Invoice Automation in Logistics — Cost Optimizing Solution for Invoice Processing
In a report by IOFM, it costs about $16.67 to process an invoice in comparison to the best-in class accounts payable organizations that did it for $3.34 without human intervention. Hence, reducing cost in accounts payable processes has been the number one agenda for the logistics industry.
While many AP departments across the logistics industry have struggled with challenges such as early payment discounts and timely payments to suppliers, only a few have realized that an invoice automation solution can help them solve these challenges along with helping them reduce time and cost.
What is Invoice Automation?
Invoice automation is defined as streamlining invoice related processes within an accounts payable department . It also includes paying the suppliers without human intervention in some cases.
While multiple organizations around the globe have been using different platforms, softwares, and APIs to partially automate their accounts payable processes and achieve automation with imperative tasks such as invoice data-entry, invoice data validation, storage of invoices data, etc, they have failed to harness the capabilities of an end-to-end automation document processing platform.
Steps Involved in Invoice Processing
To understand the problem, it is important to understand how an invoice is processed in an organization in its most traditional sense.
As explained in the diagram above, the entire process completes in 6 consecutive steps. These are:
- Creation of the invoice.
- Printing, posting, or emailing the invoice.
- Sending the invoice to the accounts team for further processing.
- Review of the invoice for final authorization of the payment.
- Paying the overdue invoice to the supplier, vendor, or any associated party.
- Archival of the invoice to the ledger for accounting purposes.
Depending upon the nature of the invoice, the purpose, and the organization, there may be subtle additions to the processes mentioned above. Although in entirety much of the process remains the same industry wide.
Limitations of Manual Processing
Including the cost of processing an invoice, there are multiple other variables that limit manual processing. Manual processing requires a lot of re-handling and re-entry of the same data. This leads to human induced errors, slow processing, loss of data, duplicate payments, overpayment, loss of early payment discounts, etc.
It is estimated that with a paper-based invoice, it can take upto 23 days to complete a single cycle i.e. if the process is completed with zero challenges. Additionally, the same process can extend upto 90 days with multiple usually incurring challenges, thereby, reducing the efficiency of the Accounts Payable department.
Challenges Leading to Delayed Payments during Invoice Processing
Invoice processing in the logistics industry is a series of tasks done in progression to fulfill payments and record data for general ledger. With prominent challenges associated with the process and simultaneous other processes, employees have to constantly manage their responsibilities, thereby, leading to delays.
Below are the most common challenges faced in processing logistics invoices.
Huge Volumes of Invoices
In a report by Billentis, an estimate of 550 billion invoices were produced in the year 2019. In addition to that, the volume of invoice-like documents and messages in the same year was likely to be 5 to 15 times of the actual invoices depending on the geography. This data is also relevant to business transactions, therefore, needs to be processed or recorded in one way or the other.
Depending upon the scale of the logistics company i.e. SMEs, MSEs, and Large enterprises, the reliance on document-centric processes can vary but the sheer volume of invoices produced is still a huge call for invoice automation.
Multiple Invoices with Multiple Formats
There are multiple types of invoices that serve different purposes for Accounts Payable. For example standard invoice, pro forma invoice, credit invoice, commercial invoice, recurring invoice, etc. Additionally, there are also multiple formats accounts payable has to deal with. For instance, a standard invoice can be of varied formats depending upon its source (i.e. different companies) and geolocation. This acute problem leads to challenges such as sorting of documents and processing large volumes of unstructured data that validates payment approvals.
Suppliers onboard provide early payment discounts for the shipment when the payment is released by the accounts payable under a definite timeline. If this condition isn’t met, the company has to pay the usual price. Also further extension can lead to penalties, poor relationships, or both.
With maintaining multiple suppliers and inquiries including manual invoice processing, and emails, supplier management requires lots of data re-entry, duplicate data, incorrectly recorded key documents, etc. creating friction internally delaying the approvals on time.
AP departments spend a huge share of time working with repetitive invoice processes such as data entry, data extraction, data validation etc. Additionally, they are also required to perform strategic tasks such as data analysis, forecasting, vendor master data cleanup, etc that are often left behind because of invoice processing.
Multiple Standalone Systems
From creating a purchase request to its final payment, there is a complex network of processes that work in unison. This accounts for multiple standalone systems that often falter because of their codependency. For instance, creating a purchase request then confirming the request externally (by inventory management) to its final approval from the authority, there are multiple standalone systems at work. This points towards an invoice automation solution that can collaborate these standalone entities and turn it into a system of cumulative progress without breaking the flow.
Accounts Payable clerks spend half of their time searching for a required document. This time can be excruciatingly high with file cabinets and dockers working against urgencies.
Even if the data is digitized and stored in a desktop, it takes a decent amount of time for a PC to search a particular file (especially if it isn’t being used often). It happens because PCs are limited by cache memory and cannot provide the required document instantly (everytime). On the contrary, it is possible with a cloud-based central repository.
In a survey report by Aberdeen Group, 33% of the participants agreed to have faced challenges while processing huge volumes of data with the existing staffing level. Manual processing isn’t scalable. With an increase in the number of invoices to process, the organizations are also required to upscale their workforce to finish off the work in time.
On the flipside, with invoice automation using platforms like IDP, the number of documents processed can be both upscaled and downscaled without wasting any additional resources, assets, or costs.
Learn more about technologies associated with invoice automation and a culmination of these technologies by clicking on the original link of the article below.