Insights

Why is electronic purchase invoicing a step too far?

Written by on



Over the past few years, there has been a fundamental change in the way the suppliers send their invoices to their customers. Specifically, the sending invoices by email as a PDF. Almost all accounting software provides this capability to do so as standard, it is simply a matter of turning it on.

From the supplier’s perspective, this saves the labour, ink, stationery and postage costs, is much more reliable and adds the additional days to the time available to your customer to pay you on time. As an added bonus, it is also a “greener” method on so many fronts.

You may be surprised to learn that between 60% - 70% of all invoices are now being sent this way and this percentage is growing rapidly as more businesses adopt this approach. Knowing this, it is easy to predict that in the next few years the percentage of invoices being emailed as PDFs could go up to 90%.

For the majority of customers, the very first thing they do is print these invoices out to start their paper-based manual purchase invoice approval process; maintaining a process that has remained unchanged for literally centuries.

The implications of emailed PDF invoices

What is often misunderstood is that the PDF is a 100% accurate digital copy of the sales invoice. The PDF containing all the invoice information can be simply harvested and then reformatted to deliver a structured e-invoice to automate the invoice capture and approval process. These implications are revolutionising the accounts payable function and frankly, it is about time!

OCR is already legacy technology

Whilst everyone usually thinks of OCR (optical character reader) technology for their invoice automation plans, this assumption needs to be updated. OCR is based on the premise that there is a paper invoice to work from. But considering the earlier growing stats on how many invoices are now PDF these are already in an ever-reducing minority – unless you print them out!

OCR technology has the job of trying to read the paper invoice information and reconstruct it into a digital format. The success of this process is dependant on the quality of the image being processed and the amount of information that is being captured, such as invoice header and invoice lines through to all the information on the invoice such as VAT number, bank account details etc. The more information being captured, the less accurate or more labour intensive the process becomes.

Whilst OCR technology is still required to process the ever-reducing number of paper invoices, it is an undeniable fact that processing a PDF invoice is significantly faster, much more accurate (over 99.99% ), requires no manual labour, and by including all of the invoice information, improves anti-fraud compliance checks.

From a comfort perspective, both methodologies should include automated validations to ensure that the line level values reconcile with the net invoice value and the net, VAT and gross values total correctly 100% of the time as a standard. The ability to also validate the bank account details reconciled with the information in the accounting software, the VAT number and even the email address of the sender all contribute to both accuracy and reducing the risk of fraud.

e-invoices herald a revolution within the Accounts Payable function

The revolution starts when the purchase invoice capture and approval process start with a digital e-invoice, as AI and machine learning can now remove up to 90% of the entire paper-based manual process, releasing this resource for more valuable and productive work.

It also both simplifies and speeds up the invoice approval process whilst providing the senior management with real-time information on their suppliers.

Whilst accounts payable is always at the bottom of the pile in terms of priorities, that is beginning to change.

When an MD is offered up to a 90% productivity gains against a pure administration overhead, faster approvals from any connected device, real-time access to valuable supplier information and real-time cash requirements reporting, it is a very compelling proposition.

A step too far

What is perhaps most surprising, is that there remains a reluctance by finance management to make the change, most often using the term “a step too far” to justify their decision.

The implications of automating the purchase invoice process are considerable, not least being the impact on the staff that perform the current manual function, whether internal, part-time bookkeepers or outsourced services from accounting practices.

An alternative view is that for internal staff it represents an opportunity to diversify, undertake new work, learn new skills and improve their contribution to the business, improving their own career prospects. For external providers of this service, it delivers additional capacity without increasing resources, allowing them to service more customers at potentially more competitive rates.

If the cost of automation represents a fraction of the value of the time saved and can be deployed in an hour or two, the only barrier left to everyone migrating to e-invoicing and automating their accounts payable function is a valid and defendable justification of the change being a “step too far”.

For progressive finance managers, bookkeepers and accounting practices, automating the accounts payable process has already become a priority and a very easy sell to the MD. The revolution has already begun.

Over time, this new methodology will become mainstream. An accepted technology without risk, as the benefits are simply to large to be ignored and at that point, the “step too far” justification will become indefensible.