The financial reporting and compliance landscape worldwide has been growing more and more complex, presenting more significant challenges for auditors and, more importantly, investors and stakeholders. Insurtech company Gain Compliance analyzed 102 filing documents to find out that 58.2% of reporting companies were NAIC (National Association of Insurance Commissioners) non-compliant, with 30.9% inconsistently filing their data across different electronic printable filings and PDFs.
Invoice automation has been adopted by standards-setting bodies like the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to lessen the burden of reporting requirements for their constituents: the non-public entities. It can also enable strategies to sidestep the negative views of investors, without which any genuine financial analysis is not possible. An end-to-end approach involving different stakeholders is highly needed so that the financial reporting mechanism can be made leaner and better to resolve these matters.
Challenges of Manual Invoice Processing for Financial Reporting and Compliances
- Manual Error
As per APQC, manual invoice processing businesses have more labor expenses. Another survey by the Institute of Finance and Management found that almost 40% of invoices processed manually contain some or other errors. Human errors slow down the processing of invoices.
Mistakes in manual data entry and misinterpretation not only upset the workflow but eventually led to retarded efficiency at accounts payable, bringing forth inaccurate payments to suppliers and thus starting a domino effect of issues.
- Late payments
Inefficient processing of invoices, through lateness and errors, has a way of causing missed payments to suppliers, financial risk, and strained relations. As per Atradius 2023 reports, payment delays negatively impact 55% of all B2B invoiced sales, straining their cash flow. Another major concern is bad debts, which affect an average of 9% of all sales to B2B customers. Such conducts tarnish not only an organization’s reputation but also disrupts the delicate balance of the supply chain, potentially jeopardizing the very foundation of a company’s success.
- Frauds
Organizations relying on inefficient methods of processing invoices are subjected to more fraud threats. According to a 2022 survey by Forbes on over 2700+ businesses, over 34,000 cases of invoice fraud were found to happen in just a single year. The same study shows that 13% of companies reported up to 20 cases, and 19% reported 21-30 cases. Only 4.5% recorded zero instances.
There are also many day-to-day cases where accidental mistakes can be costly. Easing the whole invoicing cycle process can create problems in monitoring data, matching invoices, and documentation, which puts organizations in danger. AI and ML can help detect fraudulent activities by malicious strangers.
- Compliances
Going hand in hand with the rapidly changing rules and regulations of financial compliance is no small issue, especially for organizations that operate across the international market. Failing to comply with the tax code and the B2B online invoicing can result in legal issues, operational effects, and expensive fines.
- High rates of turnover
The manual jobs, hard workflows, and quotas can result in a decline in the overall morale of the AP teams. Such can lead to a rise in turnover, costly operations as a result of onboarding and hiring, and further problems. Changing the manual system can help the team focus on meaningful tasks, which can assist the businesses in improving and developing on a satisfactory basis.
How does Automation help in Financial Reporting and Compliance Excellence?
- Automated data capture and validation
Reporting software improves the total data governance and helps ensure financial compliance with regulatory necessities. It also helps save 70%-80% of the time typically spent on AP activities.
Making the whole system automated helps reduce the total human errors that can occur while collecting manual data, aggregating them, and reporting. It helps reduce the risk of damaging reputation and fines that result from inaccuracy or incomplete reports. Automating the validation check can help ensure data quality and improve transparency, as well as total risk management within the organization.
- Comprehensive audit trail and documentation
Consolidated audit trails (CAT) help provide a comprehensive chronicle of financial works, which improves transparency and accountability. Indicators of Audit Failure involve no GCO issued the year before insolvency as a going concern due to falsehoods in previous annual reports and violating rules from regulatory authorities. The two significant regulators in the US that use the CAT repository include the SEC (Securities and Exchange Commission)) and FINRA (Financial Industry Regulatory Authority). The regulator of the CAT repository is FINRA CAT, LLC while enforcing the industry rules and regulations is governed by the FINRA. Data-rich organizations can use CAT data for their analysis purposes to serve their purposes.
Through the maintenance of records of each transaction, the audit trails ensure that all the financial data remains safe and any alterations are properly documented as well as clarified. Such transparency helps in assuring the external parties, similar to the investors, that the data are subjected to the verification steps. The audit trails help enforce internal control by enabling internal auditors to verification of efficiency.
- Visibility into invoice status and approval
Late payment charges have been levied on 60% of UK businesses, with 23% seeing termination of goods or a relationship with a supplier due to late payment. Businesses reliant on supplier invoices that are paper-based or without an integrated process are likely to face more significant risks. Late records of invoice processing can result in bottlenecks in cash flow, missed deadlines for payments, and damaged vendor relationships.
An effective invoice automation process is important for organizations to maintain financial health and agility within their operations. Automation provides real-time visibility into the status and approval of invoices, improving the overall visibility of the financials and thereby streamlining the operations.
- Integration with the financial system
Integration with the financial reporting system is crucial for efficient invoice automation. Maintaining a consolidated system helps allow a high-level mapping process, and utilizing a technological solution helps generate better financial output overall for organizations. Search methods help fulfill short-term reporting necessities, thereby working towards an integrated financial system and finally improving the transparency and accuracy of the financials.
