Accounts payable (AP) are the most critical processes of business accounting. Accounts payable are amounts due to vendors or suppliers for goods or services received but have not yet been paid.
Intelligent document processing (IDP) brings significant results to the optimisation of the AP processes. AP automation allows enterprises to gain higher processing accuracy and speed. Digital development allows accounting departments to focus on more strategic tasks, such as cost reduction and outcome improvement.
Due to the Future Market Insights report, the worldwide AP automation market was estimated at € 2.1 Billion in 2021. The market is projected to increase at a compound annual growth rate of 10% achieving € 6.2 Billion, up from € 2.4 Billion by 2032.
In this publication, we discuss the accounts payable definition and processes, the ways to streamline the AP processes with IDP, and the integration of Graip.AI solutions in AP.
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What are accounts payable?
Accounts payable (AP) is an enterprise’s short-term debt owed to its creditors and vendors for provided services and goods that haven’t been paid. AP can be from a purchase from a vendor on credit, or a subscription or installment payment that is due after goods or services have been received.
You can find accounts payable at any time on a company’s balance sheet. Since they represent funds owed to suppliers and vendors, they are booked as a current liability.
In addition, accounts payable is called the special business department or division. This business unit is responsible for making payments due to suppliers and other creditors.
Important to mention that a business’s general AP balance at a definite time reflects on its balance sheet under the present liabilities part. Your company must pay off AP at a specific period that is written in a contract to avoid nonpayment.
At a corporate level, AP are obligations referring to short-term payments owed to suppliers and vendors. Accounts payable leads to a short-term IUO that follows from one company to another company or entity. IOU is a document that confirms the existence of a debt. The other company records this transaction as an increase of accounts receivable in the same amount.
What processes are included in accounts payable?
Accounts payable consist of various processes that can involve paper or digital documents such as invoices, receipts, checks, and even bank statements. These processes have to be highly controlled by the accounting department. Every number and interaction must be connected. Your accounting department has to calculate and manage them accurately and fast.
Correct double-entry accounting requests an offsetting debit and credit for every entry made into the general ledger. The parts of this process must always be in it as the essentials. To record accounts payable, your accountant needs to credit AP when he receives the bill or invoice. The debit offset for this entry usually leads to an expense account. It was opened for the good or service that was purchased on credit. When your company pays a bill, the accountant debits AP to reduce the liability balance. To decrease the cash balance, the offsetting credit is moved to the cash account.
For instance, pretend that your company receives a € 1000 invoice for office water coolers. The AP department gets an invoice. Then your AP department records this sum as a credit in accounts payable and a debit to office water cooler expenses. At this point, the € 1000 debit to the office water cooler expense goes through to the income statement. As a result, the company can record the purchase transaction without cash payments. This way of calculation matches with accrual accounting. Expenses are identified when incurred rather than when cash moves from hand to hand. In the end, the organisation pays the bill. Then, your accountant has to enter a € 1000 credit to the cash account. Also, he needs to enter a debit for €1000 to accounts payable.
How to automate accounts payable?
AP automation solutions are technologies supporting companies in automating and streamlining accounts payable processes. AP solutions make your company’s work more accurate and faster. They analyse the processing of invoices from vendors and suppliers. Then they create an optimised digital workflow to simplify every step of the process. Moreover, you can use AP automation in any software process, program, or system to increase the efficiency of the entire AP process by using its background parts.
The digital transformation and usage of AP automation in a business are the main drivers for its successful development across the globe. Different sectors, including finances and accounting, are being significantly improved by this movement of technological transformation. The creation of digital strategy is becoming widespread practice for companies that want to develop in a technological way.
In addition, for every company, accounts payable appear as an essential part of its financial operations. These processes are responsible for ensuring that all business obligations are processed completely and appropriately. Companies traditionally performed AP through manual work and paper documentation. As a result, digital automation solutions are increasing the evolution of manual processes. Many companies, such as Deutsche Bank, Deloitte, Bosch, Siemens, and Twitter, have already successfully applied software for automating different tasks. It is just a matter of time before other companies implement AP automation solutions for their processes.
What is intelligent document processing?
Multiple solutions for AP automation can be applied in your business depending on the industry and process type. For the financial and accounting sectors, we recommend implementing IDP solutions.
