How to Optimize Accounts Payable Processes for the AI Era

Artificial intelligence is becoming a huge part of many business processes. To keep up, you should start with optimizing accounts payable processes for the AI era.
June 10, 2023
8 minutes
Improve your AP processes with the power of artificial intelligence
Improve your AP processes with the power of artificial intelligence

Table of Contents

Accounts payable processing accounting software is critical for organizations to manage their financial obligations effectively.

The problem is that right now they’re plagued by manual tasks and paperwork which are subject to human error and take much longer to complete than they should.

But with the rise of artificial intelligence (AI), every accounts payable process can be optimized to enhance efficiency and accuracy, resulting in better financial decision-making. Today, it is possible to leverage AI to replace manual document processing with self-driving documents that need little to no human involvement for extraction and data structuring purposes.

This article explores standard AP processes and the impact of AP workflow automation by integrating AI. We’ll also cover the AP areas that AI can support alongside some issues to consider before implementation.

What Is a Standard Accounts Payable Process?

The accounts payable process involves effectively managing the accounts payable cycle and short-term financial obligations the business owes to vendors and suppliers.

At its core, the accounts receivable and payable process revolves around maintaining the legitimacy and accuracy of payments made from the business to its suppliers.

To do this, they collate and analyze the following documents:

●       Purchase Order (PO): A purchase order is a legally binding agreement issued by the company to the vendor. It specifies the type, quantity, and agreed-upon prices of ordered products or services. The PO involves multiple entities within the company, such as the requesting party, purchasing department, accounts payable department, receiving department, and vendor.

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●       Receiving Report: A receiving report confirms the receipt of the ordered goods or services from the vendor. This report verifies that the details match those specified in the previously issued purchase order. It ensures that the goods have been received as expected and initiates further processing.

●       Vendor Invoice: After receiving the goods or services, the company receives the invoice from the vendor. The AP department is responsible for processing the vendor invoice, and processing payment which involves verifying the details through a three-way match with the purchase order, receiving report, and vendor invoice. Once approved, payments are scheduled accordingly.

●       Vouchers: Vouchers serve as a comprehensive record of the approval process for a particular purchase. They act as an index that references supporting documents such as the purchase order, receiving report, the vendor's invoice, etc. Vouchers contain information related to approvals, case numbers, and other relevant details, ensuring completeness and facilitating easy retrieval of supporting documentation.

Without the AP department and accounting system, supplier and vendor payments would likely be incorrect, delayed, or missed altogether, putting strain on the relationships and resulting in costly late payment penalties.

To avoid this, AP staff follow a repeatable, step-by-step accounts payable process:

  1. Receiving the purchase order from the purchasing department. This order serves as a record of the products or services the company intends to buy from the vendor.
  1. Obtaining the vendor invoices. This document outlines the details of the goods or services provided, along with the corresponding costs.
  1. Verifying the invoice. The AP team verifies the data to ensure its accuracy and completeness. This includes cross-checking the document information against the purchase order and other relevant records. If there are any discrepancies or errors, the verifier will flag the invoice for further investigation.
  1. Approving the invoice. Designated personnel review the invoice and either approve it for payment or request modifications if necessary. This step helps maintain financial control and prevents unauthorized payments.
  1. Finalising timely payments. The AP team processes the final payment to the vendor. This may involve various payment methods such as electronic transfers, checks, etc.

While these steps form the core of the accounts payable process, some companies have additional requirements which can increase the number of steps in the AP process. These may include further approval levels, additional reviews, or specialized procedures for ensuring compliance and optimizing the payment process.

Why Use AI to Optimize Your AP Process?

The management of AP processes plays a critical role in the smooth functioning of a business, and integrating AI into this workflow offers numerous advantages.

But before we dive into the benefits, it’s important to understand the challenges that the accounts payable department usually faces.

Challenges in the Accounts Payable Process

In our experience, these are the most common challenges that AP teams face during day-to-day operations:

●       Accurate Invoice Matching: Data entry mistakes or incorrect billing information can cause discrepancies that take time to identify and rectify. But even when invoices themselves are correct, three-way matching is also susceptible to errors which can lead to potential mistakes.

●       Invoice Exception Management: AP departments encounter exceptions such as incomplete or non-matching information on invoices. Dealing with these exceptions can be time-consuming and costly as they require additional communication with vendors. Some exceptions can even go unnoticed until after they’re paid.

●       Unnecessary Purchases: Inadequate internal controls and checkpoints in the AP cycle can result in unnecessary, unauthorized, or duplicate purchases. Without proper oversight, businesses may make purchases that aren’t aligned with their needs or budget, leading to wasteful spending and inefficient resource allocation.

●       Fraudulent Invoices: Without robust systems and processes in place, fraudulent activities can go unnoticed, resulting in financial losses and damage to your company's reputation. However, any manual review process is always subject to error.

●       Lost Documents and Delays: Many companies still rely on paper invoices and manual invoice processing, but this significantly increases the risk of losing important documents. Lost invoices create a range of issues throughout the AP cycle and month-end close, resulting in friction with vendors, delayed operations, and financial penalties.

●       Delayed Data Analysis: Paper-based and manual data entry processes create opacity when it comes to analyzing and understanding AP data. Without access to real-time information and visibility into their financial statements and transactions, businesses can’t accurately monitor or manage cash flow.

However, with the help of AI, you can reduce the effect of these challenges and, in some cases, completely neutralize their drawbacks.

Benefits of Integrating AI Into Your Accounts Payable Process

A primary benefit of using AI in an accounts payable process cycle is the ability to ensure prompt payment of invoices.