The Main Advantages of Invoice Automation
- Decreased risks of errors and fraud: The invoice automation system involves error detection features that are automatically similar to the identification of inconsistency in data, missing data, or incorrect rates of taxes. The same reduces the risk of errors in data and helps avoid issues that are based on incorrect invoices, improving operational efficiency and data accuracy.
- Enhanced financial compliance with the internal control and approval policy: Automation involves machine learning, robotic process automation, and artificial intelligence, which shows a leap in technology based on accounting and financial reporting. Automation enhances financial reporting quality through the reduction of internal control material challenges and improving the overall process of monitoring. It helps cut audit fees and audit committee meetings over the years, which demonstrates enhanced internal control and decreases the necessity of monitoring.
- Improved compliance with the tax and regulatory necessities: Automated invoice processing assists the organization in complying with regulatory bodies by enforcing the rules of validating, ensuring accuracy and consistency, and thereby providing the trails for auditing and reporting abilities. It assures compliance with the financial and regulatory standards, decreasing risks of legal consequences and operational effects.
- Streamlined preparation of audits and response: Automation often gives rise to efficiency through automation of repetitive tasks, reconciliation, and data entry, freeing the teams to focus more on high-value activities similar to analysis and making efficient decisions. It assists in minimization of the risk of human errors, providing real-time monitoring of the financial information, and helping in risk management and resolution of the discrepancies.
Tactics for Utilizing Invoice Automation for Financial Reporting and Optimization of Compliances
Some of the strategies used for using invoice automation in financial reporting and optimization of compliances can be:
- Processes of standardization: Ensure that templates for invoices and data fields are consistent in designs to standardize uniformity and automate to the next level.
- Follow-up automation: Automate reminder emails and notifications on overdue invoices for easy follow-up.
- E-Signatures: Electronic signature solutions can help speed up the invoice approval processes and reduce manual paperwork.
- Digital storage of documents: To have a centralized place for invoices in a digital environment so they can be easily placed and retrieved.
- Utilizing Pre-Approved Content: Development of pre-approved invoice content and clauses to decrease the manual time spent on getting reviews and approvals.
- Integration to existing tools: Integration of invoice automation with existing financial systems so that data can smoothly flow between the two systems for proper report consolidation.
Companies that achieved financial reporting and compliance excellence through the assistance of invoice automation
- Siemens
Siemens is an international technological powerhouse that utilizes NextGenP2P, an automated invoicing solution, to streamline the world accounts payable process. NextGenP2P strategies incorporate digital technologies with flexible IT architecture to revolutionize the purchase-to-pay processes.
It can perfect and automate the conduct of operations through efficiency enhancements that escalate collaborative workflows with real-time integration into enterprise resource planning. This platform can handle invoice data processing intelligently, ensuring its accuracy and then integrating that data for validation within an organization’s system. NextGen’s AI capabilities help eliminate errors, cut manual work, and adapt to changes in needs. Being built upon PEGA BPM technology, it is flexible and multi-client, and on the cloud, it can be scaled and adapted to suit custom needs.
It helped the company handle a high volume of invoices efficiently, which helped reduce the error and boosted the process of invoicing. Such a strategy enhances the compliance of the organization with financial reporting standards and also strengthens financial transparency.
- DHL
DHL Express teamed with Basware to standardize and automate its procure-to-pay process in over 100 countries. Goal: reduce the team workloads and attain simplicity in global reporting. Basware’s AP Automation solution was chosen based on its global reach, multi-ERP integration, and proven track record. It began in 2014 in pilot locations and now covers 50 countries, with 2-6 more being added monthly. The phased approach, combined with the insistence on global scope down to the details, ensures a smooth and timely transition. This collaboration has led to the automation of invoice matching, thereby reducing manual workloads, improved reporting with instant global data extraction, and successful integration with multiple ERP systems—all from a single Basware installation.
- Toyota
Toyota Industrial Equipment is a significant player in the electric-thermal-powered forklift manufacturing industry. The company has seriously been faced with invoice processing and settlement disputes. At 30,000 invoices processed annually, this company needed to look for some solution that would automate and hasten the accounts payable process. The AP automation allowed for the importation of suppliers’ invoices automatically, according to SYLEG, an official partner of Basware, that implemented the program.
Results were significant: time for payment was reduced by 60%, 50 hours saved per month on dispute management, and real-time budget monitoring was optimized. The Finance and Administration Department adopted it very quickly, making their processes much more straightforward and thus driving up productivity. This is an excellent example of the power that automation has in transforming into practical, efficient tasks that were once tedious, manual chores—raising satisfaction and increasing job performance in great measure.
Conclusion
Educating the finance team with effective invoice automation is important to attain operational excellence. Assessing the present workflows, designing optimal processes, utilizing technology, and implementing change management are important to improve control, efficiency, and compliance with financial operations. Rapid monitoring and enhancement help in ensuring robust workflows that support sustainable success. Optimizing the workflows and regular feedback from stakeholders and kinds helps in enhancement. Ensuring proficiency with the fresh tools and attending to the know-how on the workflows helps minimize resistance and facilitate rapid enhancement. Encouraging the identification and resolution of workflow issues also improves efficiency.
Best-in-class solutions like Open. money can help diverse industries with the most complex invoicing issues, aiding via seamless financial reporting and automation.
