By leveraging AI-based automation tools, professional services can achieve faster invoice processing, enhance employee retention, increase productivity, take advantage of early payment discounts, and ensure more accurate payment and reporting.
June 15, 2023
.svg){kind=icon}
Managing the financial aspects of a professional services company can be a challenging task. With numerous clients, projects, and budgets to handle simultaneously, keeping track of time, billing, profitability, and contract management becomes crucial. Additionally, the unpredictable nature of project-based work, coupled with the complexity of invoices and talent shortages in accounting positions, further adds to the burden.
However, advancements in artificial intelligence (AI) offer opportunities to improve profit margins and streamline financial processes in professional services. By leveraging AI-based automation tools, companies can achieve faster invoice processing, enhance employee retention, increase productivity, take advantage of early payment discounts, and ensure more accurate payment and reporting. This article explores how AI can transform accounts payable and reduce overhead costs for professional services companies.
Accounting challenges in the Professional Services industry
Like all industries, professional services have their own set of challenges when it comes to finance and accounting, and they can be summarized in the following areas:
High volumes: A professional services company might manage hundreds of clients and projects simultaneously, all with their own budgets and bills. That’s a lot to keep track of.
Time tracking and billing: These companies often bill clients based on the time spent working on a project, and it can be difficult to accurately track the time spent by each employee. Billable utilization rates are a key metric to determine how much time your employees or contractors spend generating revenue.
Profitability analysis: Professional services companies must track the profitability of each project to ensure that they are operating efficiently and effectively. Doing so accurately, and based on real-time data, requires specialized tools and skills.
Contract management: Company leadership must manage client contracts effectively and pay for products or services on their behalf as an outsourced vendor or advisor. It’s critical to ensure that all billing and payment terms are being followed.
Unpredictable cycles: Project-based work is often unpredictable. While some costs may be recurring, others may change from client to client or project to project.
Messy bills: Every one of those recurring or ad-hoc expenditures might mean an equal number of invoices – many of which are one-offs. Added together across multiple client engagements, invoice processing and payment can be a major undertaking for professional services companies. Projects can involve hundreds of subcontractors, so managing those contractors get paid for their work can be challenging.
Talent shortages: Manually-intensive accounting work is not glamorous – and it is not typically the expertise of professional services employees, who are more likely to be experts in their specific field. On top of that, vacant accounting jobs are becoming increasingly harder to fill. And high turnover in manually intensive data entry positions equals even higher costs for companies that need to continually train new recruits.
<!--HubSpot Call-to-Action Code --><span class="hs-cta-wrapper" id="hs-cta-wrapper-31005f73-c93c-43ba-be39-d061dd1f7c28"><span class="hs-cta-node hs-cta-31005f73-c93c-43ba-be39-d061dd1f7c28" id="hs-cta-31005f73-c93c-43ba-be39-d061dd1f7c28"><!--[if lte IE 8]><div id="hs-cta-ie-element"></div><![endif]--><a href="https://cta-redirect.hubspot.com/cta/redirect/4808453/31005f73-c93c-43ba-be39-d061dd1f7c28" ><img class="hs-cta-img" id="hs-cta-img-31005f73-c93c-43ba-be39-d061dd1f7c28" style="border-width:0px;" src="https://no-cache.hubspot.com/cta/default/4808453/31005f73-c93c-43ba-be39-d061dd1f7c28.png" alt="Accounting AI solution empowers cloud-based accounting firm with 2.3X increase in FTE capacity"/></a></span><script charset="utf-8" src="https://js.hscta.net/cta/current.js"></script><script type="text/javascript"> hbspt.cta.load(4808453, '31005f73-c93c-43ba-be39-d061dd1f7c28', {"useNewLoader":"true","region":"na1"}); </script></span><!-- end HubSpot Call-to-Action Code -->
Opportunities for improved profit margins with AI
With increased competition and unpredictability in the market, business services must be concious of the margin on every project. Skilled labor continues to reduce the margin as wages rise. The more complex the project is, the more elaborate the invoices will be. If a large project requires hundreds of thousands of dollars of expenses, there could be hundreds of line items to match to a PO or many tedious and costly accounting tasks to close out a project. The room for accounting error is huge.
