You’ve read my previous blogs on automating your accounting and finance systems and you’ve no doubt digitally transformed your entire back-office as a result. 😊 But, just in case you needed more proof on the benefits of automation and AI, here’s the next installment in my digital transformation series: Automating your bills!

Everyone who’s ever had to pay bills, either personally or for a company, knows that it can be pure drudgery. Can you say hand cramp after signing a few dozen checks? Sure you can.

And while accounting software has come a long way to relieve this tedious task, there are still aspects of bill payment that aren’t covered by most ERP software: you need more sophisticated options. This post will talk about the issues that I’ve seen in most AP functions and how automation and AI can dramatically reduce time, errors, and drudgery associated with bill paying.

The importance of accounts payable for cash flow

Keeping track of the money that comes in and out of your business is also known as managing your cash flow, and the balance between what people owe you (Accounts Receivable) and what you owe other people (Accounts Payable) can make or break a business.

In fact, Business Insider recently published an article that states 82 percent of small businesses fail within their first five years due to a poor understanding of cash flow management.

So if cash flow is so critical to keeping a business open, why do so many businesses struggle with it even when they’re tracking those bills and payments in their accounting software?

Basically it comes down to three main inefficiencies within traditional AP processes:

1. Too much paper. From paper invoices to paper checks, the reliance on hard copies slows down the process of documentation—the lifeblood of any accounting system. Electronic records speed up your ability to store and retrieve information, request approvals, and follow audit trails if you ever need them.
2. Double data entry. Whenever you enter an invoice or write a physical check, there’s always a chance of human error. Automating your AP system applies artificial intelligence to read invoices, match them against purchase orders, flag duplicate bills, and help spot possible errors (like duplicate payments) before they happen. AI begins to recognize patterns over time and starts providing suggestions, a time saver for many.
3. Payment timing. Keeping track of variable payment terms across dozens, hundreds, or even thousands of vendors is a significant challenge. Paying those bills too early can funnel away cash you need, and paying them too late can invoke extra charges that really add up. Automating AP will help track the terms and attach them to each invoice, providing real-time status on due dates, approval cycles, and projected spending.

Accounts payable in an ideal world. 

Here’s what’s supposed to happen. In theory, your controller enters each invoice into a tracking system as soon as it arrives. That invoice gets routed to the right people through a formal approval process to make sure the details are correct, that the goods or services it represents have been delivered, that the price matches the original quote, and that the invoice is approved for payment. Those communications are trackable, stored in an audit-ready trail in case it’s ever needed. Once approved, timely payments go out the door in the right amounts, and all financial statements and balance sheets get updated in the accounting system.

But the real world isn’t always ideal.

Compare accounts payable in the real world. In most small-to-mid-sized businesses, invoice processing starts in a lot of different ways. Some show up as paper mail. Others are attached to emails, sent to different people. They end up in different places, sitting in various inboxes until those people finally have time to deal with them. Eventually, each vendor invoice gets entered by hand into the business’ accounting software, and then the paper is stored somewhere else.

If the invoice is unusual in any way, someone has to try to make sure it’s okay to pay it. That tends to happen by email, so the record of those communications isn’t stored with the invoice or with the accounting records but across several different email accounts throughout the company. And, if your colleagues don’t respond, someone has to keep yet another system to make sure those invoices don’t fall through the cracks. (Which I’ve seen happen far too often.)

Automation makes the real world a lot closer to the ideal one, with a much more efficient system through AP automation, and a lot less time spent on problems with the accounts payable process.

Kim’s must-do’s for automating AP:

Digitize every invoice. Process automation does a lot of the work for you while keeping you in control, reducing time on vendor payments. As a bonus, artificial intelligence will act as an extra “pair of eyes” to look out for potential errors.

Store them all in one place. As you collect invoices, store them all digitally, in the same place, no matter how they come in. Vendors can email invoices directly to a special inbox, or you can drag-and-drop files from your desktop, or even snap a photo with your phone.

Automate your data entry. As mentioned earlier, utilize artificial intelligence and machine learning to pull information from digital invoices into the system. AI can automatically capture and enter data for your review, learning patterns and preferences over time.

Customize your approvals and handle them remotely. Set up your approval workflows, as many as you need, so that the system will automatically route notifications to the right people while ensuring that your internal controls are followed. Custom roles support separation of duties and multiple-reviewer scenarios, while also letting you set up routine bills to be paid automatically.

Flag possible issues for review. Artificial Intelligence can also check for potential problems, flagging anything it finds that might be a duplicate invoice, for example, or a purchase order amount that doesn’t match the amount in the invoice.

Capture audit-ready trails. Every time someone “touches” that invoice, the system should timestamp the interaction, creating a permanent log. If anyone raises a question or makes a note, that communication should be stored with the invoice itself.

Pay invoices in the same system. Automation means that, once an invoice receives approval, the amount is filled in automatically, and you can make that payment by ACH, virtual card (a credit card-type payment that hides your actual account information), paper check (printed and mailed to you), or even international wire transfer, with a couple of mouse clicks.

Sync your accounting software. Integration with other back-office systems is critical; make sure your AP app syncs with leading business accounting software, for example QuickBooks, NetSuite, Sage Intacct, Xero, etc.

From a Process Perspective

Here’s a look at how automation supports the accounts payable workflow, in four easy steps.

1. Review your bills. Artificial Intelligence captures and auto-enters invoice data for you to review, saving you time from the start since you’re not manually entering the details yourself. This means no more filing paper invoices, matching check stubs to bills, or coordinating schedules check signatures. And especially, no more of the dreaded swivel chair computing syndrome!
2. Simplify your approvals. Invoices are sent to your selected approvers for digital approval from within the automated system. (They can even get those requests on their phone and handle them through a mobile app.) If your approver has comments or feedback, they are captured directly on the invoice so you and your vendor can resolve the issue without delaying payment.
3. Pay with ease. Whether you know it as direct deposit or e-checking, the ACH (Automated Clearing House) global network is a reliable system for making digital payments. Be sure to partner with a PCI certified vendor for credit card payments and utilize a system that can also handle international wire transfers and vendor-direct virtual card payments.
4. Stay up to date. Make sure that you integrate and optimize top your AP system with your accounting software. Automated accounting updates happen after each transaction, so accounts reconcile faster.

Here’s a comparison of how one AP automation product, bill.com (which I highly recommend to my clients), compares to a stand-alone accounting software or on-line bill pay system.

Bottom Line:

I’ve seen automation reduce AP processing times from weeks to days – or even hours. Not kidding. If you’d like to learn more about AP automation, write to me for a free eBook “Automating the accounts payable process with AI: The complete guide,” authored by bill.com. It’s an excellent resource that I’ve used with many of my clients, enabling them to reduce their AP processing time by 50% or even more, while improving accuracy. And of course I am available to help guide you through the eBook and your AP automation/AI implementation.

As always, please reach out to me on LinkedIn or at kimberly@finopsadvisory.com for the AP automation eBook or let’s just chat about how I can help you with AI and automation.

All my best,

Kimberly J. Lain

The FinOps Advisor.