If AP Automation Is So Easy, Then Why...

IF AP AUTOMATION IS SO EASY, THEN

WHY ISN'T EVERYONE DOING IT?

This is a very good question...

On the surface, the Accounts Payable (AP) process seems to be fairly simple. Right? Let's think this through for a moment: Suppliers send in their bills for goods or services. When the invoices arrive the AP Staff look at the invoice and makes sure the invoices get approved, processed, entered and paid.

Are we missing anything here? The process seems simple. So, is this the reason that AP Automation doesn't make sense to some organizations, is because the AP process is TOO simple? Hmmmm...

The AP Process...

Maybe we should break down a few of the steps that the AP Staff perform each day? We already know that suppliers submit invoices for payment. So how do invoices arrive each day? By postal mail? By email? Okay, so nothing out of the ordinary yet. Someone on the AP Staff opens the envelopes and takes out the invoices and gets them organized for processing. Okay, seems straight forward. The AP Staff are used to it and have probably been doing this since the company started. But wait, many companies have switched their suppliers to email invoices to the AP department. Isn't this better than opening envelopes and mail. It must be better, because now all the AP Staff have to do is open every email, from every supplier and click "print". This sounds like a far more efficient use of the AP Staff's time. Are we missing anything yet...

Purchase Order Invoices... and Matching

So far, so good on the AP process. Seems very simple. Now that the AP Department has all the invoices in and organized, what's next? Some invoices come from suppliers and reference a purchase order (PO) number and some don't. I see so the invoices with a PO number are, how shall we say, pre-authorized to be paid. Right?

Well, not really. It just means that the buyer got an approval to buy. but it doesn't mean the invoice is correct or for the right amount. Well, that's not the AP Staff's problem, is it? It kind-of-is the AP Staff's problem. The AP Staff will need to compare the supplier invoice against the purchase order to make sure the quantity, the unit price all match. If the invoice and the purchase order match the AP Should be able to pay it, right? Yes, that sounds right. But wait. How does the AP Staff know that the buyer actually got the goods or services they ordered? This is another really good question. They don't.

So they AP Staff don't really know if the buyers received the goods or services that they ordered? Then how can the AP Staff process and pay the bill? Well, they need to match the invoice a third way, the AP Staff also have to match the invoice to something called, "the Goods Receipt". Now in days passed, the Goods Receipt would be a physical piece of paper, a packing slip or some type of document to prove that things we received. In today's world of Enterprise Resource Planning systems (ERP's), warehouses, receiving departments and buyers have the ability to "confirm" that items have been received in the ERP system.

Okay, so not that we've given some thought to the way AP Staff match PO invoices to process and pay them we're starting to understand why AP Automation isn't really necessary. Right?

PO Match Exceptions...

BUT, I know this is far out thought and is probably very rare, "What happens if an invoice doesn't match the PO or the Goods Receipt?" What then?

Well, this happens. Probably more often than the AP Staff would like. We call these invoice "exceptions".

When exceptions happen then the AP Staff need to switch gears a bit. Some companies have what the call, "Allowable Tolerances", meaning its okay for a supplier to charge them a bit differently, or incorrectly as long as its not too much. So this means the AP Staff break out the calculator and do some quick math and as long as the invoice is "under" the set tolerance level by either a percentage or dollar amount then the invoice can be paid. Otherwise,  the AP Staff will need to get the buyer involved, or procurement to deal with the exception invoices and decide what to do with them and whether or not to pay, how much to pay, etc. 

We're still on track right? I can see why AP Automation would not be needed.

Non-PO Invoices... and Approvals

Let's not forget about the invoices that don't have PO numbers assigned to them. What about those?

That's got to be easy, right? The AP Staff just send the invoices to the approved for approval and that's it. Well, you would think that's all there is too it. What is the approver is in a different building or working remotely or traveling? So the AP Staff scan the paper and email the invoices to approvers. How hard can that be? It's not necessarily hard. But it sure is a slow and tedious process. The approvers are busy, maybe they get to the invoices, maybe the invoices quickly get buried in an email inbox, I am sure no invoices ever go to SPAM or Junk mail folders. So this process must be very efficient.

Don't invoices need to assigned to the "Chart of Accounts" (COA)? Yes they do. Sometimes the buyers do this, sometimes the AP Staff are responsible for this. Sometimes both.

The approvers probably just print the PDF invoices, scribble the COA, their initials and date with an "Okay to Pay", then re-scan the invoice and re-email back to the AP Staff. Now, is an invoice requires many approvals, let's say the invoice is for $12,000 dollars and needs three (3) approvals. The AP Staff only has to do this process three (3) times.

Let's Recap What We Know...

Okay, so lets recap what the AP Staff have done so far and why they don't need AP Automation.

1. Suppliers send postal mail and emails and the AP Staff open mail, print emailed invoices and get everything organized for processing. The AP Staff do this every day and it's so easy that AP Automation isn't needed.
   
2. If a supplier invoice has a PO Number on it then the AP Staff handle those invoices differently and match the invoice to the purchase order and in some cases to the Goods Receipt. If for some reason the invoice doesn't match for any reason then there are additional steps the AP Staff must take and treat the invoice as an "exception". The exception invoices involve other people and departments and possibly some other processed if there are taxes, or freight or tolerances. Got it. These steps happen every day and because the AP Staff have this process down pat there is no reason to use AP Automation. Makes sense.
   
3. If a supplier invoice doesn't have a PO number on it and needs to be reviewed, approved or assigned to the Chart of Accounts then the invoices are sent to approvers every day. There's a bunch of back and forth and the AP Staff keep track of all of this and because they're so good at what they do AP Automation isn't needed. Do I have this right?
   

So far we've reviewed what it takes to get a supplier invoice in, reviewed, processed and approved. We're done. Right? Wrong!

Getting Invoices Into the ERP System...

Now the AP Staff have to manually hand key all of the information from the invoice into the ERP financial system in order to be able to pay the bill. So how hard can this be. Right? I mean, if a company has a few hundred invoices that need to be hand keyed for payment processing and the AP Staff are good at keying data then this sounds really easy. Heck, the AP Staff manually enter supplier invoices all day, every day of the week. So now we know that there really is no need for AP Automation.

It All Makes Sense...

Now that we've gone through the very high level, basics of processing supplier invoices and how the expertise of the AP Staff get utilized, it's very easy to start to add up what it costs organizations in time, energy and more importantly costs.

I see!! It is much more economical to use experienced AP Staff to perform all of these manual tasks over and over again, because the AP Staff are more efficient than AP Automation.

Now, it all makes sense.

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