AI Invoice Processing Explained: Benefits for Modern Finance

Digital transformation and artificial intelligence play significant roles in streamlining and improving invoice processing for accounts payable. With AI invoice processing via AP automation, businesses use AI for more efficient invoice data extraction, verification, approval, and payment. They reduce invoice processing costs, prevent fraudulent payments through validation, and reduce payment errors. 

Invoice processing costs by best-in-class companies using AI invoice processing are $2.78 per single supplier invoice, compared to $12.88 for all other companies surveyed in Ardent Partners’ report, The State of ePayables 2024. According to the same study, the time to process a single invoice is 3.1 days, compared to 17.4 days without using AI for invoice processing.

Learn about intelligent invoice processing that uses artificial intelligence and its machine learning component. Understand AI invoice processing, including use cases, AI tools, automated accounts payable solutions, and benefits. 

What is AI Invoice Processing?

AI invoice processing uses artificial intelligence/machine learning and automation to capture supplier invoice data by header and line items with smart OCR, verify invoices and flag discrepancies, match invoices to purchase orders and receipts, automatically code GL accounts, predict approvers, and make payments. 

AI for invoice processing automates error-prone manual tasks, such as data entry and document processing. Instead, it enables a paperless accounts payable system that uses an AI-powered, integrated app for invoice processing.

How Does AI for Invoice Processing Work?

AP automation with AI invoice processing reviews and matches captured digital invoice data with purchase orders and receiving data. It flags discrepancies, guides invoice approvals, and automates the payment of global supplier invoices using AI in automated invoice processing.

AI for invoice processing integrates AP automation (using AI technology) with your accounting or ERP system to streamline and automate accounts payable workflows and aid in business spend analysis for decision-making and cost control. 

Optical character recognition (OCR), machine learning (ML), and natural language processing (NLP) are types of AI used for invoice processing. NLP encompasses the generative AI large language model (LLM) known as ChatGPT. 

Machine learning, a subset of AI, includes regression, decision trees, and probabilistic classification. Deep learning is a type of machine learning that utilizes multilayer neural networks with algorithms that serve as rules for processing unstructured data. Documents, images, and text are examples of unstructured data in machine learning/artificial intelligence. 

An AI invoice processing system may incorporate AI Agents to perform tasks and an AI Assistant to instantly prepare custom reports from natural language prompts. 

Handling Edge Cases and Exceptions

Tipalti’s AI invoice processing solution is designed to cover edge cases and exceptions for:

• Mismatched POs or receiving reports
• Non-PO invoices
• Incomplete invoices
• Handwritten or badly scanned invoices

Mismatched POs or receiving reports

Tipalti allows your company to set a flexible total invoice or line item amount or percentage tolerance for purchase order and invoice matching, as well as for receiving report mismatches. A visual representation shows a color-coded exception follow-up range, from ‘no approval required’ (green) to ‘approval required’ (yellow) and ‘unapprovable’ (red). This process reduces or automates the number of follow-up events required, saving staff time. 

The designated approver handles an exception marked as ‘approval required’ by responding to an automated email notification, which provides a choice to approve or contest the exception. 

If the exception exceeds the tolerance level, accounts payable will dispute the bill with the supplier or request an approved PO adjustment in the ERP system. 

In exception handling for incomplete invoices, Tipalti AP automation uses AI and automated PO matching to flag an exception, place the payment on hold, and automatically notify the responsible parties to resolve the issue before a payment is released. 

Non-PO invoices

Tipalti’s Invoice Capture Agent can also handle non-PO invoices by extracting data in various formats from emails or supplier portals.

Incomplete or illegible invoices

In the case of illegible invoices (handwritten or badly scanned) and incomplete invoices, Tipalti AI automatically routes them to an exception management queue for human-in-the-loop review by Tipalti’s managed services team. 

Invoice Data Capture Using AI

AI invoice processing utilizes intelligent OCR technology to automatically extract supplier invoice data from an emailed or uploaded invoice document file and instantly convert it into a machine-readable format.

Automated invoice data capture is performed using OCR enhanced with machine learning technology for improved accuracy. Machine learning starts with training on test data and improves results with subsequent data.

