Manufacturing automation in finance is increasingly extending its influence to back-office departments including finance & accounting, bringing a revolution in efficiency and productivity. Among these, the accounting department is undergoing a significant transformation thanks to the application of technology, specifically in high-volume processes like accounts receivable (AR) and accounts payable (AP). This solution helps accounting departments free up resources, minimize errors, and focus on more strategic activities.
Table of Contents
Application of Process Automation in Manufacturing Accounting Departments
Robotic Process Automation (RPA) is emerging as a powerful tool, enabling businesses to automate repetitive, rule-based tasks previously performed manually. In the context of manufacturing accounting departments, where countless cyclical operations demand high accuracy, RPA unlocks new horizons for operational efficiency.
The potential applications of RPA in manufacturing accounting are incredibly diverse. From processing purchase and sales invoices (data entry, information reconciliation), bank reconciliation (transaction matching, discrepancy detection), fixed asset management (depreciation calculation, tracking changes), financial reporting (data collection, aggregation) to handling AR and AP transactions, RPA can serve as an invaluable “virtual assistant.” This helps accounting staff alleviate the burden of repetitive work and concentrate on analysis, control, and decision-making activities.
Operational Challenges of Manual Accounts Receivable and Payable Processes
Manually managing accounts receivable and payable processes in manufacturing companies often presents numerous challenges, significantly impacting operational efficiency and cash flow:
Accounts Receivable:
Manual processes typically begin with tracking issued invoices to customers using spreadsheets or ledgers. Following up and sending payment reminders are often time-consuming and prone to oversight, especially with a large number of customers and invoices. Reconciling payments between received amounts and corresponding invoices is also a complex and error-prone task. Furthermore, handling overdue accounts requires significant effort in communication, urging, and tracking, leading to delays in debt recovery and directly affecting the company’s cash flow. The lack of a detailed payment history management system also makes it difficult to assess customer credit risk.
Accounts Payable:
Similarly, manual accounts payable processes start with receiving and entering invoices from suppliers, a time-consuming task prone to data entry and calculation errors. Invoice verification and payment approval often involve multiple levels and can be delayed due to missing information or cumbersome approval procedures. Manually preparing payment vouchers and tracking payment schedules also requires high vigilance to avoid the risk of late payments (damaging supplier relationships) or duplicate payments (resulting in financial loss). Managing payment schedules manually also makes cash flow forecasting more challenging.
Studies and statistics from various sources clearly highlight the shortcomings of manual processes. Accounting staff can spend an average of 20-30% of their working time solely on manual data entry and processing tasks related to AR and AP, time that could otherwise be used for more critical analytical and strategic activities. The error rate in manual invoice data entry can be as high as 3-5%, leading to discrepancies in financial reports and payment-related issues.
The average time to process an inbound invoice (from receipt to payment) can extend from 5-10 days when done manually, affecting supplier relationships. Notably, companies with manual accounts receivable processes typically take an average of 45-60 days to collect receivables, a significant period that impacts the company’s cash flow and reinvestment capability.
Automated Accounts Receivable and Payable Processes
Automated Accounts Receivable Processing:
Automated Invoice Generation and Dispatch: When an order is completed and shipped, the ERP system or integrated accounting software will automatically generate an invoice based on recorded sales data. This invoice will then be automatically sent to the customer’s email address in a standard format.
Automated Payment Tracking: The system will automatically monitor the payment status of each invoice, connecting with payment gateways or the company’s bank accounts to update payment information in real-time. Payment status (paid, unpaid, overdue) will be clearly displayed in the system.
Automated Payment Reminders: Based on established rules (e.g., reminders 3 days before the due date, reminders 7 days after being overdue), the system will automatically send periodic payment reminder emails to customers with upcoming or overdue invoices. Email content can be personalized and include detailed information about the invoice needing payment.
Automated Payment Reconciliation: When customers make payments, the system will automatically reconcile the received funds with the corresponding invoices based on information such as invoice number, amount, and payment date. This reconciliation process is fast and accurate, minimizing time and errors compared to manual reconciliation.
