What is Automated Invoice Processing?

Few back-office tasks are as onerous as processing the invoices submitted by suppliers.

The way that most organizations process supplier invoices costs too much, takes too long, creates too many errors, provides inadequate visibility, and frustrates internal and external stakeholders.

The root of the problem is that only 9 percent of accounts payable (AP) departments have fully automated the way they process invoices, according to the Institute of Finance and Management (IOFM). Automating the receipt, processing, and posting of supplier invoices can help organizations dramatically improve operational efficiency, enhance visibility, and strengthen supplier relationships.

The global market for automated invoice processing solutions is projected to reach $21.5 billion by 2028, increasing at a compound annual growth rate of 9.5 percent, Mordor Intelligence reports.

This article takes a deep dive into automated invoice processing and the benefits it provides.

What is automated invoice processing?

Automated invoice processing uses artificial intelligence (AI) and other technologies to digitize and simplify the receipt, processing, and posting of paper and electronic invoices submitted by suppliers.

Here are the key steps typically involved in automated invoice processing.

• Receipt. Invoices submitted by suppliers via email, secure file transfer or an online portal are collected using technologies such as robotic process automation (RPA). Physical invoices sent through the mail are digitized and aggregated with electronically submitted invoices.
• Capture. The date, invoice number, the supplier’s name, the remittance address, the quantity and price of the goods purchased, and other invoice header and line-item details are extracted using optical character recognition (OCR), barcode recognition, AI, and other technologies.
• Matching. Invoice details are compared to purchase order (PO) and proof-of-delivery information residing in the buyer’s ERP or accounting software package. Matched invoices can be posted directly to an ERP application without any human operator intervention.
• Routing. Unmatched invoices or invoices that require review – such as high-dollar invoices or invoices from a new or strategic supplier – are digitally routed based on the buyer’s pre-defined approval hierarchy and policies. Approvers are notified of invoices awaiting their review and alerted when invoices are approaching their due date. Invoices can be escalated to a manager automatically if no action is taken by an approver within a set period.
• Integration. Seamless integration with a buyer’s existing document management platform, ERP application, or centralized archive facilitates the smooth exchange of information. Payment to the supplier can be initiated once invoices are posted to the buyer’s ERP.
• Reporting. Automated invoice processing solutions provide real-time visibility into the status of invoices, from the moment they are received, as well as operational metrics.

These steps make it easier for organizations to receive, process, and post supplier invoices.

How does automated invoice processing work?

There are lots of approaches to automated invoice processing.

Here is how automated invoice processing solutions typically work.

• Ingestion. From PDFs to electronic data interchange (EDI), invoices arrive in multiple formats. Automated invoice processing solutions handle the ingestion of any invoice format.
• Scanning. High production scanners convert physical invoices into electronic format. The best high production scanners capture invoice data in-line during the scanning process.
• Extraction. Automated invoice processing solutions use OCR and other technologies to extract any data from invoices with a high degree of accuracy. AI with machine learning understands patterns and actions taken by users to improve data capture accuracy over time.
• Validation. Configurable rules-based validation matches invoices against information in a system of record, helping to identify discrepancies, errors, or missing information.
• Workflow automation. Invoices requiring review are systematically routed for approval based on pre-defined rules. Workflow automation enforces separation of duties, ensures chain of custody, escalates invoices as needed, and logs all actions taken on an invoice.
• Integration. Accounts payable records, general ledger entries, and supplier details in the vendor master database are automatically updated through seamless integration.
• Reporting. Graphical dashboards provide real-time visibility into the status of invoices and KPIs. Drill-down capabilities enable users to uncover trends and the source of exceptions. Mobile access keeps decision-makers in-the-know while on-the-go. Exports get information downstream fast. And ad hoc reporting makes it easy to adapt to new business needs.
• Security. User permissions, role-based hierarchy, complete audit logging, and data encryption safeguard sensitive financial information and mitigate the risk of fraud.

These capabilities eliminate friction in the way that supplier invoices are processed.

Advantages of automated invoice processing

Automated invoice processing is a game-changer for AP departments.

• Faster invoice approvals. Eliminating manual tasks, lost and misplaced invoices, and miscommunication among internal and external stakeholders speed the approval of supplier invoices. Exceptions are automatically flagged and online collaboration tools assist with resolution. Faster invoice approvals reduce late payment penalties, create more opportunities to capture early payment discounts, and reduce calls from suppliers about invoice status.
• Lower overhead. Eliminating manual, repetitive tasks such as keying invoice data, shuffling paper and emails, fixing errors and mistakes, chasing down information, and responding to calls and emails from suppliers about the status of invoices reduces the labor costs associated with processing invoices. Automating the processing of supplier invoices also enables organizations to scale their AP operations without the need to hire additional staff.
• Increased accuracy. A single typo or transposed number during the invoice processing cycle can create big downstream issues and potentially delay the financial close. Automating the capture and validation of invoice header and line-item details significantly reduces the possibility of errors and avoids the need for additional resources to rectify them.
• Enhanced visibility. With an automated invoice processing solution, users can track and monitor invoices from the moment they are received. AP staff can instantly see any bottlenecks and act proactively to resolve them. And approved invoices can be archived in a centralized cloud-based archive with instant 24/7 access to invoices from any location.
• Reduced risk. Automated invoice processing solutions enforce compliance with internal policies and external regulations, reducing the risk of payment and compliance issues. Detailed audit logging provides transparency and supports accountability and compliance.
• Fast ROI for existing systems. Seamless integration between automated invoice processing solutions and legacy systems ensures accurate and timely updates to financial records.

Invoice processing automation can significantly reduce AP costs, with savings ranging from 50 percent to 80 percent, according to Deloitte. Opus Research finds that automation can reduce processing times by up to 80 percent. And invoice processing automation can eliminate errors caused by manual data entry, improving accuracy to over 99 percent, Gartner research finds.

It’s no wonder why invoice processing automation is a top priority for AP departments of all sizes.

How to automate invoice processing

Achieving the full benefits of automated invoice processing requires the right solution.

Here are some key considerations when evaluating automated invoice processing solutions.

• Assess your department’s pain points, volumes, and specific requirements.
• Look for solutions that use technologies such as RPA, AI, and intelligent data capture.
• Ensure the solution has intuitive features that make it easy to use.
• Verify the solution will integrate with your existing ERP or accounting software package.
• Choose a solution that can scale with the growth of your organization.
• Give preference to solutions with mobile tools for on-the-go approvals and access.
• Require robust security tools such as access controls and data encryption.
• Research the reputation of technology providers and their track record in automation.
• Evaluate the level of support and training offered by the solution provider.
• Understand the total cost of ownership of the solution and look for any hidden fees.

These considerations will help ensure that your organization chooses the best AP solution.

Conclusion

AP departments don’t have to settle for inefficient, ineffective, and risky approaches to processing the invoices submitted by suppliers. Automated invoice processing solutions use RPA, AI, and other technologies to digitize and simplify the receipt, processing, and posting of paper and electronic invoices. Following the consolidations detailed in this article, AP departments can choose a solution that will help them improve efficiency, increase accuracy, enhance visibility, and mitigate risk.