Accounts Payable News^®

Just How automated is Your Organisation?

Many Accounts Payable (AP) departments consider themselves to be working in an automated environment, and certainly compared to just a few years ago, processes have obviously moved on.  However, in many cases the word “automatic” is misleading.  Matching the P.O to the receipt of goods may be automatic to an extent because the P.O number can be pulled up on screen from the ERP system and each line item checked off against what’s been received.  In AP all the open receipts (ones which are yet to be reconciled) can then be seen automatically by entering the P.O numbers on the screen.  However the automatic process breaks down when it comes to being able to match the invoice to the receipt.  This system usually involves manually reviewing the invoice lines in order to complete the three way match.  So, although the system has advanced over the years, many operations are still quite a long way from being truly automated.

Automate Your Three-Way Match

In order to make the three way match process fully automated, the vendor invoice would need to be both visible and the data from it electronic.  This way the line items on the invoice can programmatically match to the P.O and receipt lines without AP interventions.  This can be achieved via a process known as “Straight Through Processing”.  Although we worry about the problem invoices and areas where our systems break down, it’s fair to say that in the majority of cases, invoices do match ie the P.O, receipt and invoice match across all line entries.

How is it Achieved?

What Straight Through Processing does, is that it takes electronic data from the invoice to match to the P.O and receipt data and automatically completes the three way match (where the match is exact) without anyone in AP being involved.  This enables individuals to focus their energies on those invoices which are more problematic, which in turn allows companies to become more profitable and streamlined.  Capturing the line item data electronically from an invoice can be achieved in a number of ways.  You can either build further “bolt on” programs to your existing ERP system, or use a third party e-invoicing vendor who’ll work directly with your vendors.

Making the Most out of Straight Through Processing

In some cases anomalies occur where an invoice has been received, but the goods have failed to arrive. A useful Straight Through Processing system will also continually check for receipts to come in and once they have, these invoices can be Straight Through Processed too, even days later.  In addition, by setting predefined tolerances into the system, the number of Straight Through Processes can be increased still further.  For example, if an invoice has been highlighted as having an error and on inspection it matches across all lines except on unit price for example and this is shown as being out by a few pennies, a company may decide that this is a tolerable difference and allow Straight Through Processing. Ultimately automation’s main achievement is saving time and money and creates a series of user-friendly, compliance traceable transactions.