Top 12 AP Invoice Management Challenges and How to Resolve Them
With the rise in the number of invoices, it becomes a very challenging assignment for the AP clerks to track, manage and review invoices in manual AP processing.
The Accounts Payable Software Market size projects to reach USD 17.61 Billion by 2028, growing at a CAGR of 9.1% from 2021 to 2028. Yet, some companies still follow manual AP processes as they are concerned about the complications of AP Invoice Management challenges and pay the price of not keeping up with the latest technological pace.
Inside this blog
Automations are functions scheduled to execute a human's mundane task 24/7 with almost 100% accuracy. The latest trend of AP automation adds many benefits to the invoice data management process. With the introduction of AI and machine learning, businesses can now easily handle AP invoice management processes keeping up with the current market trends to integrate accessible solutions and reduce crucial AP challenges of human errors, data security, productivity issues, vendor inquiries, payment delays, invoice frauds, mutual dependency and many more.
This blog highlights the top 12 AP Invoice Management Challenges and how to resolve them with immediate, accessible solutions.
Top 12 Invoice Management Challenges
1. Slow Processing Leads to Payment Delays
Manual invoice processing is one of the biggest challenges in invoice management systems and the bane of Accounts Payable departments due to their limited human capacity to process more than five invoices per hour. On average, an Account Payable (AP) clerk will take at least 10-12 minutes to process an invoice into the system from hard copy invoices, including proofreading. These invoices are then shuffled between various departments for review, prolonging the overall process. With the increase in the number of voices to be processed and reviewed, the overall AP process gets delayed, which results in delays in vendor payments, vendor dissatisfaction, and a bad reputation in the market.
The slow Processing, in turn, leads to payment delays that affect the company's credibility and credit rating and becomes a crucial AP invoice management challenge.
2. Data Entry Errors
According to Ted Friedman, the VP at Gartner, "As organizations accelerate their digital business efforts, poor data quality is a major contributor to a crisis in information trust and business value, negatively impacting financial performance." While manual transcription remains the most common method of collecting and organizing invoice data, it is also the biggest AP invoice management challenge.
Manual invoice data collection clogs company procedures from human errors while inputting data to duplicate payments to vendor churn. A single change in the digit will invoke a chain of AP invoice processing challenges, especially in spreadsheets. Errors in invoice data increase the AP liabilities in the balance sheet report resulting in a loss in business revenue.
3. Double Payments/ Payment Errors
The rate of duplicate payments can be as high as 3%, leading to one of the main AP invoice management challenges. There are several reasons why duplicate payments happen, many of which are due to human errors during data entry. During huge volumes of invoice entries in the system, AP clerks make mistakes in entering invoice details, vendor information, invoice amounts, etc. This crucial invoice processing challenge results in a loss in business revenue. Using multiple financial applications instead of one integrated system can also lead to accidental double payments to vendors.
Furthermore, vendors sometimes send more than one invoice due to payment delay, and companies also pay for those invoices without review, leading to double payments. This AP invoice processing challenge affects a company's cash flow, and businesses lose their profit in the Accounts Payable process.
4. Disappearing Invoice
Losing invoices among stacks of receipts and transactions is a common problem. If an invoice gets recovered, the payment can be processed, causing accounting issues. You can request a new invoice from the vendor if you realize one is missing.
However, if you are unaware of the lost invoice, vendors will not receive their payments, damaging your relationships with them and negatively impacting your company's reputation. This AP invoice management challenge includes lost invoices due to inaccurate financial information, with the expense added to the balance sheet.
5. Unauthorized purchases
Unauthorized purchases refer to using a business credit card for illegal purposes, such as buying things from unauthorized vendors. Employees also use non-authorized providers to avoid the slow accounts payable process. These internal AP challenges make everyone's job very difficult.
It is time consuming for accounts payable department to investigate invoices manually for every employee purchase. Additionally, inappropriate use of business credit cards is another example of unauthorized purchases.
6. Invoice exceptions
Exception invoices contain a lot of misinformation or incomplete data, and the AP team spends at least a quarter of their time working on these exceptions. In such scenarios, the AP clerks must spend time and resources chasing vendors to update information, leading to an AP invoice management challenge.
7. Manual Follow-up
Following up after every invoice or payment is the most challenging task, as these follow-up tasks take more than a day or two. Sometimes AP clerks manually send out more than ten reminders, follow-up calls, and texts, which is time and resource-consuming. Sometimes when you need a vendor's contact information, there is no backup with manual follow-up, leading to a delay in payment.
