Eliminate These 10 Bottlenecks with Automated Invoice Processing

Optimization of accounts payable processes begins with identifying bottlenecks in invoice processing and utilizing AP automation to resolve them quickly and efficiently.

Ask any financial leader and they will probably tell you that one of the more difficult aspects of managing a business is keeping up with the demands of a busy accounts payable (AP) department. Not only are employees often overwhelmed with work, but they are also hindered from making progress due to the many processing challenges that slow down AP functions.

Rather than letting the problem worsen or hiring additional staff to make up for inefficiencies, it might be time to identify what’s actually happening in your AP department and consider how an automation solution can help get rid of bottlenecks and give employees opportunities to put their time and effort into more value-rich tasks and goals.

In this CloudX article, you will read about ten of the most typical bottlenecks seen in accounts payable, learn how to identify yours, and get some tips utilizing AP automation to resolve bottlenecks and optimize your AP operations.

Common Invoice Processing Bottlenecks in Accounts Payable

If your AP employees can’t keep up with the demands of invoice processing, it probably means that your business is missing out on valuable cost savings and is at risk for damaged vendor relationships over time.

Here are ten of the most common invoice processing bottlenecks seen in invoice processing:

1. Data Entry Errors: When invoices contain inaccuracies such as incorrect amounts, vendor information, or dates, they unfortunately require additional scrutiny and correction by AP staff. This necessitates back-and-forth communication to verify and amend the errors.
   If data entry mistakes become frequent, they reduce staff productivity and cause staff to abandon their primary tasks to address data entry issues. This continuous cycle of error correction can erode trust within the financial team and between the company and its vendors, impacting overall operational efficiency and financial accuracy.
2. Missing Invoices: Payment approvals and reconciliations cannot proceed without the necessary invoice documents, and this results in time-consuming efforts to locate or reissue them. Unfortunately, delays from lost invoices often result in missed payment deadlines, which can incur late fees and then damage relationships with vendors. Over time, vendors may become wary and less willing to extend favorable terms due to the perceived unreliability of the company.
3. Inconsistent Invoice Processing: Variability in how invoices are handled—such as differences in data entry, approval timelines, and adherence to company policies—oftentimes leads to confusion and delays with invoice processing. As a result, additional oversight and correction of invoices become necessary, and this consumes valuable time and resources. Standardizing invoice processing then becomes an essential step in maintaining an efficient and accurate accounts payable system.
4. Slow Manual Processing Time: On average, it takes an AP employee approximately one hour to process five invoices manually. From entering vendor information and payment data into a computer system to matching supporting documents, the work is tedious, repetitive, and time-consuming. With the availability of technology tools that can dramatically speed up invoice processing time, this type of manual labor no longer needs to be part of an AP department’s routine.
5. Exceptions: Invoice exceptions in manual accounts payable processes can create discrepancies between purchase orders and invoices, incorrect pricing, and missing information. They not only stall the approval process, but they also necessitate additional verification steps and involve communicating with vendors or internal departments to resolve discrepancies. The cumulative effect of these inefficiencies reduces overall productivity and increases operational costs, making it crucial to minimize invoice exceptions by streamlining accounts payable processes.
6. Fraud and Theft Attempts: Fraudulent activities, such as falsified invoices or duplicate payments, require extensive investigation and involve scrutinizing documentation, cross-referencing documents with legitimate records, and engaging multiple departments for thorough review. This time-intensive work then creates delays and backlogs in approval and payment. Subsequently, the need for increased oversight and controls to detect and prevent fraud further complicates manual invoice processing workflows.
7. Inefficient Data Storage: Managing a large volume of paper invoices, purchase orders, and receipt documents requires substantial physical space and creates organizational challenges. Not only that, but retrieving specific documents for verification, approval, or audit purposes can be difficult since employees must sift through files, cabinets, or storage rooms to gather the documents they need.
   This cumbersome process delays the overall workflow, extending the time needed for invoice approval and payment. Searching for misplaced or incorrectly filed documents further exacerbates delays, increasing the likelihood of missed payment deadlines and late fees. Additionally, physical storage is prone to risks such as damage, loss, or theft, which can lead to further complications and delays.
8. Errors In Matching: To make sure invoices are paid correctly, most AP departments perform 3-way matching activities, which involves matching an invoice to a purchase order and to a goods receipt. Human errors are common in this processing step and often involve overlooking discrepancies, reading data incorrectly, and misinterpreting payment terms. When matching errors occur, additional time is required to review and correct the information. The matching process is further complicated when vendor documents arrive in a variety of formats and document types.
9. Paying Invoices Before Receiving Goods or Services: While paying for goods or services early can earn cash rebates and discounts, paying without ensuring receipt and delivery will often cause major problems for a business. If goods are delayed, damaged, or never arrive, a business will face challenges in recovering the funds, which strains cash flow and financial planning. It also reduces leverage for resolving disputes with vendors, as payments have already been made.
   This problem most often occurs due to poor coordination between purchasing and accounting teams, lack of robust verification procedures, or pressure to expedite payments.
10. Double Payments: Manually entering invoice data and tracking payments can lead to duplicate entries if invoices are mistakenly processed more than once. This can happen if invoices are filed under different categories, names, or if their statuses are not accurately updated.
    Another common issue is miscommunication between departments, where one staff member might process an invoice unaware that another has already handled it. Lack of a centralized tracking system complicates efforts to verify whether an invoice has already been paid, increasing the risk of duplication. Additionally, staff turnover and inadequate training can contribute to inconsistent handling of invoices, further escalating the risk of double payments.

