Automation in BPO: The use of automation in Accounting – Part 1

last updated on 28 February 2022 | reading time approx. 4 minutes

There is a saying “The deeper in the forest you go, the more trees you will see”. Sometimes when you look at things from a certain level, they seem to be quite straightforward. That is until you get to the bottom of all the details. They say “Accounting is simple business”. It really is not.

There are several main factors that make the BPO accounting business model not so simple to manage and grow. When we look at the accounting process we can describe it in quite a simple pattern. Companies are doing business as usual creating economic transactions in their internal and external environment. These economic transactions need to be accounted for. Thus, accounting takes place.

The accountant grabs these economic transactions, checks their validity and using his professional knowledge classifies them in standardized forms. In most cases classification is conducted based on the chart of accounts division. Tax rules are then checked and verified for these economic transactions. Fairly simple you might say.

However, if you consider that different types of accounting proofs can have a random factor embedded, there can be variations of charts of accounts, diverse available formats, various ways of transporting a transaction proof to the accountant, miscellaneous supporting IT systems and different classification rules… it suddenly gets more and more complicated.

But let’s not be put off that easily, we’ll try to “eat this elephant piece by piece”. Starting from the accounting proof (evidence), we will now look at different document types.

The accounting evidence is the basis for booking entries. Events which we book that fall within the scope of a given company's activity are called economic activities. These events can be expressed in monetary values and cause changes in the balance sheet. Therefore, the accounting evidence is a confirmation of a specific economic operation. Examples of economic operations are:

• purchase of goods or services
• payment for cost invoices received from suppliers
• handing over finished products from production to the warehouse
• sale of products
• scrapping of a fixed asset
• receipt of payment from the recipient
• receiving money on account of a loan taken out
• granting a loan

The accounting evidence is divided into three basic groups:

• foreign external evidence - received from contractors
• own external evidence - issued by the company and provided to contractors
• internal proofs - are the basis for the company's internal operations

Not every document, which apparently constitutes a confirmation of an economic operation, can be considered an accounting proof. According to the regulations, accounting evidence must also be properly prepared and must contain elements such as:

• the type of proof and its identification number
• identification of the parties (names, addresses) carrying out the economic operation
• description of the operation and its value, if possible, also specified in natural units
• the date of the operation and, if the proof was made out under a different date, also the date the proof was made out
• signature of the issuer of the proof and the person to whom or from whom the assets were issued or accepted
• statement that the evidence has been checked and qualified for inclusion in the book of accounts by indicating the month and the manner of its inclusion in the book of accounts (decree), signature of the person responsible for these indications.”

The accounting evidence may include, among others:

• purchase invoices
• sales invoices
• corrective invoices
• travel vouchers
• customs documents
• monthly fiscal report
• internal posting note
• loan promise
• documents confirming payment of postage or stamp duties
• bank statements
• cash statements
• warehouse turnover documents
• bills of order and contract of work

Additionally, the accounting proof should be complete, without accounting errors, and issued in a legible, careful and durable manner.

The first question we want to ask ourselves is: What is the accounting proof we want to focus on?

We can see that sales and purchase invoices are one of the highest in volume. For sales invoices, the typical document flow encompasses sales interfaces so let us take a good old purchase invoice for this example.

What is a purchase invoice? This document is a proof of an economic transaction that requires entering in a buy transaction and acquiring resources from external sources. These purchased resources are needed to conduct economic activity. So in practice I’m buying something that I need to do something else with, which will hopefully earn me money.

According to German law, a formally correct purchase invoice has to contain:

• Issue date
• A unique, sequential number
• VAT number of the supplier
• Full address of both supplier and customer
• Full description of the goods or services provided
• Details of quantities of goods, if applicable
• A date of the supply if different from the invoice date
• The net, taxable value of the supply
• The VAT rate applied, and the amount of VAT
• Details to support zero VAT – export, reverse charge or intra-community supply
• The total, gross value of the invoice

So the first step in accounting for such a purchase transaction would be to verify the validity of the accounting proof – the invoice itself. In a traditional set-up there are two main tools that support this process from a technology point of view – OCR software and Workflow software.

Before we get into the supporting software, let’s try to imagine what form this purchase invoice could reach us.

The second question we want to ask ourselves is: In what form is this accounting proof delivered?

Here we have 3 options:

• Paper
• Scan
• EDI

Paper: the most traditional way of delivering documents – using either postal or courier service or delivering documents in person to the accounting office.

Scan: the most frequently used way of delivering documents – paper documents are being scanned either by the client directly or by a back office document processing unit that supports operations on behalf of the accounting office.

EDI: electronic data interchange. This means a structured, computer readable electronic document. Most popular formats either use XML or JSON.

After receiving the document, the first thing we need to take care of is to transform it into a computer readable format. We need to be sure that the “item description” on the invoice is placed in the field “item description” and “gross amount” in the “gross amount” field etc. We have to do this when we receive PDF documents. For EDI formatted document, the computer knows exactly what each field means and where is it. Unfortunately this is not a standard yet in Europe.

So we have to use the OCR system and Workflow solution to read the information contained on the document and send it across different business units – internally as well as externally.

Please continue here to read more of this essay:

• Part 2: OCR, Computer Vision and Word Embedding technologies in Accounting »
• Part 3: Process optimisation in Accounting »