You’ve probably heard about accounts payable (AP) automation solutions. But what’s most important for you to know about them now to help your business grow?
We’re going to answer that timely question here.
We’ll define what the latest solutions are, the most pressing problems they address and the cost savings they help deliver for finance teams.
Table of Contents
What are AP automation solutions?
AP automation solutions use software to speed up processing of invoices and payments reliably from a centralized computer database. Usually a minimal amount of paper – if any – is involved.
This technology untangles problems with manual processing. Most notably slow approval and data entry processes, as well as lost, incorrect or duplicate payments.
An AP automation solution streamlines repetitive tasks, such as data entry, so a person doesn’t have to. The software captures paper invoice data and converts it to electronic documents.
During this process, the technology automatically matches data on invoices, purchase orders and sales receipts and flags those that don’t align. In the approval stage, the solution forwards documents electronically to the business leaders assigned to approve invoices.
What problems do AP automation solutions solve?
AP automation solutions solve a wide range of problems that help your company save time and money and operate more efficiently.
AP automation solutions reduce manual data entry
A Hyland survey found more than half of respondents (51 percent) cited manual data entry and inefficient processes as the biggest pain point of manual invoice processing.
The good news is AP automation software reduces data entry errors by taking the person out of the process. It automatically converts the data into the electronic corporate database.
AP automation solutions speed up invoice approvals
A survey conducted by AvidXchange and Levvel Research found slow, manual routing of invoices for approvals was an issue for 53 percent of respondents.
What are the biggest pain points you experience in your workflow process?
In the AP automation approval process, people reduce time poking business leaders for invoice approvals. The software automatically forwards the right invoices to the right people at the right time and alerts them to their arrival.
The same AvidXchange survey polled participants about the improvements they gain from AP automation. Fifty-seven percent cited quicker approval of invoices.
What are the greatest improvements you have seen since implementing an AP automation solution?
AP automation solutions solve “tribal knowledge” problem
AP automation solutions also help solve “tribal knowledge” problems with manual processes. This occurs when only one person in the AP department, for instance, has a large amount of expertise handling invoicing and payments but then goes on vacation or resigns. The remaining employees rush to get up to speed.
“That puts organizations in a tough position when that person or individuals are out of, or leave, the office,” notes OneDataSource. “In a modern AP automation solution, that’s an easily resolved problem. Electronic invoicing and storage means all documents are in a central location with quick accessibility. Businesses no longer must rely on tribal knowledge. Rather, multiple members can jump in to facilitate the processing and payment of invoices.”
In this case, historical information and communications about invoices and payments are easy to find in one place by others still working for the company.
AP automation solutions notify businesses of suspicious activity
AP automation also helps reduce fraud because it minimizes – and in some cases ends – the use of paper. This is key. Fraudsters excel at stealing data from paper such as checks and paper invoices. But it’s generally more difficult for them to hack into automated electronic systems.
What types of AP automation solutions are there?
When you explore the broad landscape of AP automation solutions, you find there are many different types for different purposes.
Some bundle accounting software with AP software and cash management capabilities. Some software focuses on a specific aspect of the AP automation challenge such as data capture and extraction or workflows. Others automate the entire AP process from start to finish.
In all these cases, however, the software powers the operation. Its rules and instructions automate processes previously done by people to reduce errors, accelerate payments and boost finance department productivity.
One key software used in AP automation, a type of artificial intelligence known as machine learning, detects patterns in data to help predict the likelihood of future scenarios.
The best solutions use elements of AI and machine learning to optimize workflows and efficiencies, notes OneDataSource.
“Automatic data capture combines modern optical character recognition technology with AI. This type of technology can also alert you to signs of suspicious activity, duplicated invoices and other potential signs of fraud.”
What are the cost-saving benefits of AP automation solutions?
There are several ways to measure cost savings of AP automation. These savings vary depending on how they’re calculated, how many invoices a company processes each month, the percentage of purchase order (PO) vs. non-PO invoices, the amount of automation in the AP processing and other factors. It’s a variable process.
Goldman Sachs calculated that the total costs for AP staff involved in manually processing a single invoice equaled $14.69 for medium-size businesses and $20.79 for small businesses. In an automated system, these numbers fell to $3.87 and $4.49, respectively.
What are major challenges with AP automation solutions?
For all the benefits of AP automation, there are some challenges you’ll want to be aware that may come up.
A big one is when a business simply doesn’t plan carefully in advance why it wants to use the technology. So, it’s wise to figure out, up front, exactly what problem you want the software to solve and the most important benefits you’re seeking.
“One of the big challenges that can trip-up AP software implementation is an unclear idea of what you need the software to do,” notes NextProcess. “Planning ahead helps with that.”
You’ll also want to be careful to avoid inefficient software settings. The settings may alert you to too many invoices as exceptions (discrepancies) that don’t have such problems. You may need to fine-tune your business rules or change your settings to fix this mistake. And some AP automation solutions don’t check purchase orders and invoices for exceptions line by line.
“If there’s a pricing discrepancy or a different product number shows up, the automatic system routes the invoice for manual fact-checking and approval,” notes NextProcess. “Reconciling this sort of exception often means contacting vendors directly to work out why prices, product numbers and numbers don’t match.”
AP automation solutions do not stand alone within the corporate technology landscape. They integrate with corporate accounting software and enterprise resource planning business management software. The solutions are complementary parts of larger corporate financial systems.
Final thoughts
So, what should you do as your finance department evolves? Consider these three actions to get the most of an AP automation solution.
- Figure out what you really need done to help your business grow. What exactly is the invoice or payment problem you need solved most? What precise benefits do you want AP automation to deliver? Once you figure this out, you’ll be well prepared to look for a solution tailored for you.
- Emphasize integration. You’ll want your AP automation software to work smoothly with your accounting and ERP software. The goal is accurate and quick data transfers, such and invoice and payment information, between the software and systems.
- Stay focused on cost savings. Your business has the potential to save plenty of money by automating its AP processes.