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    Unlocking the Full Potential of Xero Accounts Payable Automation

    Unlocking the Full Potential of Xero Accounts Payable Automation

    by martieLast Updated : Sep-04-2023

    Struggling with the limited capabilities of Xero Accounts payable automation?

    If you are considering upgrading to an expensive ERP, read this first to see how to enhance Xero AP automation capabilities without breaking the bank.

    Xero accounts payable modules provide good automation capabilities for small businesses. Xero is a viable solution for managing your accounts payable automation needs when you have a few people and limited supplier invoices.

    However, as you scale, you need additional bolt-on solutions to extend the use of your Xero instance. If you are using multiple companies in Xero, it makes it difficult to keep track of invoices across multiple business units.

    If you need invoice approvals before making the payments, you must rely on emails to get approvals. That process is time-consuming, leading to manual errors and slow invoice processing. As per industry standards, the average cost for invoice processing should be around $3 per invoice.

    However, companies using manual invoice processes can have costs as high as $17/invoice. If you feel that your cost is not that high, a simple way is to calculate the cost by taking your total headcount cost and dividing it by the number of invoices processed per year.

    If you struggle to manage your accounts payable with Xero, this article is for you. We will cover core capabilities for Xero AP automation. We will also cover a step-by-step process on how you can enhance the capabilities of the Xero AP module by leveraging a bolt-on like ProcureDesk. See our automation tool in action today!

     

    What Is Xero Accounts Payable Automation?

    Xero accounts payable automation refers to the capabilities offered by the Xero accounting system to manage your accounts payable process.

    At a very high level, accounts payable automation should cover the following aspects:

    1. Ability to import an invoice into the accounting system for processing.
    2. Automation to speed up the invoice creation process, for example, OCR (Optical Character Recognition) technology for extracting the information from invoice documents and automatically creating the invoices.
    3. Match the invoice with other documents like purchase orders and receipts.
    4. Route invoice exceptions for any approvals in case of any exceptions.
    5. Keep an audit trail of all the changes to an invoice document.
    6. Ability to connect to banks for payments and issue payments using electronic payments.
    7. Send remittance advice to the vendor after the payment has been made.

     

    Xero Accounts Payable Automation Review

    Xero provides a good set of features if you are just getting started. Here are a few things that you can do in Xero.

    • Upload a bill in Xero and mark it approved for payment.
    • Schedule the bills for payment.
    • Link a purchase order to the Bill by manually establishing the reference number.
    • Schedule payments for approved Bills.

    However, if you are a growing company, you probably need the following features that are not available in Xero:

    • Ability to store packaging slips and create receipts for purchase orders.
    • OCR(Optical Character Recognition) capabilities for extracting the invoice information from the document.
    • Match the invoice with the purchase order and receipt for a three-way match.
    • Match the invoice with the purchase order and perform a 2-way match.
    • Workflow capabilities to route the invoice for approvals in case of exceptions or when you have invoices without any associated purchase order.
    • Ability to see all invoices in one place irrespective of the company created in Xero.

    If you are struggling with these issues, a bolt-on solution can help. In the next section, we will cover how to use ProcureDesk to enhance the capabilities of Xero.

    Related: Biotech Procurement Software – Navigating Biotech Procurement Challenges

     

    How To Improve Xero Accounts Payable Automation With ProcureDesk.

    In this section, we will discuss a step-by-step process on how a bolt-on can help you improve the accounts payable process in Xero. We are using ProcureDesk as an example, but you can use any system that works with Xero.

    The main difference in the process is that instead of creating an invoice directly in Xero, you first create that in a system like ProcureDesk.

    The system then matches the invoice with the purchase order and receipts, and then after the invoice is approved for payment, it is automatically created in Xero, and you can pay the Bill in Xero using your current payment methods.

    This approach simplifies invoice processing without needing to change the payment process in Xero.

    In the next few sections, we will cover how to process invoices in a system like ProcureDesk and how the information will flow to Xero.

    Related: 7 Procurify Alternatives (Budget-Friendly Purchase Order Software)

    Automatically Imports Invoices

    The first step towards processing supplier invoices is to import them into your accounting system.

    You might get invoices from different sources if you don’t have a well-defined process. For example, A vendor might send an invoice to a stakeholder, or they are emailing the invoices to an AP email address.

    Whatever your current situation, we recommend the following process to streamline your invoice intake process.

