The concept of AAP processing comes from the areas of digital incoming invoice processing and accounts payable. The purpose: Electronic incoming invoices are to be processed automatically, from receipt to posting, without human interaction or manual intervention by employees. This puts Automated accounts payable at the heart of a fully automated invoice receipt process.
And as much as it offers great potential for efficiency gains, the notion of “background processing” is also met with a hesitant attitude among many managers. This is understandable, since people want to remain in complete control when it comes to invoices. However, this concern is entirely unfounded, as you’re about to find out.
What is automated accounts payable processing?
AAP processing denotes the automated invoice process across the following process stages: from the arrival of the invoice, through invoice controlling, to posting and payment. Here is a brief but informative summary.
In essence, the incoming invoice process is made up of the following steps:
- Invoice receipt
- Invoice entry
- Invoice controlling
- Invoice approval, including clarification
When using AAP processing to handle an invoice, all steps from 1. to 5. are taken without any human intervention. So let’s shed some light on the individual steps in the incoming invoice process.
What has to be checked in the invoice process?
- Invoice entry and formal invoice controlling: First of all, you want to know whether the document you just received is an incoming invoice in due form (as per 14 and 14a of the Value-Added Tax Act [DE:UStG]). Automated checking will reliably determine whether the twelve necessary components of an electronic invoice are present. If this is the case, then: Yes, the invoice is in conformity with the Value-Added Tax Act, so it’s a green light for the further stations in the invoice receipt process.
- Invoice controlling and check for order reference: You generally receive an invoice because something had been ordered beforehand. Ideally, the incoming invoice system interacts with the purchase order or ERP system, no matter what type. It can be quickly determined here whether there is an (already approved) order on hand for the invoice, i.e. an order reference. For the sake of simplicity, this is where you check whether there is an order for the order number on the invoice.If this part of the audit turns out positive, the automated accounts payable processing can continue.
- Invoice approval: What we know so far about the incoming electronic invoice: Yes, the document is an invoice with an order reference. Now, further details can be checked through automation, such as invoice totals, data on items, quantities, discounts, etc. Functionally, this is done by two- or three-way match, for example. Depending on how the results turn out, the course of invoice approval in the AAP processing can vary.However, the goal always remains the same: to move the incoming invoice all the way to posting.All of this is done by automation in the background.
- Invoice archiving: Invoices are important documents under tax law. According to the principles of proper accounting (GoBD), these must be archived in an audit-proof manner. This final stage of the invoice receipt process is handled automatically by a conventional invoice processing system and the invoice is stored in a digital archive.
Invoice formats that positively influence the automated accounts payable processing rate
There are several invoice formats for incoming invoices. Nevertheless, some formats have become established in the exchange of invoices between companies. These can be roughly divided into formats
- with structured data (EDI, XRechnung, ZUGFeRD, etc.) and
- Invoice formats with unstructured data (e-mails with or without PDF attachments).
Some of these invoice formats are more suitable for automatic background processing. Others, on the other hand, are likely to require manual processing steps in the invoice processing process. This in turn is detrimental to the dark posting rate. The following section will explain why this is the case.
What does this mean for AAP processing in accounting?
Emails with PDF attachment represent a widely used invoice format; where the PDF mostly represents the invoice. The recognition rate for this type of incoming invoice is ~95% percent, which also depends on the invoice processing software used. Here, the invoice data must be read and captured via OCR (Optical Character Recognition). Basically, for the practical process of invoice processing, this means that it is not possible to rely on dark booking alone; further verification steps must be introduced here.
More helpful for a AAP process at this point are electronic invoices consisting of structured data, such as EDI, XRechnung, ZUGFeRD etc. The latter invoice format is a PDF consisting of a view part for the invoice viewer and a machine-readable XML part with structured invoice data. The advantage in accounting: The meaning of the structured data is fixed, so there is no room for interpretation. Invoices with structured data only need to be parsed and read correctly. As soon as the invoice information obtained from this is available, invoice processing starts with the best prerequisites for dark posting. All the information obtained can now be checked for correctness against existing data records in the ERP/financial accounting system from purchase orders, order confirmations, delivery bills, etc.
Advantages of Automated accounts payable processing in accounting
The major advantage of automated background processing of incoming invoices is that it increases the efficiency of internal company processes. This is because dark posting reduces the costs incurred during the processing of incoming invoices at all stages from invoice receipt to posting and archiving, including all intermediate steps. Once an invoice has passed all the verification steps, it is no longer touched by any employee. Of course, this significantly reduces throughput times to just a few seconds before the invoice is posted, and at the same time relieves the workload on accounts payable staff. This is because it is only when the invoice document to be checked does not pass the invoice check that the invoice has to be examined more closely, supplemented with information and posted manually.