As with many other business functions, finance departments stand to benefit from advanced technologies, including automation. But embracing automation and convincing executives of the benefits can be challenging. The first step of this process is determining which finance function to prioritize first.
Today’s blog is here to help with that. Keep reading to learn key finance automation challenges and trends; the importance of automation; high-priority automation functions within finance; and key components of a strong AP automation solution. Let’s take a closer look.
What is Finance Automation?
Finance automation is the use of technology to carry out various financial processes automatically or without the need for human initiation. AP, AR, payroll and employee expenses are just a few examples of finance functions that can be automated.
What Challenges Face the Financial Industry?
Finance has faced a whole host of challenges, particularly in the wake of the COVID-19 pandemic. One of the biggest being the shift to hybrid and remote work environments. According to the recent State of AP report, 68.6% of finance teams are either in remote or hybrid work environments, making manual and paper processes more cumbersome and inefficient than ever before. For example, it’s difficult to process paper invoices, get them in front of the right people for approval, and cut and mail paper checks if the people involved in handling these papers are in disparate locations.
Another challenge comes in the form of the “great reshuffle,” prompting many employees to leave their jobs for new ones or leave the workforce altogether. In February alone, 4.4 million people left their place of employment. Employers are facing greater turnover and challenges with finding qualified workers. In fact, 54.3% of survey respondents from the State of AP report anticipate challenges and/or delays in hiring qualified people within finance and AP in 2022.
Not only is high turnover costly and time-consuming, it also runs the risk of losing process knowledge. Difficulty hiring makes it that much more challenging to compensate for this lost knowledge as well as handle any business growth that requires additional output from finance.
When you add supply chain disruptions to the mix, the situation becomes even more dire. According to the report, 44.1% of those surveyed face invoice processing challenges or delays as a result of recent supply chain disruptions, and 39.2% indicated challenges related to payment delays and/or reconciliation issues. Thankfully, finance (more specifically, AP) automation can support your business through all of these challenges.
Which Financial Functions Can Be Automated?
Most firms are turning to finance automation in order to combat the above challenges. This can come in many forms, making it difficult for firms to determine where to start their finance automation journey. Below are some common examples of financial functions that can be automated:
Automating accounts payable includes invoice capture, approvals, payment authorization, and payment execution. Each process can be automated individually or as a whole. Companies with AP automation can reduce manual efforts associated with payments, while freeing up employee time to make more strategic business decisions.
Vendor management includes tasks such as enrollment, capture of payment preferences and associated information, account updates, and the ability to respond to inquiries. Software with an accounts payable vendor portal also makes it easy to manage and update vendor details, payment information, and account updates and gives both you and your vendors visibility into where an invoice is in processing and when to expect payment.
In accounts receivable (AR), tasks to automate include recurring invoices and payments, past due payment reminders, and more. Automation can create automatically generated invoices based on previous invoice data.
Payroll can be a complicated process to manage manually, since finance teams may have to account for holidays, tax withholdings, benefits, overtime, and different salary levels.
Employee expense management can be time-consuming for companies and employees. It involves approvals from management and employees to fill out expense reports, with receipts and proof of purchase.
Reporting & Analytics
Reporting and analytics require collecting data about various accounts in one place, then arranging and analyzing it to gain insights into patterns and issues. With the right automation software, all of the data is automatically collected in one place, and reports can be generated instantly from it on demand.
Finance’s Automation Focus
In the Finance 2030 report, McKinsey found that finance leaders are spending more time on value-added activities than they did ten years ago (up 19%). Not only that, but over 50% of CFOs surveyed want to enhance the accuracy of cash flow forecasts with advanced analytics.
Forrester’s stats support this notion. They found that nearly 3 out of 4 financial leaders (74%) noted that the pandemic underscored the need for more accurate forecasting. But what does that mean for finance automation?
“The key to holistic cash forecasting is to capture data on outgoing cash payment obligations in approved AP invoices and on incoming cash receipts based on customer approval of submitted AR invoices,” Forrester said. “AP and AR invoice automation systems are the best sources of this advanced data.” Despite this, only 12% of companies have automated their AP and AR functions. It’s no surprise then that AP and AR are the top two focus areas for finance automation in 2022, according to our 2022 State of AP report. This automation enables teams to quickly obtain the data needed for accurate cash forecasting.
Why is AP So Important to Automate?
In our own State of AP report, survey respondents indicated that AP was the #1 priority for back-office digitization for the second year in a row. Yet only 21.9% of firms have fully automated their AP processes, demonstrating ample opportunity for expanded AP automation adoption.
Vendor relationships have become more strategic over the past year due to supply chain issues. AP automation can help improve relationships with vendors by facilitating timely payments in each vendor’ preferred method. Automation also makes it much easier to manage and onboard vendors, pay them on time, and provide them with transparency into your processes.
Automation eliminates manual processes and paper handling by enabling a fully digital workforce. When employees are working in a remote or hybrid environment, being able to handle tasks digitally is vital. With AP automation, invoice approval is done via email, making it easy to facilitate approval from anywhere.
Sometimes invoice volume fluctuates or even increases dramatically in the event of rapid business growth. These changes are very difficult to meet with manual processes and would require increases in headcount. In contrast, automation makes scaling much easier because those processes are all handled by computer.
Human Error & Data Accuracy:
When tasks are preset and handled automatically, there is less room for errors to enter the system. This streamlines processes and improves data accuracy.
An AP automation system keeps all captured data in one place and makes it easy to generate reports and analytics at the touch of a button. These reports will always have the most up-to-date information and can provide timely and actionable insights. Additionally, you can use data as soon as the invoice is captured, making it easier to gain an accurate understanding of your company’s current financial standing.
What to Look for In an Automation Solution
If you’d like to start using automation in your AP department, it’s important to find a solution that meets your needs. Look for the following as you compare different software and platform offerings:
If your system is going to collect data, you might as well be able to use it. Look for a solution that can produce instant reports and analytics from the data it collects.
Accurate Data/Invoice Capture:
Automation solutions are only good if they capture data accurately. Note that some systems that rely on OCR technology for invoice capture may face significant error rates (as much as 10%). Seek out a solution that comes with extra steps to verify captured data accuracy before processing. For example, by deploying additional checks through human review, MineralTree’s OCR invoice capture capabilities ensure 99.5% accuracy for each invoice.
Visibility into Process:
It’s difficult to trust automated processes if you can’t see how they are working or where invoices are in process. A proper solution should allow you to instantly find the answer to any invoice query.
Integration with ERP System:
Data should flow two ways between your AP automation software and your ERP system. This ensures that the ERP system remains the system of record for all accounting debits and credits after invoices are posted.
There are numerous areas within finance to automate. That said, research shows that AP is the #1 back-office automation priority for both 2021 and 2022. This is likely because of its many benefits including: increased efficiency, more control, and visibility into cash flow management.
The right AP automation solution should streamline AP processes, capture accurate data, provide visibility, and integrate seamlessly with your ERP system. Thankfully, MineralTree’s AP automation solutions were designed to do exactly that. MineralTree’s TotalAP digitizes and automates the entire invoice-to-pay process, improving your efficiency by up to threefold and even reducing costs. You can even scale instantly from processing hundreds to tens of thousands of invoices every month, supporting business growth without adding headcount. Ready to automate your Financial AP process? Request a free demo to learn more.