The last couple of years have proven that retailers are resilient - constantly innovating to tackle the economic environment. Yet, many aren't leveraging AI to augment their finance operations yet? ChatGPT and other AI tools revolutionize how to tackle supply chain challenges, detect fraud, optimize pricing and forecasting, and top retailers are able to tenfold the output of existing resources.
Retailers unique accounting challenges
The retail market is a significant contributor to the US economy, and according to the US Census Bureau, the total retail sales in the United States in 2021 were approximately $6.1 trillion. The industry was heavily impacted by the COVID-19 pandemic, which led to permanent changes in consumer behavior, supply chain disruptions, economic headwinds, and labor problems. Resilience is critical for financial leaders in the retail industry for the coming years.
Retail companies face accounting challenges requiring careful attention and management to ensure accurate financial reporting and profitability. The main challenges are within the following areas:
High invoice volume: Retail companies typically process large invoice volumes due to high inventory needs, making it difficult for the AP team to keep up with the workload and ensure that all invoices are paid on time.
Managing vendor relationships: They work with many vendors, and the AP team must ensure that payments are made promptly and accurately to maintain positive relationships with vendors.
Ensuring compliance: Retail needs to accurately recognize revenue by accounting standards, such as ASC 606, which can be complex due to multiple revenue streams or promotions offered. They must also comply with sales tax regulations that vary from state to state.
Omni-channel sales: Many offer sales through multiple channels, such as online, in-store, and mobile. Accounting for these channels can be challenging, as each channel may have different payment methods, discounts, and fees.
Fraud prevention: Retail is vulnerable to fraud, such as theft of inventory, skimming of cash, and fraudulent refunds. The accounting team must implement controls to prevent and detect fraudulent activity.
Resolving discrepancies: Invoices can contain errors or discrepancies, such as incorrect pricing or quantity, which the AP team must resolve before payment can be made.
Handling exceptions: The AP team must be able to handle exceptions, such as rush payments, disputes, purchase order mismatches, and complex invoices, while still ensuring that all payments are made accurately and on time.
Multi-entity reporting: Retail companies must prepare financial statements that accurately reflect their financial performance and comply with accounting standards. This can be complex for companies that have multiple entities or operate in multiple countries.
Streamlining processes: Labor shortages and high turnover in the AP function make it necessary to look for ways to streamline operations and mitigate manual tasks to improve efficiency and reduce costs.
Cost control: Retail companies must manage their costs effectively to maintain profitability. This can involve identifying inefficiencies, reducing overhead costs, and negotiating with suppliers for the best possible prices.
7 opportunities for stronger resiliance leveraging AI accounting
Despite the adverse economic outlook, retailers are resilient. The pandemic's significant demand fluctuations are prompting finance leaders to reconsider outdated methods in favor of more agile operations. As a result, Retail is one of the top industries that leverage automation, and AI adoption by retail businesses has increased by 27% during the pandemic. (Source: AI Multiple)
With tight margins and market unpredictability, retailers must streamline and automate AP processes. Many ERP and AP automation tools have invoice processing and PO modules but still require extensive manual coding. On average, invoices can cost $15 to $30 per invoice to process and pay, and those back office costs put extra pressure on margins. The right Invoice processing automation software can help retail companies improve accuracy, efficiency, compliance, and visibility while reducing costs.
(1) Faster invoice processing
Processing invoices is labor-intensive for AP teams who manually upload, read and key information, resolve discrepancies, and approve and execute payments. Automation software extracts data from invoices and automatically populates it into ERP systems, eliminating manual data entry and minimizing errors. That increases your processing speed from an industry average of 10 minutes to under 1-2 minutes per invoice. In addition to cost savings, faster processing unlocks early payment discounts.
2) Improved margins
More streamlined and automated invoices translate into up to an 80% reduction in labor costs spent on coding invoices. With large invoice volumes and thin margins, the right technology investments can be game-changing for retailers. Industry-leading accounting AI solutions generate a positive ROI within
6-7 months, increasing efficiency in half a year!
3) Increased supply chain efficiency
Supply chain management is unique in retail due to delivering a large volume of fast-moving consumer goods. It has to be monitored closely as the cycle time is extremely low.
Normalizing and analyzing your costs with accounting AI gives you real-time insights, benchmark data, and suggested cost and cash flow optimization strategies. It enables you to, for instance, track and analyze supply chain costs, such as shipping and warehousing costs. You can make informed decisions about supply chain changes by having real-time visibility into financial data, including expenses and inventory costs. By identifying areas of high costs when they happen, you can take action to reduce expenses quickly when the market is volatile.
(4) Autonomous PO matching
Next-gen PO matching solutions have matching capabilities stretching beyond matching on item ID or header-level data and can simulate the same holistic approach humans would take. By automating invoice processing and PO matching (two cumbersome workflows in the retail industry) you can reduce the time it takes to enter data and reconcile accounts. Not only will it free up your employees' time to focus on higher-level tasks, but it will eliminate costly errors.
(5) Leverage audit trails
A next-gen AP automation solution can ease the auditing process by acting as an online repository for all vendor invoices, keeping track of the entire audit log, and recording the full approval history.
In the past, managing this data involved cumbersome filing cabinets, sticky notes, and hallway updates. Today, audit trails can provide granular detail on any aspect of the billing lifecycle, like if an employee made multiple updates to a particular vendor within a short time or if there was a modification of bank account data for a utility provider. This includes dozens of invoice, user, and payee attributes, as well as who executed a given action and precisely when it occurred.
(6) 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?
According to Gartner, “RPA is limited by its adherence to rigid rules, and it can’t execute decision-oriented tasks.” Regarding 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 independently.
(7) Happy employees are loyal
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.
Vic.ai is providing 10.000+ customers with accounting AI that empowers finance leaders in retail to go beyond cost-cutting measures to improve profitability and prioritize customer experiences instead of mundane AP workflows.
"With Vic.ai's advanced AI platform, we will be able to reduce our average user invoice processing time from 8-10 minutes to less than one minute. This means that we can shift approx. 40,000 hours per year to higher-value tasks, which will revolutionize our finance department." Patrik Berglund, Head of Finance Operation, Elkjøp Nordic AS
Download this guide containing insights, case studies, and best practices for retailers seeking to leverage AI to:
- Turn the AP team into a value center
- Create spending efficiencies
- Improve profitability while putting the customer first