Many ERP and AP automation tools have invoice and PO modules, but they still require extensive manual coding. On average, invoices can cost $15 to $30 per invoice to process and pay an invoice. This can add up to hundreds of thousands of extra back-office costs that can squeeze your project margins. From processing invoices to data predictions, intelligent and autonomous AI solutions empower professional services leaders to digitally transform accounts payable (AP) and reduce overhead costs in the following ways.
(1) Faster processing
Processing invoices is often labor and time-intensive for AP professionals who must manually upload, read, and key information and then execute the approval and payment process. Accounting AI can take over the tedious tasks with digital ingestion and less guesswork, increasing the speed of processing from an industry average of 10 minutes to under 1-2 minutes per invoice. That’s 80% less labor cost spent on coding invoices.
(2) Better employee retention
As we saw in the great resignation, losing employees is costly. For professional services companies, the hard and soft turnover costs can add up to thousands of dollars per employee. Additionally, AI-based automation can elevate your teams and their skills by liberating them from monotonous data-entry tasks – freeing them up to be more strategic in their roles through vendor management, process improvement, and less pressure to process growing volumes of never-ending invoice routing, coding and approving. Remember, happy employees stick around!
(3) Increased productivity
By normalizing and analyzing your costs with AI and statistical analysis, you get real-time insights, benchmark data, and suggested cost optimization strategies. If you know your invoice processing has been slower the past six months, do you know the cause of the decreased speed? Accounting AI intelligence can provide analytics to show you how long it takes your whole department to process an invoice and how long it takes each person or user to process an invoice. Maybe your invoice processor is taking unnecessary steps or making unnecessary corrections to invoices. The processing insights can help you pinpoint these behaviors to increase processing time.
Processing time isn’t the only thing that can and should be measured. Key performance indicators such as invoice time per region, vendor accuracy, spend per general ledger (GL) and many more KPIs can help you see your financial performance in real time.
(4) Early payment discounts
Make late payments (and associated fees) a thing of the past. Fast and accurate AI means you no longer need to rely on slow and manual data entry to complete the month-end close. The ability to detect duplicates, code complex documents to your general ledger, and autonomously match purchase orders to invoices means that AI will help you reach due dates early. Unlike many RPA solutions’ offshore operations that process data overnight, the AI is instantaneous. Real-time processing can turn late fees into opportunities to save with dynamic or static discounts.
(5) More accurate payment and reporting
Reopening the books is costly and decreases stakeholder confidence in your reporting. How many times have you had to reopen the books due to discrepancies from manual data entry? After keying in the data for the 50th invoice of the day, how accurate are humans?
Making decisions about allocating the current expenses to the correct project is critical for accurate payments and reporting. According to Gartner, “RPA is limited by its adherence to rigid rules, and it can’t execute decision-oriented tasks.” When it comes to line-item level coding, RPA and OCR tools don't deliver the accuracy levels promised. Due to the need for templates and retraining, legacy systems have difficulties reading and accurately coding line items because every line adds another variable that might not be on the template.
In contrast, AI doesn't get "tired" when coding hundreds of line items on one invoice, and accuracy levels remain consistent. AI also undergoes 24-hour training and continuously learns from accounting decisions. And once you teach it by correcting errors or approving correct behaviors, the AI can accurately code complex invoices on its own.
By leveraging AI-based automation tools, companies can achieve faster invoice processing, enhance employee retention,increase productivity, take advantage of early payment discounts, and ensuremore accurate payment and reporting. AI offers opportunities to transformaccounts payable and reduce overhead costs in the professional services industry. To learn more about eliminating AP bottlenecks and make invoice approvals effortless - watch our webinar.
