Machine Learning Algorithms to Predict Cost Account Codes in an ERP System : An Exploratory Case Study

Abstract: This study aimed to investigate how Machine Learning (ML) algorithms can be used to predict the cost account code to be used when handling invoices in an Enterprise Resource Planning (ERP) system commonly found in the Swedish public sector. This implied testing which one of the tested algorithms that performs the best and what criteria that need to be met in order to perform the best. Previous studies on ML and its use in invoice classification have focused on either the accounts payable side or the accounts receivable side of the balance sheet. The studies have used a variety of methods, some not only involving common ML algorithms such as Random forest, Naïve Bayes, Decision tree, Support Vector Machine, Logistic regression, Neural network or k-nearest Neighbor but also other classifiers such as rule classifiers and naïve classifiers. The general conclusion from previous studies is that several algorithms can classify invoices with a satisfactory accuracy score and that Random forest, Naïve Bayes and Neural network have shown the most promising results. The study was performed as an exploratory case study. The case company was a small municipal community where the finance clerks handles received invoices through an ERP system. The accounting step of invoice handling involves selecting the proper cost account code before submitting the invoice for review and approval. The data used was invoice summaries holding the organization number, bankgiro, postgiro and account code used. The algorithms selected for the task were the supervised learning algorithms Random forest and Naïve Bayes and the instance-based algorithm k-Nearest Neighbor (k-NN). The findings indicated that ML could be used to predict which cost account code to be used by providing a pre-filled suggestion when the clerk opens the invoice. Among the algorithms tested, Random forest performed the best with 78% accuracy (Naïve Bayes and k-NN performed at 69% and 70% accuracy, respectively). One reason for this is Random forest’s ability to handle several input variables, generate an unbiased estimate of the generalization error, and its ability to give information about the relationship between the variables and classification. However, a high level of support is needed in order to get the algorithm to perform at its best, where 335 occurrences is a guiding number in this case.