Information extracted from invoices during data capture includes:

• Invoice number
• Invoice date
• Invoice due date
• Purchase order number
• Vendor contact information and other headers
• Invoice payment terms
• Line item part numbers, descriptions, quantity, unit price, extended price total
• Sales tax
• Amount due

AI Invoice Processing Workflows for Accounts Payable

AI-based invoice processing streamlines accounts payable process workflows, beginning with the capture of supplier invoice data. It will extract data for invoice verification, 3-way or 2-way matching, approval, and global electronic payments in large batches with minimal human intervention. 

AP automation with AI syncs with your ERP system and automatically reconciles to the general ledger in real time. 

With best practices, AI-enhanced accounts payable automation provides guided self-service supplier onboarding, automated communications for invoice receipt and payment status, automatic supplier tax compliance preparation reports, and global regulatory compliance. 

Applications of AI for Invoice Processing

AI invoice processing has numerous applications, including digitally receiving, verifying, matching, approving, and paying supplier invoices, as well as performing AI-driven accounting for accounts payable. 

Applications of AI invoice processing include these use cases:

1. OCR invoice capture with data extraction: Invoice capture is an excellent application for machine learning within AI because invoice formats and layouts vary across suppliers and are unstructured documents. AI invoice processing can leverage digitized data to complete additional automated invoice processing steps. 
2. Automating general ledger coding: AI invoice processing automates invoice coding with embedded ChatGPT generative AI, increasing efficiency. 
3. Identifying invoice vs. purchase order coding discrepancies: AI/machine learning-based invoice processing identifies and flags PO discrepancies that require follow-up. 
4. Preventing duplicate invoice payments: Businesses can save money by enhancing payment controls with AI, including alerting accounts payable staff to duplicate invoices so the supplier isn’t paid twice. 
5. Predicting invoice approvers for automated routing: AI replaces human judgment to determine which approvers should be assigned to each invoice. 
6. Validating supplier tax forms and withholding: AI validation reduces fraud and improves tax compliance by enabling payers to complete 1099-MISC, 1099-NEC, and 1042-S IRS tax forms accurately. TIN (taxpayer identification number) accuracy will help ensure that your company avoids IRS penalties when filing its related information returns. 
7. Chatbot/Digital Assistant for Business Intelligence: Embedding the ChatGPT large language model or other generative AI in AP automation software enables users to analyze their spend and ask questions to receive answers, facilitating informed decision-making and improved spend management.

Benefits of AI-Based Invoice Processing

AP automation shortens the time required to complete AI-assisted automated invoice processing after procurement with AI. In addition to reducing processing time, it provides other benefits, including cost savings and better detection of fraud, errors, and duplicate invoice payments.

Your company achieves cost savings by eliminating manual data entry and paper document processing for the AP team, thereby increasing efficiency. It improves cash flow by utilizing AI payment rules to detect discrepancies and duplicate payments, thereby preventing overpayment to vendors or suppliers. 

Automated AI invoice processing workflows enable your business to avoid using time-consuming Microsoft Excel or Google Sheets as reconciliation spreadsheets, which can contain unintended human errors and delay the monthly financial close. 

Your company is processing supplier and vendor invoices faster than with manual AP processes. Therefore, your accountants will not need to manually accrue as many accounts payable invoices after the month-end cut-off date to record them in the proper accounting period for the financial statements. 

With invoices entering the AP system more quickly, your company gains real-time visibility into its spending. 

Summary of Benefits from AI Invoice Processing

A summarized list of benefits from AI-based invoice processing is:

1. Increasing efficiency for cost savings and fewer hiring
2. Reducing human errors, duplicate invoice payments, and costs 
3. Automating intelligent invoice management 
4. Improving security, financial controls, and compliance
5. Reducing fraudulent payment risks 
6. Processing invoices for payment faster, in time to take early payment discounts, and avoid late payment fees
7. Automatically routing matched digital invoices for a quick online invoice approval process
8. Improving supplier relationships through better communication and timely payments
9. Providing real-time spend visibility and analysis for better spend management, profitability, and cash management 
10. Freeing more accounting resources for strategic finance initiatives to improve business results
11. Applying best practices through AI-powered digital transformation

AI in Invoice Automation: Best Practices

Best practices in AI invoice automation include:

• Change management: prepare your employees for system implementation with top-level support. 
• Training AP staff and suppliers: training employees and utilizing supplier enablement enhances implementation and usage outcomes. 
• Defining SLA (Service Level Agreement) for vendors: get an SLA agreement from the AI invoice automation solution for system uptime and the expected vendor payment time range (varying by payment method and destination country). 
• Setting thresholds for auto-approval: reduce staff follow-up time by setting allowable tolerance thresholds to avoid unnecessary exceptions. 
• Data governance: includes high data security, audit trail, role-based access, supplier data validation, automated global regulatory compliance, and data syncing to the ERP for real-time payment reconciliation. 

