What is accounts payable automation and how does it work?

In today’s fast-paced business landscape, automation is transforming how companies handle their finances, including accounts payable (AP) processes. Accounts payable automation has become essential for businesses seeking to streamline operations, minimise errors, and save both time and resources. 

This article will explore what accounts payable automation is, how it works, and why it’s a smart investment for any organisation.

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What is AP automation?

Accounts payable automation refers to the use of technology to manage and automate the AP workflow, which includes receiving, processing, and paying invoices. Traditionally, the AP process involves a series of manual tasks: receiving invoices, matching them to purchase orders, routing them for approval, and eventually issuing payments. With AP automation, much of this process is managed by software, allowing for faster, more accurate, and more efficient invoice processing.

Automating accounts payable can improve productivity, reduce errors, and provide more control over financial operations. Through the use of specialised software, AP automation can handle everything from data entry to invoice approvals, giving finance teams more time to focus on higher-value activities.

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What is the typical AP workflow?

Understanding the traditional AP workflow provides insight into how automation can streamline this process. A standard AP workflow generally includes the following steps:

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1. Invoice receipt: Invoices arrive through various channels, including email, mail, and supplier portals. These are then entered into the system manually.
2. ‍Data entry and verification: Key invoice details, such as amounts, supplier information, and terms, are entered into the accounting system and verified against purchase orders or contracts.
3. ‍Approval routing: Invoices are routed to the relevant individuals for review and approval, which often involves multiple people and departments.
4. ‍Payment scheduling: Approved invoices are scheduled for payment based on their due dates and cash flow considerations.
5. ‍Payment processing: Payments are issued through various methods, such as electronic funds transfer (EFT), cheque, or wire transfer.
6. ‍Record keeping and auditing: Once payments are made, records are updated, and documentation is filed for compliance and audit purposes.

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This traditional workflow is time-consuming and prone to human error. Automating these steps simplifies and accelerates the process, ensuring a more efficient accounts payable invoice processing.

What are the benefits of using an accounts payable automation provider?

Accounts payable automation providers offer software solutions that optimise the entire AP process. These solutions bring several advantages that contribute to a more efficient, accurate, and cost-effective AP department.

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Time savings

One of the most immediate benefits of AP automation is the significant reduction in time spent on manual tasks. Data entry, invoice routing, and approval processes can be completed within minutes instead of days. This frees up time for finance professionals to focus on strategic tasks, such as budgeting and financial analysis, rather than routine data processing.

Improved efficiency

By automating repetitive tasks, accounts payable automation enhances the overall efficiency of the AP department. Automated workflows ensure that invoices are routed to the right person for approval, minimising delays and bottlenecks. Furthermore, with automated invoice processing, businesses can handle larger volumes of invoices without needing to expand their team.

Increased accuracy

Manual data entry is one of the primary sources of errors in the AP process. AP automation uses technologies like optical character recognition (OCR) to accurately capture data from invoices and input it directly into the system. This technology reduces human error, improves data quality, and ensures that invoices are processed accurately.

Reduced costs

With improved efficiency and reduced errors, accounts payable automation can lead to significant cost savings. By eliminating paper processes, cutting down on manual labour, and taking advantage of early payment discounts, businesses can reduce their operational costs. According to industry reports, companies using AP automation can save up to 80% on processing costs per invoice.

Built-in compliance

Accounts payable automation providers offer solutions with built-in compliance features that help businesses adhere to regulations and industry standards. Automated systems keep detailed records of all invoice actions, creating a clear audit trail. This transparency reduces the risk of fraud and ensures compliance with financial reporting requirements.

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The ROI of AP automation

Implementing AP automation can deliver a substantial return on investment (ROI) for organisations, both in financial and non-financial terms. Let’s examine these benefits more closely.

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The financial ROI of AP automation

The financial ROI of automating accounts payable primarily comes from cost savings. Key areas of financial ROI include:

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• Reduced labour costs: Automation reduces the amount of manual work required, potentially allowing businesses to redeploy staff or avoid hiring additional personnel as invoice volumes increase.
• ‍Fewer errors and associated costs: Errors in the AP process can lead to duplicate payments, late fees, or missed discounts. Automation minimises these errors, reducing the associated costs.
• ‍Early payment discounts: By automating and streamlining the AP process, organisations can pay invoices promptly, qualifying for early payment discounts offered by some vendors.

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The non-financial ROI for AP Automation

The non-financial benefits of AP automation contribute to the overall productivity and operational health of an organisation. These include:

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• Enhanced employee satisfaction: Automation takes over tedious tasks, allowing employees to focus on more fulfilling, high-impact work. This can improve job satisfaction and retention within the finance team.
• ‍Better supplier relationships: Timely and accurate payments foster stronger relationships with suppliers. With AP automation, suppliers are more likely to receive prompt payment, leading to improved trust and collaboration.
• ‍Scalability: Automated systems can handle increased invoice volumes without requiring additional resources. This scalability ensures that the AP function can grow alongside the business without becoming a bottleneck.
• ‍Environmental impact: By reducing the need for paper and physical storage, AP automation contributes to a more sustainable and environmentally friendly business model.

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How does AP Automation work?

Accounts payable automation relies on various technologies to streamline the AP workflow. Here’s a look at some of the key components:

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Optical Character Recognition (OCR)

OCR technology extracts data from paper or electronic invoices and enters it into the system, eliminating the need for manual data entry. This data extraction process is accurate, quick, and reduces the risk of errors associated with human input.

Machine learning and Artificial Intelligence (AI)

Some advanced AP automation solutions incorporate machine learning and AI to improve accuracy and optimise workflows over time. AI can identify patterns in invoice data, predict potential issues, and make recommendations for process improvements.

Workflow automation

Workflow automation is at the core of AP automation. Once an invoice is entered into the system, the software automatically routes it through the approval process. The system notifies approvers, tracks the status of each invoice, and ensures timely processing.

Integration with accounting and ERP systems

To fully leverage AP automation, integration with existing accounting and ERP systems is essential. Seamless integration allows data to flow between systems, ensuring that financial information is accurate, up-to-date, and readily accessible for reporting and analysis.

Real-time analytics and reporting

Many AP automation solutions offer real-time analytics and reporting tools. These provide insights into the AP process, enabling finance teams to monitor performance, track KPIs, and identify areas for improvement.

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Conclusion

Accounts payable automation represents a powerful solution for organisations seeking to optimise their AP processes, save time, and reduce costs. By automating repetitive tasks, improving accuracy, and providing actionable insights, AP automation not only enhances the efficiency of the finance department but also contributes to a more agile and scalable business model.

While the initial investment in an AP automation solution can be substantial, the long-term financial and operational benefits make it a worthwhile endeavour. As companies continue to embrace digital transformation, AP automation will play an increasingly vital role in helping businesses operate more efficiently and stay competitive in a fast-paced market.

For companies looking to streamline their accounts payable operations, now is the time to explore AP automation as a strategic tool that delivers value far beyond simple task automation. As AP automation continues to evolve, those who adopt it early will be well-positioned to reap its full benefits, setting a solid foundation for future growth and success in a dynamic business environment.