Automated Accounts Receivable Reporting: The system can automatically generate detailed reports on the accounts receivable situation, including the aging of each invoice, a list of overdue accounts, and other analyses that help the accounting department and management easily track, assess risks, and make effective debt recovery decisions.
Automated Accounts Payable Processing:
Automated Invoice Reception and Entry: When an invoice from a supplier is received (in paper or PDF format), the system can use Optical Character Recognition (OCR) and Artificial Intelligence (AI) to automatically extract critical data from the invoice, such as supplier name, invoice number, invoice date, item/service description, quantity, unit price, and total amount. This data will then be automatically entered into the accounting system.
Automated Invoice Verification and Payment Approval: The system can be configured to automatically match invoice information with relevant supporting documents such as purchase orders and goods receipt notes. If the information matches, the invoice will automatically be forwarded for payment approval based on rules and approval workflows pre-configured in the system (e.g., invoices below a certain amount are automatically approved, larger invoices require higher-level management approval).
Automated Payment Voucher Generation and Execution: Once an invoice is approved, the system will automatically generate a payment voucher and schedule payment according to agreed terms with the supplier. The system can also automatically execute electronic payments through connected banking channels.
Automated Payment Schedule Tracking: The system will automatically track the payment schedule of all accounts payable and send alerts to the accounting department about upcoming due dates, helping the business proactively manage cash flow and pay suppliers on time.
Automated Accounts Payable Reporting: The system can automatically generate reports on the accounts payable situation, including a list of upcoming payments, overdue payments (if any), and other analyses that help manage cash flow and maintain good relationships with suppliers.
Value of Automated Accounts Receivable and Payable Solutions
Automating accounts receivable and payable processes brings immense value to manufacturing companies:
Reduced Processing Time: Automation significantly shortens the time required to process invoices (both inbound and outbound), perform payment reconciliation, and related transactions. According to studies, automating invoice processing can reduce average processing time by 60-80%, freeing accounting staff from repetitive tasks.
Reduced Costs: By automating manual tasks, businesses can reduce labor costs, minimize errors leading to rectification costs, and optimize payment processes. Companies implementing AP automation can reduce invoice processing costs by up to 50-70%.
Improved Accuracy: Automation eliminates errors from manual data entry and ensures accuracy in reconciliation and payment processes. Automated bank reconciliation can reduce execution time from several hours to just a few minutes, with near-perfect accuracy, helping to detect discrepancies and fraud early.
Accelerated Debt Collection: Automating the dunning process helps businesses recover accounts receivable faster, improving cash flow and reducing the risk of bad debt. Automated dunning systems can help reduce average debt collection time by 10-20 days.
Enhanced Cash Flow Management Efficiency: Automation helps businesses manage both inbound and outbound payment schedules more effectively, reducing the risk of late or duplicate payments, thereby optimizing cash flow and improving financial forecasting capabilities.
Resource Liberation: Automating repetitive tasks allows accounting staff to dedicate more time to data analysis, internal control, and participating in financial strategy development, bringing higher value to the business. Accounting departments adopting RPA can free up an average of 20-30% of employee working time.
Manufacturing Automation – A Solid Foundation for an Efficient and Strategic Accounting Department
In an environment where manufacturing automation, especially finance department, is increasingly becoming a dominant trend, applying automation to the accounting department, particularly in accounts receivable and payable processes, is not just a solution for enhancing operational efficiency but also a strategic move to free up resources and focus on analytical and planning activities. The practical benefits that automation brings, from reducing costs and processing time to improving accuracy and enhancing cash flow management, have demonstrated its indispensable role in building a strong accounting department and contributing to the overall success of the manufacturing enterprise. Recognizing and leveraging the vast potential of automation in back-office departments is a wise step, helping manufacturing companies achieve comprehensive operational efficiency and build a sustainable competitive advantage in the digital age.
