How to implement and optimize invoice automation.

Manual invoice processing can become increasingly time-consuming and error prone as a business grows. Automated invoice processing offers a way to streamline accounts payable workflows, improve accuracy and increase visibility into the payment process. Here's a closer look at how invoice automation works and what to consider when implementing a solution for your business.

What is automated invoice processing?

Automated invoice processing, also known as AP automation, involves using software to handle the various steps that are involved in paying invoices.

Instead of entering invoice data into a computer, routing paperwork for approvals, and tracking down payments by hand, you can use technology to automate and streamline the entire process, including receiving, approving, paying, reconciling and storing invoices.

Switching to automated invoice processing enables your business to process invoices more quickly and efficiently, which not only saves your business time and money, it also improves your vendor relationships and frees up your employees for more productive and satisfying work.

AP automation can also support compliance with internal policies and applicable regulations by helping businesses store and manage sensitive supplier and payment information.

The true cost of manual invoice processing.

Processing invoices by hand can negatively impact your business in several ways:

• Lost time: Research has found that manually processed invoices can take an average of 17 days to move through the AP process, compared to roughly three days link opens in a new window for organizations with mature, highly automated systems.
• Errors: According to a report by the Institute of Finance & Management link opens in a new window, only 5% of purchase order-to-invoice matches are correct on the first attempt in manual environments, and approximately 39% of manually processed invoices contain errors.
• Late fees: The long processing time involved with manual AP systems increases the risk of incurring late fees, especially with invoices that have tight payment terms.
• Missing out on discounts: Many suppliers give discounts to businesses that pay their invoices early, but that can be difficult when the payment process is done manually.

How automated invoice processing works: From invoice capture to reconciliation in three steps.

Automated invoice processing replaces manual keying, chasing approvals and rework with a clear, repeatable process in which invoices are received, scanned, approved, readied for payment, and recorded according to your rules and policies. Here’s how it works in three straightforward steps.

Step 1: Capture and extract.

Invoices arrive the way they always have — by mail, email or vendor portal — but instead of paper invoices piling up on desks, everything is quickly digitized. Using optical character recognition (OCR), key details including the supplier name, invoice number, amounts, dates and line items are converted into structured data.

Step 2: Match, validate and route.

Next, the system automatically validates each invoice using two-way or three-way matching. Two-way matching confirms that the invoice aligns with the purchase order; three-way matching adds proof of delivery. If something doesn’t line up, the discrepancy is logged and routed for resolution. At the same time, invoices are sent to the appropriate approvers based on rules such as dollar amount, department or vendor type. Built-in notifications, reminders and multi-level approvals help keep invoices moving and support your business’s internal controls.

Step 3: Pay, reconcile and store.

Once an invoice is approved, it moves directly into payment. From a single payment file, the platform can pay each supplier in their preferred method. Payment and reconciliation data are then synchronized with your accounting or enterprise resource planning (ERP) system, closing the loop on each transaction and creating an organized, searchable record for audits, reporting and analysis.

Key features of invoice processing automation.

Most automated invoice processing systems include these core features:

• OCR: As mentioned above, this technology converts information from invoices in all formats — including scanned paper, PDFs and digital invoices — into structured, usable data, which eliminates manual entry and helps reduce human errors. Modern AP automation solutions often combine OCR with AI and machine learning to improve accuracy over time. This enables systems to better identify which data belongs in each field, even when invoices have different layouts.
• Workflow automation: Once all of the invoice information has been captured, the approval and payment process can be fully automated without the need for manual intervention. Instead of emailing invoices, printing copies or physically walking documents around an office for signatures, the system automatically routes invoices to the appropriate approvers based on predefined business rules. This standardized approval process also helps reduce bottlenecks and ensures compliance with company policies.
• Integration: Many AP automation solutions are designed to connect with ERP and other accounting systems in your business. These integrations can help eliminate duplicate data entry, reduce errors and keep financial records synchronized across multiple systems. They also enable your finance team to have more timely visibility into invoice status, outstanding liabilities and cash flow.

Choosing invoice automation software: SMB options vs. enterprise solutions.

When choosing invoice automation software, look for a solution that fits your business today but also supports your future growth goals. Cloud-based platforms that are easy to implement and require minimal IT resources are often a good fit for small and medium-sized businesses (SMBs), particularly those with lower invoice volumes. Larger organizations typically require enterprise-grade solutions that can manage higher invoice volumes, support multiple business units or locations, and seamlessly integrate with ERP systems.

Getting started with invoice workflow automation: A sample implementation roadmap.

Implementing a successful AP automation solution requires combining the right technology with careful planning and guidance. Following a structured rollout process can help you streamline deployment, reduce disruptions, and better position your AP teams to improve efficiency, visibility and cash flow management.

Phase 1: Assess your existing invoice workflows.

Map your current invoice life cycle from end to end, documenting volume, formats received, approval hierarchy, error rates, and average cycle time, as well as current pain points and automation goals. Then gather information on possible invoice automation solutions.

Phase 2: Select and configure your AP automation tool.

Choose an AP automation platform that aligns with your invoice volume, ERP and approval structure. Evaluate the solution’s security controls, user permissions and audit capabilities, as well as its integration options. Before going live, clean and standardize your database to help ensure that the software functions properly.

Phase 3: Pilot and train.

Rather than roll out the platform across your entire AP department, do a test pilot first by launching it with just a subset of vendor invoices or a single business unit. Train your AP staff on how to navigate the new system and how to handle workflow exceptions.

Phase 4: Scale and optimize.

Once you’ve expanded AP automation across your vendor base, you can shift your focus from implementation to continuous improvements. Regularly monitoring key performance indicators — including invoice processing time, exception rates and approval turnaround — will enable your finance team to refine workflows to help ensure the solution continues to deliver efficiency improvements over time.

Measuring ROI from automated invoice processing: Time savings, cost reduction and other key metrics.

Businesses that switch to automated invoice processing can see their return on investment in a wide variety of metrics:

• Lower costs per invoice
• Improved invoice and payment accuracy
• Optimized days payable outstanding
• Increased on-time payments
• Higher early payment discount capture rate
• Fewer supplier inquiries
• Less time spent on supplier inquiries and disputes
• Less time spent reviewing payments for audits and reporting
• Lower printing and paper storage costs
• More time to focus on process improvements and higher-value business initiatives

Explore how our CommercePayments^® AP Invoice Automation solutions can help modernize your invoice processing workflow.

CommercePayments^® solutions are provided by Commerce Bank.