Manual invoice approval vs automated: how does AP automation add value?
AP automation brings value to the entire organisation. From reducing costs associated with manual operations to unlocking valuable financial insights.
In this article, I would like to focus on the automated invoice approval process versus manual, paper-based approval.
In a medium to large businesses, invoice approval involves more than just one person. Multi-stage and value-based approvals take place. However, when working with the manual approval process, it gets more complicated, and often, ineffective at all.
So, what is wrong with manual, paper-based approval process? I want to demonstrate a real-life example of manual invoice processing.
Manual invoice process example:
“Let's assume your business processes around 250 AP invoices per week. Overall you will need to process almost 1k invoices over the 3-4 weeks to make a payment. You are hiring an AP person to make sure you are paying all your suppliers on time. All-day long, AP job is to receive, sort, print, verify, route for the approval and code invoices into the system.
Approval problem begins from the moment they have printed an invoice. Now, AP must sort invoices by the payment terms, approver and some other categories they find useful. Once paper invoices are ready for the approval process, they put them into the envelopes. Another person delivers envelopes to right mangers on the field (a construction business). Once approved by the site manager, invoices go to the financial manager for approval. In the end, the general manager will take a half-day or more to make final approval of all the invoices.
Finally, invoices reach back an AP person to code approved invoices and make a payment. Invoices could be coded beforehand, depends on the process.”
I have not included other people involved in this story. Someone needs to match invoices with purchase orders, check the delivery of goods and work progress. Including credit notes requests, multiple phone calls with suppliers and many other checks AP staff has to make. Clearly, it is also a part of the manual AP process that adds pressure.
You might not have it the same way; every business process varies from company to company, and industry to industry. However, when the approval process creates a paper trail, it can hurt the business in the short and long run. Check if your entire accounts payable process is outdated.
What are the pitfalls of this manual, paper-based approval process?
Lack of visibility
Lack of visibility often leads to lack of accountability. In the example above, there is no visibility or control over the approval process. It is not clear who is holding an invoice and why at a specific time. Visibility helps create accountability. When you know who is approving an invoice, they are less tempted to delay it.
Being kept in the dark is extremely frustrating for any person. It also leads to poor work quality and mistakes.
Lack of agility
Because there are so many people involved and it is a paper-based process, it will surely result in late payments and late data insights.
# Later payments lead to poor relationships with suppliers, late payment penalties, missed discounts and even questions your ethical standards.
What should you tell a supplier if you have no idea where the invoice is in the process? The invoice is overdue when you urged to make excuses. It leads to poor relationships with suppliers.
If they have enough power, they might delay the supply or create a late payment penalty. You can also miss out on the early payment discounts.
Small suppliers cannot afford to reject you, as they depend on you to run their business. They need cash to survive. If you do not take action to prevent late payments, it questions the ethical standards of your organisation.
# Late data insights lead to a poor financial decision. Manual approval is not the only part of the AP process that contributes to late payments and poor decision.
However, the faster you can approve invoices, the better picture you will have about how much cash you have at a specific time. It is crucial when a new opportunity shows up. It also helps the business to stay back to avoid disaster. The more you know the better.
Now, let me demonstrate an automated invoice approval process.
Automated approval example
# Instant invoice routing
With AP automation, all new invoices are arriving into the secure, cloud-based digital cabinet. Invoice data is automatically coded and ready for approval. Depending on your approval workflow setup, invoices are automatically routed to the right people. It can be either a value or a multi-stage approval setup. It can be re-routed to a different person in case of sickness or vacation.
# Instant invoice view
When an invoice is sent in the digital workflow to the right person, they will receive a notification and have instant access to the document(s). It will speed up the process of approval compared to manual invoice handling. The invoice then auto-routed to another stage or person. Notifications can be adjusted to receive on a specific day and time.
This adds an immense convenience to employees that are not directly involved in the AP process. CFO and CEO do not have to waste days to go through approval. They can approve on the go and send invoices to the payment queue immediately.
The most important part is that no one is holding a hard copy of the document; no one can lose, forget or tamper an invoice. Everything is transparent, efficient and fast. A business knows where the money goes, suppliers are happy, and the staff is more productive.
The purpose of automation is to remove needless steps from the process and create visibility. Thus, allow a business to save time, avoid unplanned fees and make better decisions.
AP software adds security, visibility and protects from fraudulent manoeuvres. It has a myriad of benefits and offers new opportunities for the business.
At Ocerra, we believe that the automated approval process should be an essential part of AP software. That is why we built-in automated approval workflow to speed up the entire accounts payable process.