Accounts receivable and accounts payable is one example of an opportunity for digital transformation. Accounts receivable and accounts payable need to collaborate to keep their books in sync. If a vendor has invoiced a customer for $1,000 and has that in their receivables, the customer should have a corresponding entry in their payables for the $1,000. Likewise, if the customer has made a payment on that invoice of $1,000, the payment needs to be recorded in the vendors books. This process of invoicing and payment has a long history of exchanging documents that are manually translated by accounting staff into the accounting system and then filed for records-keeping.
Now, many accounting departments will claim to be 100% digital. So, you wonder, why we are still talking about the digital transformation? Peeling back the meaning of the 100% digital claim reveals the definition is that all invoices are received or sent via email. This means the front door of accounting departments has gone digital but the process behind that digital front door is largely unchanged.
In 2000, it was still common to invoice customers on paper. An invoice would be created and printed. Once printed, the invoice was folded and put into an envelope. The envelope was addressed, stamped, and dropped into the mail. The customer receiving the invoice would open the envelope, review the invoice, and manually route the invoice for approval. Each step in this process is manual
Now jump ahead 20 years and examine the digital form of the process. A customer invoice is no longer printed on paper but rather printed to PDF. The printed invoice is not put in an envelope but is attached to an email and sent over the Internet. The customer receives the PDF invoice and manually routes the invoice for approval. Each step in the process remains manual.
So, twenty years later the original process has been translated to the digital world but invoicing itself has not been transformed. Keeping books synchronized between vendors and customers is still largely a manual process where staff are responsible for sending and receiving documents and keying in information to the accounting system.
Strikingly, the software used to send and receive invoices has barely changed in those twenty years. Sure, Outlook is available through a browser, and Gmail is an alternative, but these tools do not provide any automation for accounts receivable and accounts payable to process invoices.
Accounting departments can learn from their peers in the company about transformation. Other departments use advanced automation behind their digital front doors. Customer service uses support software to help customers. Human resources use HR automation to work with candidates. IT use help desk software to serve employees. Accounting should do the same and abandon personal inboxes for an accounting inbox that is integrated with the ERP or accounting software.
Taking a play from support software, an accounting inbox provides for a shared workspace with assignments. As emails come in from customers and vendors, the emails are assigned to a member of the team. With clear ownership and transparency, responses are easier to track and nothing is lost. The performance of the team towards meeting response times is also easily managed. The shared workspace is critical to teams that are remote and need to coordinate work.
Similar to marketing automation, an accounting inbox provides automated mail merging. Email templates can automate remittance advice, dunning, statements, and receipt notification to name a few. This saves a massive amount of time that can be used for other activities such as calling customer or negotiating early payment discounts with vendors.
Approvals for invoices, disputes, and early payment discount offers require tracking and follow-up to ensure timely payment and collection. An accounting inbox automates approval management and accelerates the approval cycle.
An accounting inbox provides communication channels for each vendor and customer. All history of communication back and forth are stored in conversational email given one searchable source of truth. The automated organization saves the overhead of manually filing emails and attachments along with the inevitable filing mistakes that come about.
Just as the accounting inbox sets up channels, it can also help to monitor for fraud. If an email arrives from an unknown email address, the accounting inbox can flag it as new and determine if it matches with vendor or customer master records in the ERP.
During the pandemic, digital transformation is becoming essential. Outlook and Gmail were not designed for remote teams to coordinate work. Efficient cash flow management is a top priority. Eliminating paper and establishing a digital front door is a good first step but it is not enough. Accounting departments need to invest in technology behind that front door in order to truly transform.
About the Author: Matt Shanahan is the Co-founder and Chief Strategy Officer at Lockstep Connected Accounting. He previously served as the Chief Operating and Innovation Officer at Globys, Inc., the B2B Portal Solution based Seattle, WA.