How AP Automation Eliminates Accounts Payable Bottlenecks

AP automation plays a crucial role in eliminating bottlenecks by streamlining and standardizing various invoice processing activities. One of the key benefits is the reduction of manual data entry. Automated systems utilize technologies like optical character recognition (OCR) to capture invoice data accurately, minimizing human errors that often lead to delays. This allows invoices to move through the system more quickly and efficiently, reducing the time spent on manual intervention.

Improved invoice matching is another significant advantage of AP automation. Automated 2-way and 3-way matching processes instantly compare invoice details with purchase orders and receiving reports, flagging any discrepancies for quick resolution. This accelerates the approval process and reduces the manual verification workload, a common source of bottlenecks in traditional systems.

Real-time tracking and enhanced transparency are also key features of AP automation. Automated systems provide up-to-the-minute status updates on invoices, enabling stakeholders to monitor progress and identify potential issues immediately. This visibility ensures that bottlenecks are detected early and addressed promptly, preventing delays from accumulating and disrupting the entire workflow.

Overall, by addressing the root causes of inefficiencies and enhancing various aspects of the invoice processing workflow, AP automation effectively eliminates bottlenecks and leads to a more streamlined, efficient, and reliable accounts payable process.

Identifying Bottlenecks In Your Organization

If any of the bottlenecks explained in this article sound familiar, then it’s time to discover exactly what problems are happening in your AP processes and why they’re happening. Process mapping is a valuable tool that can help you identify bottlenecks in accounts payable invoice processing, so consider using on of these methods to analyze and optimize your workflows more effectively:

• Flowcharts. Flowcharts involve creating a visual representation of each step in the invoice processing workflow. By detailing every action, decision point, and handoff, flowcharts help pinpoint where delays or errors occur. Identifying redundant steps or areas requiring manual interventions can reveal bottlenecks.
• Swimlane Diagrams. These diagrams divide the process into lanes based on departments or roles. By mapping out responsibilities and interactions, swimlane diagrams highlight inefficiencies in communication or handoffs between teams. This method can uncover delays caused by unclear responsibilities or insufficient cross-departmental coordination.
• Value Stream Mapping (VSM). VSM focuses on analyzing the flow of materials and information from start to finish. It distinguishes between value-adding and non-value-adding activities. By identifying and eliminating waste, VSM highlights bottlenecks and opportunities for streamlining invoice processing.
• Cause and Effect Diagrams (Fishbone). This method helps explore potential causes behind bottlenecks. By categorizing issues into areas such as personnel, processes, tools, and external factors, fishbone diagrams facilitate root cause analysis and targeted improvements.
• Process Flow Analysis. This involves scrutinizing each step for time efficiency and resource allocation. By measuring cycle times, waiting times, and process variations, businesses can identify stages where invoices get stuck, revealing underlying issues like resource constraints or inadequate training.

Employing one of these process mapping methods will help your business diagnose bottlenecks in accounts payable and then give you a baseline for employing an AP automation solution to eliminate them.

Get Started with AP Automation and Eliminate Your AP Bottlenecks

Once you’ve identified your organization’s biggest bottlenecks, you can take steps to streamline your AP department and become more efficient by implementing an end-to-end payment automation solution like APSmart by CloudX.

Contact CloudX here for more information or reach out by phone at 860-787-5323.