Organizations that employ best practices may achieve an invoice processing cost per invoice of approximately $2.75 to $5.00, which approximates published best-in-class study results. Tipalti’s Invoice Processing and Payment Calculator lets you calculate your company’s cost per invoice. 

How to Implement AI in Your Invoice Processing Workflows

To implement best practices for AI in accounts payable to handle your invoice processing workflows, integrate your ERP or accounting system with an AP automation add-on via an API or CSV file, mapping fields and syncing data. 

AP automation is an AI solution for invoice processing. It incorporates artificial intelligence, including OCR, unstructured machine learning, generative AI, and RPA (robotic process automation) for the robotic automation of routine tasks using structured inputs and logic. 

AP automation uses natural language processing AI for business intelligence. It may provide an AI digital assistant for queries and analysis, embedding ChatGPT for finance and leveraging other AI technologies. ChatGPT is one of the best and most widely adopted AI tools contributing to the rise of AI.

Tipalti optionally offers Implementation Services for AP automation to let its new customers get a faster start with experienced guidance. To train your suppliers for the efficient onboarding process, Tipalti also offers an optional Supplier Enablement program.

Tipalti Accounts Payable for AI Invoice Processing

Tipalti Accounts Payable seamlessly integrates and syncs with your ERP or accounting system. If your ERP system has multi-entity and real-time capabilities, Tipalti handles accounts payable by the entity, providing a combined view and visibility into real-time spending and cash flow requirements. 

Tipalti handles end-to-end finance AI, including machine-learning invoice processing, for accounts payable workflows. Tipalti AP automation provides a Supplier Hub for guided self-service supplier onboarding with automated supplier validation. The Supplier Hub collects W-9 and W-8 forms data. It shows invoice, payment, and status history to reduce vendor inquiries about AP. 

Tipalti AI, within its AP automation, uses advanced artificial intelligence, including Tipalti AI Agents and Tipalti AI Assistant. Tipalti AI Agents autonomously handle routine tasks in accounts payable invoice processing. 

Tipalti provides automated AI invoice processing, including invoice and supplier verification, PO matching, and approval routing, utilizing its Bill Approvers Agent. 

Tipalti Accounts Payable begins with tax compliance, using its Tax Form Scan Agent to extract data for W-9 automation during supplier onboarding and form collection. It also provides tax compliance for validation using TIN matching and thousands of built-in IRS rules, and simplifies 1099/1042-S preparation with a tax preparation report. Tipalti also automates global regulatory compliance with KYC/AML regulations and sanctions list scanning. 

Tipalti initiates supplier invoice processing with its Invoice Capture Agent, which uses AI and optical character recognition (OCR) to process invoices and code them. It uses machine learning to improve the accuracy of invoice data capture. For invoice processing, Tipalti AP automation applies over 26,000 payment rules to detect discrepancies before your company can make global payments. 

Tipalti AI Assistant is an essential conversational tool that combines knowledge of your invoices and other Tipalti finance workflows with reasoning to increase efficiency, provide business intelligence, and uncover opportunities. Reporting Agent uncovers real-time spending insights and lets you instantly create custom reports using natural language. 

Take Invoice Processing Further with Tipalti AI

If your company is performing manual invoice processing steps without AI, it’s spending too much time, making unnecessary payment errors, confining the AP team to the office, and constantly hiring to keep up with increasing invoice volume.

Instead, with Tipalti’s scalable and automated AI invoice processing, your company will pay its supplier invoices more efficiently, add financial controls to prevent fraudulent supplier payments, and reduce costly payment errors. 

Your business will improve tax and global regulatory compliance, earn lucrative early payment discounts, get quicker 3-way matching and approvals, code invoices automatically, improve supplier relationships, and gain real-time spend and cash flow visibility.