Intelligent document processing is a next-generation software solution that can capture, analyse, transform, and process data from various documents such as Word, PDF, email, and scanned documents. You can implement different artificial intelligence (AI) technologies: optical character recognition (OCR), computer vision, natural language processing (NLP), and even machine or deep learning. Extracted from your invoices and receipts data can be analysed, categorised, transformed, and exported to external systems such as SAP, Microsoft Dynamics 365, and Salesforce. IDP solutions help to transform your accounting into an end-to-end process.
IDP can help your company with the processing of structured, semi-structured, and unstructured documents:
- Among structured documents are predefined files with a set layout, like a loan application or a tax form.
- Semi-structured documents can join fixed and free-form structures, such as a receipt tapped by a printer and filled by hand.
- Unstructured documents refer to a free-form structure like a contract.
IDP has many applications performing various business functions across many industries. Popular use cases for IDP involve critical industries of document processing, such as accounting and financial services.
How to streamline accounts payable with IDP?
IDP solutions are key parts of digital transformation in a company working with document processing. Effective automation of documents-based processes brings various benefits to your business:
- Faster exchange of knowledge.
You can automatically categorise documents, such as invoices and receipts, and extract information faster. As a result, you can provide the information search more effectively and faster than during manual work.
- Reduced the number of manual errors.
IDP automation solutions give your accounting department avoid manual errors due to monotonous work. These solutions can extract data accurately without human interactions. Your accountant only needs to review and approve data in case of document bad quality.
- Streamlined process.
Artificial intelligence helps humans to increase their capabilities in a streamlined process. It involves a human validation station, an approval process with multiple steps, and feedback notifications to upgrade the process and work with new document types.
- Ongoing improvement.
AI models provide improvements to every document interaction. Every new document is processed and added to the model training set.
How to implement the IDP solution of Graip.AI into accounts payable?
You can implement the Graip.AI solutions into different accounts payable scenarios depending on your company’s needs.
- Invoice and receipts processing.
Your accountant receives an invoice or receipt in different formats and forwards it directly to Graip.AI. In the solution goes an instant process of intelligent key information extraction with the help of ML technology. After this step, an accountant can verify and approve the extraction result or make changes. These changes an ML model will keep for future learning. Graip.AI automatically filled predefined custom fields based on custom logic. The user can correct the fields at the verification stage. In the end, extracted and verified data can be automatically transferred to any integrated 3-rd party accounting system, such as SAP and Oracle NetSuite, via API or downloaded in any applicable format.
- Automatic reconciliation processes.
Due to the case study of Griffin Technology, manual closing took 30 days before launching the processes of automatic reconciliation. Previous AS-IS processes included much manual and error-prone work. Accountants collected paper and digital documents such as checks, receipts, and bank statements. Then they manually typed data into the ERP or accounting systems and checked each record for errors. With the Graip.AI solution, your accounting department can avoid manual work. Graip.AI reads the paper or digital documents and automatically validates errors.
- 2-way matching.
The main goal of the Graip.AI application for this use case is to reduce manual cross-checking to bookkeep the record. Also, automation is needed to improve cash flow visibility. The process includes 4 steps: document extraction, data matching, reconciliation, and data finalisation. The IDP functionality of Graip.AI will read and recognise invoices received in unstructured formats. Graip.AI separates PO and Non-PO invoices. During processing PO invoices Graip.AI will match PO and invoice (PO Qty = Invoice Qty, PO Unit Price = Invoice Unit Price). If there is a matching conflict, the system will notify humans. If everything is equivalent, a reconciliation statement will go with the help of integration into a financial system. Reconciled data will be transferred to generate reconciliation statements and schedule payment.
- 3-way matching.
This use case is different from the previous one in the last step. Delivery memo will be processed and recognised by Graip.AI. The IDP solution will match the invoice and delivery memo (Invoice Qty = Delivery memo Qty, Invoice Price = Delivery memo Price).
- Mapping to GL accounts.
Graip.AI allows users to download processed results with links to GL accounts to automate categorisation based on captured fields.
Conclusion
As a result of increasing the accuracy and speed of document processing, accounts payable automation has become one of the best options for businesses waiting to make their processes more streamlined. Automation can further enhance the efficiency of the business by using technology in the process. A demand for accounts payable generations should further develop the market for automated AP processing.
The high demand for faster payment processes and in-time payment methods will continue to stimulate the growth of the AP market. In addition, the government’s initiatives to boost digitalisation and automation are affecting the increase in market growth for accounts payable automation.