8. Vendor Enquiries
Maintaining good relationships with your vendors is very crucial for your business. Late payments can easily lead to losing a vendor's trust and missing out on perks such as flexible payment terms and short-notice ordering.
9. No Invoice Visibility
Manual processes are not efficient and cost-effective. They also don't give companies the necessary visibility to know where an invoice is or their outstanding liabilities. This visibility challenges in the invoice management process to forecast future calculations create a problem for the AP team. With this challenge, it's not easy for the AP team to do monthly closes manually or for the treasury to know the cash flow available at any given moment and manage it effectively.
10. Approval Lags
One of the biggest challenges in AP invoice management is the approval lag. This lag happens when the AP team takes too much time to approve invoices leading to internal balance sheet mismanagement and problems maintaining good vendor relationships and team morale. One way to improve the invoice approval process is by using an automated Accounts Payable system that can alert you when invoices have gone unviewed for a certain period.
11. Competitive market prices
With the aid of the latest technologies in the market, companies gain their competitive edge as AI adds major benefits in market research and discount implementations. Without AI automation in market research, companies face cash flow loss as they cannot apply the appropriate market rates to their suppliers, which their competitors have the edge over. Due to no discounts and offers, companies may pay more, leading to a revenue loss for the organization.
12. Data & Cyber Security
According to the Ponemon Institute 2022 Cost of Data Breach Study, 83% of organizations have had more than one data breach. Data breaches occur when either employee unintentionally processes the wrong information or fraud occurs with fake invoices, where there is no legitimate system to check the point of the accessing party.
Even when companies upload their invoice statements to emails, they get exposed to cyber-attacks when there are no solutions to secure authentic documents online.
Solutions for an easy AP Invoice Management
1. Going Paperless
Eliminating stacks of paper bills and laborious data entry can dramatically reduce processing time and AP invoice processing challenges. Businesses upload electronic and scanned physical paper invoices into accounting software through emails and other sources. The software uses Optical Character Recognition to extract data from digital invoices. With AI and machine learning technologies, invoices can be easily managed and tracked throughout the AP process.
With the trend towards cloud-based systems, eliminating paper invoices becomes even more significant because it makes it easier for employees to manage invoices 24/7 from any device.
2. Streamline Workflow
Businesses improve their AP invoice management process by streamlining the workflow with accounts payable automation solutions. By adopting a simplified and automated system, companies enhance efficiency and minimize errors and payment delays. This automation process allows the AP team to utilize their time and skills for other high-value tasks. A few critical measures in streamlining the AP invoice management workflow include:
Automating invoice processing.
- Review and eradicate errors and duplicate/fraudulent data.
- Employing electronic invoicing and payment systems.
- Developing approval protocols.
- Establishing clear communication routes between relevant departments.
3. AP Automation
Manual AP processing requires manual data entry, verifying data accuracy, and maintaining physical records. Even when done correctly, these extra tasks require time and are more prone to mistakes. With accounts payable automation solutions, businesses can improve quality, accuracy, and speed by automating them.
First and foremost, you can say goodbye to manual data entry and AP invoice processing challenges. With digital invoices, you can directly import them into your accounting software using mail or other options. You can also scan manual vendor invoices and upload them as invoice entries in the software.
With Automated Invoice Management, you can avoid large invoice backlogs and losses by streamlining the end-to-end AP process. You can remove any possibility of manual AP processing challenges as Automation Invoice management software uses AI, Machine Learning, OCR, and cloud-based technology to reduce costs and improve performance.
4. 3-way matching payables
The main objective of the Accounts Payable process is to have all invoices go through the 3-way matching process, ensuring accurate and timely payments. E-invoices get matched against the Purchase Order (PO) and Receipt of Goods. All invoices are reviewed and sent for vendor payment without human intervention. However, some invoices may require human intervention due to missing PO or other exceptions. To set up the system, determine the tolerances for matching rules. Invoices falling within the tolerance are sent for payment, while exceptions are flagged and routed to an authorized person for approval or further action.
The accounts payable automation solution handles late payments and lost invoices to keep the financial department healthy. The solution uses the 3-way matching process to automate the system and ultimately streamline the accounts payable flow. With 3-way matching payables, you can improve your invoice management steps with three steps:
Store - Once a Purchase Order (PO) gets created, it is stored in a secured cloud space for quick access anytime and anywhere.
Receive - Collect the delivery receipt note and supplier invoice from the finance and extract the key details using Optical Character Recognition (OCR) technology.
Compare - The final payments are released once the data is compared and validated from the Purchase Order (PO), supplier invoice, and goods receipt.