AI algorithms can achieve excellent AP automation. They can automatically extract data from vendor invoices, match them with purchase orders, and initiate payment workflows, enabling more efficient payment cycles and helping you establish strong relationships with vendors.

You can also use AI to automate payment reminders to save your AP staff from missing payments. This not only saves the company from unnecessary financial penalties such as penalties and late fees but also fosters trust and credibility with vendors.

Another advantage is preventing overspending and eliminating the risk of duplicate payments on incoming bills.

AI-powered systems can analyze and detect anomalies in invoice data, such as duplicate invoices and other discrepancies, then flag them for review. This also translates into fraud detection and prevention, as AI can detect suspicious invoices and invoicing patterns.

Ultimately, this helps mitigate the risk of overpaying your vendors, minimizing wastage and improving efficiency.

Furthermore, AI integration can improve the management of your company's needs and purchases.

Through automated AI invoice processing, you can accurately capture invoice data. This helps you maintain a comprehensive record of all purchases, including quantities, prices, and vendors.

Having a centralized database helps you easily retrieve and analyze this AP data so you can optimize your accounting and invoice management process, negotiate better payment terms with suppliers, and streamline day-to-day operations.

For example, you can leverage AI to optimize payment scheduling by finding a balance between early payment incentives and maximizing vendors’ credit terms. This approach helps maintain healthy cash flow, improves financial stability, and enables effective resource allocation.

Understanding the Role of AI in Accounts Payable Process

In good accounts payable systems, AI systems can analyze data, recognize patterns, and make intelligent decisions, just like a human.

Here are some of the beneficial ways that AI can support AP processes:

1. Automated Invoice Processing

AI-powered systems can automatically extract relevant data from invoices, such as vendor details, invoice numbers, and line item information. This AP automation can immensely speed up the accounts payable cycle.

2. Invoice Verification and Validation

AI algorithms can perform advanced validation checks on supplier invoices too, comparing them against purchase orders and contracts to ensure accuracy and compliance.

3. Exception Handling and Discrepancy Resolution

You can program AI systems to identify discrepancies or exceptions in invoices and trigger automated workflows for resolution.

4. Intelligent Payment Processing

AI can help you optimize payment scheduling and facilitate efficient payment execution by analyzing historical payment patterns, invoice due dates, and cash flow data. These algorithms can then recommend the most suitable payment timing and method.

5. Vendor Management and Relationship Building

You can use an algorithm that analyzes vendor data, such as payment history, responsiveness, and satisfaction levels to identify and prioritize key vendors.

6. Fraud Detection and Risk Mitigation

AI algorithms can identify patterns and anomalies in a company's financial statements and transactions, flagging potential instances of fraud or suspicious activities. By monitoring invoice and payment data in real time, AI enhances fraud detection capabilities, catching problems before it's too late.

7. Advanced Analytics and Reporting

AI-powered analytics provide valuable insights into AP processes, vendor performance, spending patterns, and cash flow trends. By leveraging this data, you can optimize working capital, identify cost-saving opportunities, and drive continuous process improvement.

8. Integration with ERP Systems and Workflow Automation

Integrating AI with existing enterprise resource planning (ERP) systems allows you to automate AP workflows and facilitate seamless data exchange. This integration streamlines end-to-end AP processes, reduces manual effort, and improves overall operational efficiency.

What to Consider Before Integrating AI Into Your AP Process

Before you integrate AI into your accounts payable process, there are a few things to address:

●       Stakeholder Buy-in: Not everyone will be receptive to AI, so you need to clearly communicate the benefits of AI optimization — for example, lower costs, improved efficiency, and enhanced decision-making capabilities. Because, without support, adoption will suffer.

●       Data Security and Privacy: Financial information is incredibly sensitive, so you must adhere to data protection regulations and implement security measures to prevent breaches. Some steps include adding data encryption, access controls, and implementing regular data audits.

●       Employee Training: To get the most out of AI, you should provide comprehensive training to help employees understand its capabilities and how to interpret AI-generated insights and collaborate effectively with AI systems. While AI brings automation and efficiency, human oversight is still critical for handling complex scenarios and ensuring ethical and responsible financial management.

Once you’ve got these concerns out of the way, it’s time to focus on implementation.

AI-powered software can support several aspects of the AP process, including:

●       Invoice processing and data capture.

●       Robotic process automation for repetitive tasks.

●       Data validation.

●       Strengthening supplier relationships.

For this reason, you should focus on optimizing one aspect of the AP process at a time, so you gauge the AI's effectiveness.

Ensure you choose the right AI solution based on your specific needs, scalability, and compatibility with existing systems. Because even though AI can improve AP processes, incorrect integration will limit the benefits.

The Future of AI in Accounts Payable

AI will continue to play a crucial role in overhauling current accounts payable processes.

Further advancements in fields, such as natural language processing and machine learning, will improve automation efficiency, decision-making, and data analysis — we’re only scratching the surface of AI's power right now.

AI is inevitable so optimizing accounts payable processes for the AI era is essential for organizations to stay ahead and drive better financial management.

Is AI integration on your AP agenda for 2023?

Then start at the first stage of the account payable process — invoice extraction. Without accurate data extraction, any subsequent actions you take can be based on false insights. This can lead to missed, late, or duplicate invoice payments, making it difficult to manage short-term cash flow.

But using an AI-powered invoice extractor such as Affinda, our high-performance data extractor and API, prevents these errors. With the power of human-like neural networks and the processing speed of computers, you can significantly speed up the AP process while reducing your error rate.

The best part? All you need to know is how to click a few buttons.

Try Affinda's Accounts Payable AI with a free trial and take the first step towards optimizing your accounts payable balance and processes.

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