    • Dedicated address for email addresses: Set up a dedicated address. Don’t use your AP email address because that might be noisy, and you have inquiries and other emails. This could be as simple as invoices@yourcompany.com.
    • Vendor Invoices: Now, ensure that the vendors send invoices to this new email address. You can print these instructions on each purchase order and inform your employees.
    • Forward Invoices to new emails: Initially, suppliers might follow the old process, so ask your stakeholders to forward any invoice to this new email address.

    Once this process is implemented, you have all your invoices in one place.

    For the next step, you must set up auto-forwarding to a new email address provided by a system like ProcureDesk—for example, yourcompanyname@procuredesk.com.

    The system now gets all the invoices automatically without requiring you to upload every single invoice in a system like Xero.

     

    OCR For Automated Invoice Creation

    The next step is to automatically create an invoice once the invoice is imported into the system.

    OCR (Optical Character Recognition) makes it easier to create the invoice by automatically extracting relevant information from the invoice attachment.

    ProcureDesk OCR can extract the following information:

    • Vendor information
    • Invoice numbers
    • Due dates and terms
    • Line item descriptions and unit price information.

    The system then uses this information to create a new invoice and automatically match it with a purchase order.

    Purchase orders are also created in the ProcureDesk accounting software, so the system already has the purchase order information for matching.

    The following is an example of the invoice that is created from OCR:

    Supplier_Invoice

    Automated Coding Of Invoices

    Coding the invoices is always challenging for the AP team because they don’t always know where a particular invoice should be coded.

    That is why ProcureDesk makes it easier to code the invoices. There are two ways automated coding can work for you.

    First, when you match an invoice with the purchase order, the system automatically picks up the coding from the purchase order. This includes the chart of centralized accounts and other tracking categories assigned to the purchase order line.

    Since the purchase order is at line level, each invoice line can be coded to a specific GL code and tracking category.

    The other way to assign automated coding is based on who is making the purchase. For example, if John in IT purchases a new laptop, it can be coded to IT-specific GL code.

    Similarly, a specific utility supplier can be matched to a specific chart of the entire accounts.

    The system allows you to define these rules so that the system can automatically code these invoices without requiring manual intervention.

    Auto coding of invoice lines

     

    3-way Matching For Invoices

    3-way matching is the best practice followed by leading AP teams.

    With a 3-way match, you eliminate the need to get invoices approved before the payment. When an invoice matches the purchase order for price and receipt confirming the product is received, there is no need for the invoice to be approved.

    The challenge is that it is very time-consuming. AP teams often contact stakeholders to ask for packaging slips and manually check invoices against purchase orders and receipts. This is a very time-consuming process, and that is why many Accounts payable teams don’t implement this process.

    With ProcureDesk, you can fully automate this process.

    This is how it works:

    • The system automatically pulls the information from the invoice document and creates the invoice.
    • If a purchase order number is present on the invoice, the system automatically matches the invoices with that purchase order.
    • If a receipt is missing, the system automatically notifies the person who purchased the product.
    • The person enters the system or uses their mobile app to create a receipt.
    • The system matches the receipt, invoice, and purchase order.
    • If all three match (Quantity, price), the system sends the Bill to Xero for payment.
    • If the documents don’t match, the system uses a pre-defined workflow to route the invoice to the appropriate person for review.

    Here is an example of a 3-way match result:

    3-way invoice matching

    If you’re looking for a system that works perfectly with Xero, you might want to explore the wonders of ProcureDesk. We have a team of product specialists to assist you. See our tool in action today!

    Now, what if the invoice needs to be routed for further approvals? That is what we are going to discuss next.

    Workflows For Routing The Invoice For Approvals

    In our research, AP teams spend most of their time chasing stakeholders and getting the invoices approved.

    With ProcureDesk, this is not an issue anymore.

    First, you set up a workflow so the system knows how to send different invoices for approval.

    There are three types of workflows that you need to set up.

    1. What to do when a 3-way match exception happens.
    2. What to do when the invoice is for a service instead of a material product. In our view, the invoice should be reviewed by someone in Operations to ensure the service is delivered.
    3. The third case is when there is no purchase order. This could be rent, facility payments, etc., or products or services purchased without a purchase order.

    Here is an example of how easy it is to set up approval workflows:

    Approval_workflow_Non_PO Invoice

    The top use cases you should consider while designing the approval workflow are the above.

    Once the approval workflow is defined, the system automatically routes the invoice for approvals.

    The approvers are automatically reminded of the pending approvals, so you don’t have to chase approvals!

