Invoice automation: overcoming five challenges

Industry data according to more than two-thirds of companies, errors occur in more than one percent of the total invoice volume, and 20 to 30 percent of all invoices must be processed manually. Therefore, it is critical to improve this error-prone process. Automating invoice management offers a simple and future-proof solution. By using artificial intelligence and cloud technology, companies can streamline their process and free up their finance department. Employees then have more time for more strategic tasks. But what challenges do finance departments face in invoice management? When can automation software help?

Challenge #1: Paper invoices and manual processes

According to the American Institute of Finance & Management IOFM the average company still receives 63 percent of its invoices in paper form. This reliance on paper invoices significantly impacts the efficient processing of invoices, with over half of organizations manually processing over 75 percent of their paper invoices. This results in costly and error-prone data entry, delayed payments, missed discounts, compliance and security risks, high storage and retrieval costs, delays in uploading approved invoices to downstream systems, and time-consuming vendor inquiries.

Employees must manually enter and reconcile purchase order, invoice and payment information, making the process tedious and time-consuming. Matching invoice items with data in a purchase order system and manually approving invoices cause problems for 28 percent of accounts payable employees. 17 percent consider entering invoice data to be the biggest challenge, while 15 percent cite invoice coding as a major concern. Additionally, 20 percent of companies have difficulty obtaining supply documents for reconciliation. An equal percentage struggle with processing duplicate invoices when handling paper invoices, according to IOFM's research.

Solution: Modern cloud solutions make it possible to fully automate expense management processes - including invoice processing. Paper invoices are scanned or uploaded to appropriate platforms. This ensures that most fields (invoice number, date, due date, order number, currency or supplier name) are extracted automatically. If the solution has AI technology, the captured data is independently assigned to the desired posting categories, the various documents are reconciled and transferred on time. For this, the solution must be seamlessly connected to the existing system landscape including ERP systems. This not only reduces the time required for invoice processing, but also ensures high-quality and correct bookings, as the risk of human error is greatly reduced.

Challenge #2: Inaccurate or incomplete data

Another challenge in invoice management is dealing with inaccurate or incomplete data. This is due to error-prone data entry by hand and a lack of standard processes for invoice capture. The result: inconsistencies in data entry - especially when paper documents and Excel sheets accompany the process.

Solution: Automatic text recognition and data extraction prevents errors associated with manual data entry. If the solution has AI technology, it can validate the invoice data it reads, match it with vendor purchase orders, and automate line item coding - including categories, cost objects, and VAT. If errors surface (for example, duplicate invoices or data that appears fraudulent or doesn't match ERP data), the platform sends alerts to preset user roles. In this way, it ensures that outliers are checked individually. This prevents policy violations and duplicate payments, and minimizes manual intervention.

Challenge #3: Complex approval workflows

Often the approval process in accounts payable is complex, lacking clarity and consistency. This may be due to differences in organizational structure - for example, in global organizations where each unit uses a different accounting system, independent process, or different software solutions. In addition, the use of paper-based business processes can further complicate approval workflows and lead to delays and errors.

The consequences of complex approval workflows include longer processing times, higher costs due to manual intervention, potential compliance issues, and difficulty tracking invoices. Invoices requiring multiple levels of approval sometimes get lost between systems, which can lead to late payments and missed discounts for early payments.

Solution: An automated solution allows different approval workflows to be used for different entities or types of invoices, for example, vendor-based approvals, cost unit approvals, or custom approvals. Vendor-based workflows assign a default vendor approval upon submission. In this case, the invoice can be automatically routed for review.

Another option is to implement workflows for supervisors with automatic approval. Here, all invoices are automatically approved if they are below a certain threshold. Cost unit-based workflows can also be automated. In more complex cases, a mix of approval workflows can be used, such as cost unit-based approval workflows with supplier-based automated workflows.

Appropriate software also makes it possible to define roles and responsibilities for each stakeholder involved in the approval process. This reduces the risk of duplicate or contradictory approvals.

Challenge #4: Lack of standardization

There is another major obstacle to automating accounts payable: the lack of standardization in the format and content of invoices. Suppliers sometimes use different invoice methods, such as a mix of manual invoice processing and electronic invoicing. This is sometimes compounded by different invoice processing software for different companies. This easily leads to a lack of data consistency, making it difficult to automatically extract and process the required information.

The lack of standardization in invoice processing workflows increases the risk of errors and delays that can impact the entire cycle to payment.

Solution: The introduction of an AP solution (AP stands for Accounts Payable) results in uniform data formats and a reduced number of software solutions that are seamlessly connected. With it, companies are not only able to read any invoice format, but also to receive invoices via different channels, such as e-mail, Peppol or supplier portals. The data is processed directly in the AP solution and routed to the connected ERP system. Additional technologies or tools such as document scanners or workflow solutions are then superfluous. This creates true end-to-end transparency and control. This also eliminates data silos, enabling real-time analysis of spend and more accurate forecasting.

Challenge #5: Lack of cash flow insights

Senior financial managers attach great importance to cash flow analyses. However, many companies struggle to accurately forecast their medium-term cash flow. According to KPMG, only 23 percent of companies are within five percent of their forecasts, with inaccurate data being a major problem for executives and CFOs. Additionally, 34 percent of companies lack visibility into invoice and payment data. In a paper-based invoice processing environment, finance departments lack a comprehensive view of workflow, making working capital improvement difficult.

Managing money ineffectively can negatively impact the entire business, including higher borrowing costs and the inability to invest in growth. That's why 58 percent of companies say they need real-time insights into accounts payable financial data. However, in a paper-based environment, important data falls by the wayside, plus sometimes outdated information flows in.

Solution: An AP system prevents payment delays through automation and end-to-end integrations. In a manual process, it is common for payables to get stuck in invoice receipt, resulting in delayed payments of supplier invoices.

Automation software makes it easy to implement automatic approvals for specific suppliers, giving accounts payable real-time insights into outstanding payments and payment times. With the analytics module, the finance team is able to determine processing times for each supplier in less than a minute. They also receive real-time notifications to easily identify and resolve bottlenecks. Invoices automatically land with the responsible parties to reduce processing time.

In addition, the software improves spend visibility and enables companies to make decisions based on real-time data. It monitors cash flow, tracks payment status, and strengthens relationships with suppliers through timely and accurate payments.

Author:
Lars Mangelsdorf is co-founder of Yokoy and leads the German team based in Munich. The Swiss fintech is a provider of an AI-driven expense management platform for medium-sized and large companies.