Handling invoices manually in the Accounts Payable (AP) process has long been a conventional approach, yet not without its set of challenges.
The process is often time-consuming, prone to errors, and can be a financial burden. For instance, a study highlighted that on an average, companies take about 45 days to process a single invoice manually, which can have significant cash flow implications.
The financial aspect becomes starkly apparent when comparing the average monthly cost of processing 5,000 invoices manually, which stands at $64,500, to a mere $8,850 with automated processing.
The advent of Automated OCR (Optical Character Recognition) Invoice Processing is like a breath of fresh air in this scenario. It significantly cuts down the processing time and reduces errors, making the entire AP workflow smoother and more efficient.
A survey by the Institute of Finance and Management (IOFM) revealed that 71% of organizations are keen on further automating their AP operations, underscoring the growing recognition of automation's benefits in the AP landscape.
In this blog post, we will unfold the benefits and key features of automated OCR invoice processing, showcasing how it can be a catalyst in achieving better operational efficiency in the AP department.
Automated OCR (Optical Character Recognition) Invoice Processing is a technology-driven method employed in the Accounts Payable (AP) domain to streamline the handling of invoices.
It’s a blend of OCR technology and automation aimed at enhancing the accuracy, speed, and efficiency of invoice processing. Let’s break down this term to understand it better:
OCR is a technology that converts different types of documents, including scanned paper documents, PDF files, or images captured by a digital camera, into editable and searchable data.
In the invoice processing, OCR extracts information such as vendor name, invoice number, purchase order number, and the amount due from the invoices.
Automation in AP refers to the use of software to handle repetitive tasks such as data entry, invoice matching, approval workflows, and payments without requiring manual intervention.
This frees up the AP team to focus on more strategic tasks and reduces the likelihood of errors that come with manual processes.
Automated OCR Invoice Processing combines OCR technology with automation to create a seamless invoice management system. Here’s how the process generally unfolds:
- Invoice Capture: Invoices are received through digital mediums such as emails or scanned directly into the system.
- Data Extraction: OCR technology reads the invoices and extracts essential information.
- Data Validation: The extracted data is validated for accuracy and completeness.
- Invoice Matching: Invoices are matched with purchase orders and receiving documents.
- Approval Workflow: Validated invoices are sent through a defined approval workflow.
- Payment Processing: Once approved, invoices are queued for payment, and the data is recorded in the accounting system.
Manual invoice processing in the Accounts Payable (AP) department comes with a set of challenges that can hinder operational efficiency and financial performance.
Here are some of the most common hurdles associated with manual invoice processing:
Manual data entry is a tedious and time-consuming task. Every invoice requires meticulous data entry which consumes valuable time that could be used for more strategic tasks. The average company takes about 45 days to process a single invoice manually, which can hinder cash flow and delay vendor payments.
Manual processes are inherently prone to errors. Mistyping, incorrect data entry, or even lost invoices can lead to discrepancies, which in turn require additional time and resources to rectify.
In a manual setup, tracking the status of an invoice from receipt through approval and payment can be a maze. There’s often a lack of real-time visibility into the processing status of invoices, making it difficult to answer vendor inquiries and manage cash flow effectively.
With manual processing, the approval workflow can be sluggish, leading to delayed payments. This delay can result in missed early payment discounts and could potentially harm the organization’s credit terms and relationships with vendors.
The recent shift to remote work has further extended the challenges of manual invoice processing. As 20% of AP executives found it very difficult to pay vendors on time when employees work from home, the need for a more streamlined and automated process becomes evident.
Transitioning to Automated OCR Invoice Processing can significantly elevate the operations of an Accounts Payable (AP) department. Here are the key benefits
Automated OCR systems have the prowess to process a large volume of invoices at a fraction of the time it would take manually.
This acceleration in processing time is pivotal in meeting payment deadlines, which in turn, fosters good vendor relationships. And quicker processing can qualify businesses for early payment discounts, leading to direct cost savings.
One of the paramount advantages of OCR technology is its ability to drastically reduce manual data entry errors.
By accurately capturing essential invoice data such as vendor names, invoice amounts, and due dates, OCR minimizes the discrepancies that could lead to financial misreporting or vendor disputes.
This accuracy is imperative for maintaining trustworthy vendor relationships and ensuring precise financial reporting.
Automation in invoice processing leads to a significant reduction in operational costs. The savings emanate from reduced manual data entry, fewer errors to rectify, and less time spent on approval workflows.
Based on the IOFM report, transitioning from manual to automated invoice processing can save more than 85% in costs, a testament to the financial prudence of automation.
Automation facilitates real-time tracking of every invoice as it moves through the processing workflow.
This transparency provides AP teams with instant insights into the status of each invoice, aiding in cash flow management, and allowing for more informed financial decision-making.
Automated OCR systems are designed to scale with the growing invoice volume effortlessly, ensuring that the AP department remains efficient and effective irrespective of the increasing workload.
The digital trail created with automated OCR systems serves as a centralized and searchable repository for invoices and related documents.
This organized archive eases the auditing process, ensuring compliance with regulatory requirements and internal policies.
Also, the integration with existing ERP or accounting platforms facilitates seamless reconciliation and reporting, further simplifying auditing and compliance.
Constant's AP Automation is engineered to streamline the Accounts Payable process into a seamless, automated, and highly efficient AP process. Here’s a breakdown of its prowess:
Constant seamlessly integrates with the organization's AP email inbox, enabling efficient retrieval and processing of bills directly from emails.
This integration, structured with robust security measures, enables Constant to scan emails for bill-related content, and allows for transaction-related communications like payment acknowledgments.
Utilizing OCR technology, Constant extracts bill-related information from emails, simplifying data entry. It fetches important data such as bill number, date, invoice amount, and line items, with options for manual corrections to ensure data accuracy.
Constant supports a detailed multi-level approval process, aligning with varying organizational structures.
From initial review by an AP executive to multi-level review by higher-level executives, this workflow ensures that expenses adhere to company policies, thereby fostering financial integrity.
On achieving Level 1 approval, Constant automatically sends an acknowledgment email to the vendor, fostering a culture of trust and transparency.
This acknowledgment is particularly pivotal for vendors registered under Government initiatives like MSME (specific to India), where adherence to payment timelines is legally mandated.
Constant allows for tailored expense categories, along with precise management of General Ledger (GL) entry line items, facilitates organized financial records and in-depth financial analysis, crucial for accurate financial reporting and decision-making.
Approved bills are systematically listed for payment, displaying essential payment details, ensuring a streamlined payment execution process.
Constant seamlessly integrates with popular accounting systems like Zoho Books and QuickBooks, automating the generation of corresponding records in the accounting system post-payment, thus eliminating the need for manual data entry.
Post-payment, Constant sends automated email notifications to vendors, enhancing transparency and vendor satisfaction.
The dedicated vendor tab provides a systematic interface for managing vendor-related data, aligning with the adherence to specific regulations or payment terms associated with different vendor classifications.
Constant's dashboard, designed with user-centricity, acts as the hub for all AP functions.
It provides a snapshot of action items, approval overviews, bill overviews, key metrics, and much more, ensuring users have immediate insights into their action items and the overall AP process.
In summary, embracing automated OCR invoice processing for accounts payable with Constant can significantly streamline your AP process, ensuring financial accuracy and efficiency.
Constant's advanced features are tailored to meet the modern financial operational needs, making it a solid choice for businesses aiming to optimize their invoice processing workflow.
Take the next step towards financial operational excellence. Book a Demo with Constant today and experience how it can streamline your AP operations.
