies, taking gut feel out of the equation.
In addition to framing the strategy, process mining can also provide real-time reporting on business conformance to, and the KPI performance of, the newly automated processes.
Today, many businesses are achieving the automation of invoice processes as part of broader, more strategic digital transformation and process excellence initiatives. They’re using process mining platforms, like Celonis, to generate the necessary business-wide insights to highlight the most valuable processes to automate…and then automate them.
The Celonis Duplicate Checker identifying duplicate invoices.
These platforms can provide bespoke apps that sit as intelligent layers on top of companies’ accounting systems’ data to produce key reporting and automations. For example, the Celonis accounts payable solution offers a Duplicate Checking app that uses machine learning to identify potential duplicate invoices, allowing users to review them and prevent unnecessary payments, with an option to automate payment blocking.
And because this sort of platform is built on process mining’s end-to-end picture of business wide interactions, specific automated invoice processing programs can be folded into the achievement of strategic business goals.
Real-world results of this approach have been impressive. Since the implementation of the Celonis platform, metals and energy giant Hydro now has close to half of its invoices genuinely processed without a human touch. Similarly Deutsche Telekom saved €40M per year by achieving a Cash Discount Realization Rate of 96% (on top of the €12M savings from major increases in touchless invoicing).
The tech now exists for organizations to slot invoice automation into ongoing programs of process improvement — to find and fix invoicing anomalies automatically. And then do it again. And with advances in machine learning and artificial intelligence bringing greater accuracy and impact to automations in the accounts payable process, these are exciting times.