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A Brief History of Accounts Payable Automation

22 .12 .2021
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Accounts payable (AP) processes have transformed dramatically over the past few decades. A department that once relied heavily on manual labor, accounts payable has undergone extensive modernization and digitalization. Indeed, in many organizations, the AP department has evolved from a paper-based back-office process into a digital service center delivering business insights and monitoring finance KPIs to secure long-term performance.

In this article, we examine the history of AP processes and look ahead to trends and technologies that will shape AP in the coming years.

Paper-based processes

In the past, all the steps of the AP workflow were performed on paper. Invoices and related documents, such as purchase orders and goods receipts, were printed out and exchanged as paper files. An incoming invoice would first be stamped with the date of receipt and then sent by internal mail to the appropriate employee. After approval, the invoice was forwarded to the various AP professionals responsible for processing it. Finally, the document was physically stored in the company’s archive. Due to the large number of manual steps, throughput times were often very long, and it was difficult to keep track of various documents’ statuses. This lack of transparency tended to damage supplier relationships and cause several inefficiencies in the invoice processing workflow. But the only way for companies to process invoices more quickly was to hire more people.

The beginnings of digital processes: EDI, ERP and OCR

The development of electronic data interchange (EDI) systems in the 1960s kickstarted the digitization of AP departments. This new method of data exchange allowed documents to be processed by computers instead of by humans. To ensure documents’ readability and comprehensibility, standardized invoice formats were introduced. Thanks to EDI, businesses were able to exchange data digitally and transfer information without paper. EDI boosted efficiency in accounting and remained the standard method of exchanging complex transactional data for almost three decades.

Technological advances meant that by the 1990s, many employees had their own personal computer at work. This accelerated the expansion of digital processes in AP, and e-mail became the second-most prevalent method of document exchange.

But despite the increasing rate of digitization, many businesses continued to work with hard copies. In fact, it was not uncommon for companies to receive an invoice via e-mail only to print it out before forwarding it internally. And understandably so: after all, the paper file had to be stored in the archive at the end of the process.

With the introduction of enterprise resource planning (ERP) systems in the 1990s, AP processes continued to evolve. In order to comply with government directives and ensure the digital availability of all relevant data, businesses started capturing invoices in their ERP system instead of relying exclusively on paper files. Thus, many companies now had two parallel AP processes: a digital one in the ERP system, where every step of the workflow had to be recorded manually, and a paper-based one, whereby printed documents were forwarded between departments.

Digital AP processes were further enhanced with the development of optical character recognition (OCR) engines, which can recognize text within a digital image. From the early 2000s, the technology was available as an online service, enabling companies to shift from entering data manually to capturing invoice data electronically. Back then, OCR capabilities were limited, and it was necessary to define where exactly each piece of information was to be found on the invoice. In order to successfully recognize data fields, OCR engines therefore had to be trained on each distinct invoice format.

For many years, the hybrid approach described above, with its combination of manual and digital processes, was the standard way of working in AP departments. However, the advent of automation for AP transactions opened up new options.

Enter AP automation

Today, many businesses have automated some aspects of their AP process. While cost savings and efficiency remain still at the top of the list of advantages, forward-thinking businesses also see AP automation as a critical driver of their overall digital transformation.

To take full advantage of the capabilities offered by automation, many companies are opting for end-to-end solutions that map the entire AP process within a single system. Such end-to-end solutions encompass the following features:

    • Data capture: Firstly, the AP automation solution captures and extracts the relevant invoice data before transferring it to the ERP system. These days, it does not matter where the information is located – the software is able to read and extract information at header level as well as specific line items.

    • Validity check: Based on the extracted information, the solution verifies the document’s validity.

    • Three-way match: The invoice is then matched to the corresponding purchase order (PO) and goods receipt. If the information on all three documents corresponds, the invoice is approved. If not, the system automatically informs an AP clerk. Invoices without a PO must still be checked manually.

    • Invoice approval and release: After the invoice has been approved, it is released and sent to the digital archive for storage.

    • Payment authorization and execution: Lastly, the solution authorizes and executes the payment.

By implementing a digital AP workflow, companies can benefit from numerous advantages, including reduced manual labor, optimized process reliability, improved security, and compliance with global E-Invoicing mandates

What to expect in the future

Considering the speed of innovation and the steady stream of new technologies, there is no doubt that the AP landscape will continue to advance. To maintain their competitive edge, companies need to stay up-to-date and prioritize the strategic development of their AP department. In the following, we present some of the most important technological trends.

Digital Supplier Management

A growing number of businesses are enjoying the benefits of a digital supplier portal, which allows them to communicate easily with their vendors. An online platform like this enables both customers and suppliers to upload information, exchange documents, track orders, and manage their business relationships, while integrated self-service options allow suppliers to access information at any time. A digital supplier portal improves process efficiency, increases flexibility, and assists businesses in their digital transformation journey.

Artificial Intelligence

With its diverse fields of application, artificial intelligence (AI) is a true game-changer in how we do business in the twenty-first century. Take OCR engines. While these once had to be trained on different invoice formats to ensure data recognition, today’s intelligent software solutions can read and interpret information no matter where it is located on an invoice. By further reducing the amount of human labor in the AP process, AI has the potential to maximize efficiency and accuracy, improve cash management, and so deliver direct value to the business.

E-Invoicing

A disruptive technology that is transforming traditional methods of invoice exchange, e-invoicing is set to be the next logical step in the AP journey. Government-regulated E-Invoicing mandates typically result in a set of rules stipulating the invoice format (including mandatory information), how invoices are to be submitted, and the scope of the regulations (e.g., B2G, B2B, and B2C). These mandates define not only cross-industry but also cross-country rules that will simplify and standardize invoice exchange in the long term.

The AP department has come a long way, evolving from a simple back-office process to a strategic business unit that is a major driver of the digital transformation of many companies. To stay ahead of the game, businesses need to recognize the importance of AP automation and adapt their processes to the latest standards.