Read time: 6 mins
Welcome to another edition of the Tech for Finance newsletter where we’re looking at how to think about AP Automation, divided into:
1. When to consider AP automation
2. Team Make-up
3. Workflow & Approvals
4. Invoicing and OCR
6. Example Solutions
[NOTE] If AP automation isn’t on your agenda at the moment, make sure to archive / file this e-mail as you might want to reference it in the future…
AP automation has been getting a lot of attention recently, and I think that’s because not a lot of finance systems don’t do it well out of the box, PLUS, with the cost of EVERYTHING going up. Companies want to have a lot more control over their procurement process.
Having a system that can generate purchase reqs, orders, invoices with built in OCR is one thing.
Having a system that does all of these well, whilst giving you advanced approval mechanisms and complete control over your procurement process is another.
On top of this, the licensing implications in some finance systems, might mean you have to pay for a full price user license even if they’ll only ever raise a purchase order.
I recently did an assessment with a client, where one solution would cost them over £30k a year, just to have 16 people raise purchase orders!? And that was without all of the whizzy stuff…
Generally, there’s a business case to be built for AP automation if:
A) Your procure to pay process is too long and your supplier relationships are at risk
B) You’re raising a lot of purchase orders and invoices and are wanting to better control spend with a more mature approval process
C) You’re manually keying a lot of purchase invoices and wasting productive team time
D) You’ve a lot of internal requests for items like office supplies, laptops etc
Before assessing your options, it’s important to clearly define who needs to do what. Are there key finance team members that also run the procurement process, or is procurement a completely separate department? Are there any team members that will only need to approve and nothing else? Are any people going to use it for internal requisitions only?
The client I mentioned above is a project service business, and they have 16 buyers that raise project related orders, so they act as an almost completely separate department to finance even though they are intrinsically linked.
[NOTE] AP automation aside, there may be the opportunity to re-visit your licensing with your current software. If you’ve not recently looked at what each team member .ACTUALLY needs from a licensing perspective, there may be opportunities to save cost with your licensing e.g, are you paying for a full price for someone who only needs to read/report? My 5 Low-Risk Quick-to-Action Ways to Reduce Your Systems Spend article here might help you there.
Now you need to start defining your preferred workflows. Do we have a quicker approval process for low value goods? Do we allow employees to self-approve up to a certain value? Do we want to lock down certain spend categories against budget?
The good news is, lots of systems make this process quite easy, and some systems will also tie to a catalogue that you can pre-define for internal procurement. E.g, you could give a portal to your employees where they can create a ‘basket’ that they can then check-out and raise a requisition from.
Something to check though, is, if you’re a business that manages stock or some sort of inventory, goods receipts are a crucial part of your GRNI reporting, so any tool that you use needs to include a workflow step for receipts.
Once you’re at this stage, it’s safe to assume that any modern procurement solution is now going to have a 3 Way Matching facility.
This means, once you’ve received your invoice from the supplier and it’s in the system, it’ll be auto-matched to the documentation it was raised from.
OCR is now becoming more advanced, so you should see less and less need to manually correct auto-captured documentation, just be aware that some services charge different rates depending on whether they’re capturing ‘Header’ information (Invoice number and totals) or ‘Header & Line ’ level data which will capture all of the information from the invoice. I know Kofax had these two options, when I last worked with it.
There are standalone OCR applications that will plug-in to your finance software with needing to use an entire AP automation platform too, and some examples include:
If you’re wanting the full shebang, some platforms will offer direct integrations to the bank as well. So instead of generating a payment file from the finance system that you need to then manually upload to the bank, you can just connect everything up to truly automate your AP end-to-end.
Here are some of the leaders in the AP automation space that I’ve had dealings with:
Some others that I’m less experienced with are: