Expert Knowledge on Digitalization & Automation of Business Processes
Expert Knowledge on Digitalization & Automation of Business Processes
Topic: AP Automation | Digitalization
Regularity is key to an efficient business process. That’s why most companies that want to streamline their activities and optimize their workflows are looking for standardized solutions. Even though standardization comes with many benefits, it's important to keep in mind the same workflow might not work for every organization unless adapted to individual requirements. This is one reason why companies often believe their specific AP process represents a special case.
In this article, we examine whether the automation of accounts payable processes can and should be standardized.
The accounts payable (AP) department in an organization is responsible for handling incoming invoices and paying suppliers for products and services purchased by a company. The AP process typically involves the following steps: capturing of invoice data, checking document validity, matching the invoice documents to corresponding purchase orders, and finally—after the invoices have been approved and released—authorizing, and executing the payment. By doing so, the AP department is responsible for ensuring quality and compliance within the invoice management process.
In the past, a lot of manual labor was required along the AP process, e.g., for transferring invoice data from a paper document into an ERP system, or for checking the information against that of the purchase order. Nowadays, however, such tedious and error-prone tasks can be easily executed by a digital workflow solution. The transformation from manual accounts payable processes to digital ones is known as AP automation.
Recent studies have found that over the past several years, AP automation has continuously climbed higher on the priority list of many organizations. While each company may have its own motivations for optimizing their AP processes through automation, there are generally four reasons:
Reduced manual labor
Organizations want to reduce the amount of manual labor required for processing incoming invoices. Many companies are looking into automation to accelerate their processes, as well as increase efficiency and transparency within their organization.
Process reliability
It's crucial for organizations that want to optimize their operations to establish truly reliable processes. By implementing a digital, fully-automated workflow solution, company management can be certain specific processes always follow the same standard, thereby eliminating the risk of exceptions and irregularities.
External compliance
AP automation helps to ensure compliance and maintain audit-proof processes and documentation. Working with a digital automation solution adds additional security and accountability in case of an external audit or fraud.
Global E-Invoicing challenges
Almost every country in the world is implementing E-Invoicing regulations to support their tax and fraud initiatives. This results in increased complexity for companies operating internationally as they need to stay up-to-date on how to correctly receive an invoice based on local laws and regulations. An automated AP workflow can be easily adapted to the respective requirements and increases an organization's flexibility in handling incoming invoices.
Before putting your automation efforts into action, you should first determine where your current standard processes are located—ideally, inside your system of records, i.e., your ERP system. This is where all your data is stored and your processes are mapped. Therefore, when you want to optimize and automate your processes, it goes without saying that the workflow should start exactly at the source of your data. The automation solution should integrate directly with your ERP environment.
The workflow for processing incoming invoices follows the same pattern across companies and industries. The first step in the process is for the invoice to be received. Its data is then captured and transferred into an ERP system. In invoices with a PO reference, a comparison is made between the invoice, the order, and the goods receipt (3-way match). For invoices without order reference, a manual check is carried out. After release of the invoice, the payment can be executed.
While the fundamental process of handling an incoming invoice might be the same across industries, the actual work steps required can vary significantly between companies. Therefore, an AP workflow should be adaptable to the individual requirements of each customer. To further demonstrate the need of individualization, let’s look at three specific examples:
An international car manufacturer:
Improved business partner relationships through streamlined processes
When a car manufacturer purchases new office supplies or IT equipment, the process is likely going to be very similar to when a retail or a pharmaceutical company buys such products. Therefore, the process does not deviate much from the standard. Yet, when the company purchases automotive parts required for production, the process follows a different procedure. In this case, the purchase depends on current contracts, price agreements, quota volumes, and further conditions, such as agreed delivery times and terms of payment. These factors need to be considered not just at the time of purchase, but throughout the entire accounts payable process.
A global logistics company:
Successful 3-way match of related shipping documents
The transportation and logistics industry has several exceptions to the standard process.
Since there is no possibility to order a specific amount of a transportation service, each individual order can differ from the previous one, as it depends on the means of transport, the required delivery times, and the distance needing to be covered.
Additionally, one order can result in several different invoices. If we consider the journey a container travels from its origin to its destination, we can determine different service providers that are involved in the process:
The company picking up the container from your facilities and taking it to the closest train station or harbor
The carrier transporting it across the country or even overseas
The company responsible for the last part of the journey, which involves picking up the container and delivering it at its destination
After having completed the service, each one of these transportation providers will send an invoice to the client. As a result, a company can easily find itself with three different invoices all resulting from a single purchase order. The only matching reference is the shipping number.
A Hollywood-based entertainment company:
Tons of company codes and every actor is a vendor
Imagine an organization with hundreds of company codes and thousands of vendors. For this company, the biggest challenge is to process the countless invoices from actors taking part in their numerous movies and shows.
Since most actors are represented by an agency, they are not the ones directly sending their invoices. Because of this, agencies will bundle the documents and send one collective invoice representing different actors and productions. Every invoice received by the entertainment company needs to follow the standard AP process. This results in high complexity and a plethora of invoices in SAP with almost no purchase orders.
As you can see, seemingly simple AP processes can become increasingly complex depending on the individual requirements of an organization.
Surprisingly, even after reading the above-mentioned stories of how diverse the complexities in an AP process can be, the answer to our initial question if AP automation should be standardized is still yes.
The process itself should be based on a best practice. The customers’ individual challenges usually arise on the task level or even deeper on the technical/data level. Those customizations are important to trigger workflow steps, but the standard AP process should be the same.
At xSuite, we offer best-practice solutions that adapt flexibly to your individual needs. By doing so, you can focus on what matters most to your business – and let technology handle the successful integration of your company-specific requirements.