What Is Invoice Automation and Why Is It Important?

Invoice automation allows companies to replace manual, paper-based invoice ingestion, coding, and approvals with more efficient, digitized processes.  Adopting automation leads to faster and more sustainable accounts payable processes and a reduction in error and risk. It’s important to note, though, that the degree of time and cost savings often comes down to the invoice automation solution chosen.

Invoice processing is multi-step. First, the company receives the actual invoice either manually or electronically. Next, they must somehow capture all the relevant data on the invoice, such as invoice number, invoice date, invoice total, vendors name, line items, etc. Finally, they must transfer the invoice data by hand or automatically into the company’s system of record, review the invoice for any errors or discrepancies, and route the invoice to the appropriate approvers. Understandably, companies seek out invoice automation because this process is cumbersome and labor-heavy and presents the very real risk of fraud and error.

Here, we’ll explore:

• What invoice automation is
• How invoice automation helps with traditional trouble spots
• What makes invoice automation effective
• How to automate invoice processing
• What goes in to choosing a partner to help turn a heavily manual process into a smooth and streamlined one

Understanding Invoice Automation

Automation sprang out of the intersection of available technology and a simple fact: Processing invoices is a drag.

Ardent Partners found in its recent State of ePayables report that 48.6% of invoices are still manual and paper based. Those invoices can take a staggering 8.2 days to process fully, and 49% of businesses believe approvals take too long with obvious justification. The more manual the invoice process, the more time-intensive and expensive it is, as Ardent found the average cost of processing an invoice was $9.84.

Why all this time and expense? It comes down to all those steps, which are just burdensome without the help of a better solution.

Invoice automation cuts down on the time and costs associated with processing invoices with features like:

• Automated receipt and capture. Rather than opening an envelope and keying information into your ERP, paper and digital invoices can be scanned and ingested automatically. Optical Character Recognition, or OCR, eases that process by capturing line items and invoice information and matching it with mapped fields with a high degree of accuracy and little human intervention necessary.
• Two-and-three-way-matching. While OCR captures data accurately, it does not confirm whether the data itself is correct. That’s where matching comes in, with two-way describing the practice of automatically checking invoice data against the associated purchase order and three-way matches consists of invoice, purchase order, and receipt. This helps prevent erroneous or fraudulent payments from being sent out the door.
• Machine learning. The best solutions on the market for invoice automation offer machine learning capabilities, which may be marketed as (but are not truly) artificial intelligence. These solutions will log fields that cannot be captured or errors that are marked by a human reviewer and learn from them, leading to improved accuracy over time.
• Automated reviews and approvals. The human touch is still needed for reviews and approvals, but invoice automation solutions can handle those workflows for you. So, instead of invoices being hand-delivered desk-to-desk or emailed around for sign off, invoice automation solutions allow all approvers to log in to an online portal or mobile application to quickly okay or decline an invoice, add relevant notes, and with ear-mark things for further scrutiny if needed. If an additional approver is needed, the solution can send it along the chain to that person, and the steps can be repeated. 
• Reports and dashboards for improved visibility. When invoices are processed successfully—or flagged for further review—accounts payable teams should be able to go back and see that information and how customers, errors, and approvals track over time. This visibility allows for tweaks to further improve the process and find more AP efficiencies.

The net effect is the removal of steps and headaches for your team, but, as we’ll discuss below, the benefits go far beyond that. 

The Concrete Benefits of Invoice Automation

By smoothing out the process from start to finish, businesses should recognize tangible improvements. Ideally, all the gains we’re about to list should be realized once automation is implemented and widely used by the finance department.

Improved accuracy

Around 40% of invoices have errors, per Ascend Software, and APQC found that manually processed invoices have a 2% error rate. If you process 10,000 invoices a year, that means 4,000 of the invoices you see might have at least one error, and 200 of those invoices might be processed with errors either present or introduced through data entry mistakes.

Given that errors can lead to fraud, late payments, or strained business relationships, improved accuracy is a priority for most businesses. By removing the potential for manual data entry errors and the fact that machine learning allows for continually reducing errors, businesses can slash their error rate down to under 1% and make further strides over time. This is especially useful when it comes to 2-way and 3-way matching, where it’s a frustratingly tedious and error-prone process to synchronize an invoice with an associated purchase order.

That saves time, of course, but it also saves money that would otherwise be spent correcting errors or recovering mistakes or even fraudulent payments.

Superior fraud protection

While it might not steal headlines the way payments fraud does, invoice fraud is a serious problem. Companies that experience invoice fraud lose an average of $133,000 per incident. With businesses reporting an average of 13 attempts per year, the cost of missing a fraudulent invoice can be grave.

Automation can help, especially if aided by machine learning and AI that can catch subtle red flags and outright errors alike. Invoice automation also excels at matching invoices to purchase orders and receipts, something that takes a human a long time, and at verifying details like vendor bank accounts and business information that might not be caught by a harried AP clerk who has too much to do. That, in turn, cuts the risk of successful fraud significantly, especially with humans in the loop who can review those flags and take the necessary action.

Better still, in the deeply unfortunate case that you have an internal team member tempted to engage in fraud, automation makes it more difficult by taking processing duties out of their hands and allowing for roles-based reviews and approvals that make life more difficult for would-be fraudsters.

Reduced costs

Processing a single invoice can cost north of $10, with Ardent Partners finding that less automated businesses have an average all-inclusive cost of $12.42 per invoice.

When that cost is added across hundreds, thousands, or even tens of thousands of invoices, it becomes a major drag on a finance team’s budget. Best-in-class organizations, Ardent found, have an all-inclusive cost of just over $2 per invoice, for a savings of about $10 a pop. If you process 10,000 invoices a year, that could be $100,000 in savings annually, which pays for an invoice automation solution and potentially a part-time or junior staffer.

Massive time savings

We saved the best for last, or at least, the benefit that is most likely to resonate in an era of lean AP teams. Whether you have reduced staff or just need that team focused on initiatives that move the business forward—think implementing automation in other areas, moving reporting out of spreadsheets and into other systems, and finding efficiencies in core processes—the time savings offered by invoice automation can make it possible.

Ardent Partners estimates that best-in-class teams using invoice automation can shave 10 days off their processing time, which also cuts the time spent talking to suppliers in half and increases the percentage of invoices linked to a purchase order from 47% to 84%. It’s probably not difficult to imagine what you could do if you significantly cut invoice processing, matching, and approval times while also lessening the need for supplier communication.

What to Look for in an Invoice Automation Solution

With the benefits listed above firmly in mind, the prescription for your invoice automation needs is a simple one. You want an invoice automation solution that saves time and money, streamlines and secures your invoice processing, and doesn’t require you to break the bank to realize those benefits.

The good news is that those options exist, and unlike payments automation where realizing the full range of benefits depends on vendor enrollment, invoice automation pays dividends nearly instantaneously.

When it comes to selecting a solution, you’ll want to prioritize a provider’s track record and range of capabilities above all else. Ask if the solution offers two-and-three-way matching, machine learning or AI for constantly improving accuracy, enhanced visibility and reporting, plus nice-to-have features like mobile approvals and close ERP integration. Understand just how much time can be shaved off your existing invoice management processes, and how robust the support is for your team as they get to know the solution. The right provider will be able to show you statistics and customer stories that highlight what kind of improvements you can expect.

Ultimately, invoice automation is virtually guaranteed to save you time, money, and effort compared to your current processes. Embracing the switch to automation is the key to leaving one of the most costly and antiquated finance tasks in the past where it belongs and enjoying a smooth, efficient process in its place.

Learn more about Invoice Automation with Bottomline