    Mobile App For Approvals

    If your employees are always on the road, getting the appropriate approvals on time could be a challenge.

    That is where a mobile app can help speed up the approval process.

    Employees can easily approve the invoices on the go without the need to be in front of a computer.

    Here is an example of how the mobile approvals works:

    Mobile app for approvals

    Mobile app for approvals

    Automated Data Sync With Xero Integration

    Automated accounts payable like ProcureDesk make it simple to process invoices, but it is useless if you manually create those invoices in Xero.

    That is why it is important that the Xero Accounts Payable automation solution automatically syncs the invoices with Xero.

    For example – ProcureDesk automatically syncs the invoices with Xero once approved. There is no need to export the data from the system and import it into Xero.

    The system takes care of syncing the data in real-time. This includes not just sending the data but also the attachment of the invoice.

    Multiple Xero Companies In A Single Instance

    If you have multiple companies within Xero, you have to switch companies continuously, and there is no easy way to report or see all transactions in one place.

    ProcureDesk solves that problem by allowing you to manage the transaction data from different companies in one place and allow you to see reporting across different companies.

    Companies are called business units in ProcureDesk; within the same instance, you can have multiple Xero companies.

    You can then easily control who has access to which business unit and who can create transactions across these business units.

    Super users can see reports across different business units without switching companies.

    Here is an example of a report with different business units:

    Purchase order report - business units

     

    Xero Integration Considerations

     

    When choosing an accounts payable system that seamlessly integrates with Xero, it’s essential to remember a few vital considerations.

    This integration can significantly enhance your invoice management process, so here’s what you must focus on:

    Data Accuracy And Alignment

    Ensure that the accounts payable automation system you’re considering can synchronize data accurately with Xero.

    Vendor details, invoice information, and payment terms should seamlessly match between the two platforms.

    A minor mismatch can lead to payment delays and reconciliation challenges. Look for a solution that prioritizes consistent data alignment to avoid discrepancies.

    Workflow Adaptation And Approvals

    The integration should complement your existing invoice approval workflows.

    Look for a system that allows you to map out your unique approval hierarchy, set spending limits, and incorporate multi-tiered authorizations.

    This ensures a smooth transition from procurement to payment, aligning with your organization’s financial policies and maintaining compliance.

    Flexibility For Growth And Customization

    Consider the long-term scalability of the integration.

    Your chosen system should be flexible enough to accommodate your evolving business needs and increased invoice volumes.

    Seek an accounts payable solution that offers customization options, allowing you to capture specific invoice attributes crucial for your accounting practices.

    This customization ensures a tailored fit for your processes.

    Related: Purchasing System Options For Growing Companies

     

    The Bottomline

    Struggling with the limitations of Xero Accounts Payable automation? Before leaping to an expensive ERP solution, explore how you can augment Xero’s capabilities affordably.

    Xero’s AP modules offer solid automation for small businesses with minimal invoices. Yet, the need for additional solutions becomes evident as your operations expand.

    Managing multiple companies in Xero or incorporating invoice approvals via email can lead to human errors and inefficiencies, driving up invoice processing costs.

    With an AP automation solution that seamlessly integrates with Xero, you can enhance Xero with the following capabilities:

    • Automated Invoice Creation: With OCR technology, invoices are automatically extracted and created, simplifying the process and minimizing manual data entry.
    • Efficient Matching: The system matches invoices with purchase orders and receipts, reducing manual effort and ensuring accuracy.
    • Workflow Automation: Streamlined approval workflows eliminate bottlenecks, reducing time spent chasing approvals and preventing delays.
    • Seamless Xero Integration: The system syncs approved invoices with Xero in real-time, reducing manual data transfer and potential errors.
    • Multi-Company Management: For businesses with multiple entities, the system provides consolidated reporting and management across different business units.

    By considering data accuracy, workflow adaptation, and customization for growth, you can select an accounts payable system that integrates seamlessly with Xero and aligns with your business needs.

    ProcureDesk’s integration with Xero offers a powerful solution that optimizes your AP automation, enhances efficiency, and empowers you to take control of your financial processes.

    Explore the possibilities of ProcureDesk to elevate your Xero AP automation capabilities without straining your budget.

    What you should do now

    Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.

    1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
    2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
    3. If you’d like to enhance your knowledge about the purchasing process, check out our blog or Resources section.
    4. If you know another professional who’d enjoy reading this page, share it with them via email, Linkedin, Twitter.
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