5. Optical Character Recognition (OCR) Technology
Optical Character Recognition significantly improves the efficiency and accuracy of your AP process. With OCR, companies can transfer invoices as input and process them with 100% accuracy. You can quickly scan and extract critical data from invoices using OCR technology, such as the vendor's name, invoice number, payment amount, etc. This information is then automatically put into your organization's AP system, eliminating the need for manual data entry. By employing OCR technology, you can save time and reduce the chance of AP invoice processing errors.
OCR technology also helps to match invoices by comparing data from the invoice to purchase orders and receipts, ensuring accuracy, and preventing overpayments. Overall, using OCR technology, you can manage invoices, reduce errors, and improve the accuracy and speed of payment processing.
6. Custom Business Rules with AI
With AI, businesses create custom rules to process these invoices and create a customized flow that suits each vendor's needs. With Straight-through-processing, which doesn't require manual intervention, businesses can streamline their operations. With Hermes, A master invoice bot contains the related words which can fetch information from service-level agreements.
For example, AI can detect irregular patterns in a vendor's invoice details that drastically differ from regular bills. These alert APs, and they can recommend the next best step according to the vendor's needs.
After signing up the vendors in your AP Automation system, you can process their invoices electronically. The process begins without any processor opening an envelope or downloading a pdf. It is a fully digitized electronic document from when it gets prepared until it is approved and enters the company's ERP or AP system. With E-invoicing, you reduce data entry errors and the potential of lost or forgotten bills by eliminating paper and the human component.
8. Custom Approval Flow
Using triggers based on business rules, you can customize the approval workflow to streamline the invoice approval process and reduce the overall invoice processing time. You can build custom business rules and triggers to automate the approval and payment process.
For example, the invoice software can set up triggers to send invoices to management for approval over a specific monetary level. You can create more customized triggers to send invoices for approval if certain line items or services demand extra inspection. Furthermore, with AI, you can analyze previous approval patterns and recommend the best workflow for each vendor based on billing history and payment preferences with accounts payable automation solutions.
9. Use Machine Learning to reduce data errors.
Accounts payable automation can review invoice entries against a mapping master file for any invoice processing challenges and flag them for the manual review of an approver with login credentials. With Automated invoice software, you can generate an automated report containing consolidated exceptions or errors daily. With Machine Learning technology, you can process invoices with 100% accuracy using only 10% of human effort to handle exceptions.
Integrations bring several advantages to invoice management software, allowing organizations to streamline operations and optimize processes. Integrations can assist in eliminating invoice processing challenges and increase overall AP process efficiency. Accounts payable automation can automate the data entry process and decrease the need for human intervention by interacting with other business systems, freeing up time for AP teams to focus on more productive work.
Accounts Payable automation works perfectly with your back-office and ERP software. Using cloud technology, you can integrate your ERP and additional corresponding software with our platform.
11. Data and Cyber Security
Data and cyber security is a critical concern for every organization, as it involves businesses' sensitive financial information ensuring protection from unauthorized access or theft. To ensure data security, organizations implement the following solutions in their AP process system:
- Multi-factor Authentication: You can protect your data by ensuring multi-factor authentication as an efficient security measure that can effectively safeguard it against unauthorized access. Only relevant users have the passwords for all authentication controls.
- Access Controls: By implementing role-based access controls, you can grant access to specific features and data based on a user's role within the organization.
- Secure Hosting: Hosting invoice management software on a secured cloud-based server can help ensure data security from malware and other cyber threats.
12. Cloud-based Processing for any device
With secured cloud-based Processing, you can have an agile, scalable, and secure platform that will provide you with real-time data 24/7. The cloud-based processing system allows authorized users to log in and access the platform anywhere and anytime.
Here's how Hermes AP Automation minimizes your time and workload and reduces your AP cost liabilities:
- Hermes uses artificial intelligence (AI) to read incoming invoices from your emails. Hermes also uses Optical Character Recognition (OCR) technology to convert scanned invoices into text.
- With straight-through accounts payable automation solutions, it extracts data without manual intervention.
- It reduces your A/P invoice processing time from 5 minutes to 20 seconds.
- It saves as much as 77 hours weekly, equivalent to the time and effort spent by four full-time AP clerks.
- It saves 90% of your AP costs with 10% human intervention.
- It boosts employee productivity by 65%.
- It has a secured (SOC1 Certified and HIPPA compliant) cloud-based system.
- It provides you with 99.98% data accuracy.
- It increases invoicing speed and scales down human dependency.
- Hermes generates a regular review report that contains exceptions and AP invoice processing Challenges or errors for manual review.
- It uploads processed invoices automatically to the accounts payable ERP.
- Your AP team can use customized filters to create ad-hoc reports and audit logs.