Table of Contents: Understanding Accounts Payable | What is AP Automation? | Examples of AP Automation | Advantages of AP Automation
Ninety-four percent of accounts payable (AP) professionals would use a tool to automate the most repetitive parts of their job according to our 2023 AP Career Satisfaction Survey. AP automation tools can help them do just that – finance pros leverage technology to make invoice capture, coding, approvals, processing, and payments more efficient.
Many companies adopt AP automation to help free accounting staff from time-consuming manual tasks so they can focus on more strategic initiatives. Additionally, AP automation tools can help reduce errors, speed up processing, and amplify security.
Understanding Accounts Payable
AP represents the sum a business owes to suppliers for goods and services received. The AP department is responsible for managing a company’s outgoing payments to these suppliers.
AP tasks include:
• Capturing, verifying, and coding invoices
• Routing invoices for internal approval
• Issuing timely payments to suppliers
• Reconciling payments
• Maintaining transaction records
• Assisting in month- and year-end closing processes
• Managing supplier relationships
The AP department’s work is vital for maintaining cash flow and financial accuracy. By nurturing a healthy AP process, businesses can save money, better plan expenditures, and sustain smooth operations.
What is AP Automation?
AP automation is the act of digitizing the traditionally paper-based AP process. It involves the use of technology to streamline AP tasks.
While it is possible to use ad hoc systems to automate certain AP duties, AP automation software helps promote consistency and visibility across the full AP process. Piecemeal automation may address immediate needs, but a comprehensive solution can scale as a company grows along with its invoice volume.
Examples of AP Automation
Invoice capture: Automated systems use Optical Character Recognition (OCR), a type of artificial intelligence (AI), to scan and digitize invoices, extracting relevant data like vendor information, invoice numbers, and amounts. This reduces the need for manual data entry. It can also help decrease related errors.
Invoice matching: AP automation software can match invoices with purchase orders and receipts or packing slips to check for accuracy. If a mismatch occurs, the system will flag the invoice for human review. This can help AP teams avoid overpayment or paying fraudulent invoices.
Approval workflows: Instead of manually routing a folder of paper invoices around the office for approval, AP automation software electronically sends invoices to the appropriate approvers based on predefined rules, allowing for remote approvals and speeding up the overall process.
24/7 cloud-based visibility: When researching invoice and payment status, teams no longer need to rifle through filing cabinets or search through piles of paper spread throughout the office. Invoices are stored and processed digitally so that teammates can find any invoice and its status with the click of a button even while working remotely.
Electronic payments: AP automation includes tools for making electronic payments like wire transfers and real-time payments directly from the system, automating the payment process and reducing reliance on paper checks and the U.S. Postal Service.
Real-time reporting: Some automated AP systems provide real-time dashboards and reporting features, giving finance teams instant access to key metrics like outstanding invoices, payment status, and cash flow forecasts.
Discount management: Certain AP automation software can identify and prioritize invoices from suppliers that offer early payment discounts, helping the company benefit from these savings by automatically processing payments within the discount period.
Automated reconciliation: AP automation can automatically reconcile payments against invoices, ensuring that the company’s financial records are accurate and up to date without needing manual matching.
Supplier self-service: AP automation systems often include a supplier self-service portal where vendors can submit invoices and track payment status. This reduces the need for back-and-forth communication between suppliers and the AP team, streamlining the process and reducing inquiries.
Advantages of AP Automation
AP automation is designed to streamline the AP process, reducing errors, improving efficiency, and lowering costs while providing real-time visibility and enhanced control over cash flow. It can also strengthen vendor relationships by delivering timely payments and offering scalability to help accounting and finance teams accommodate business growth.
Cost savings: By reducing manual labor, processing time, and paper-related costs (ink, postage, etc.), AP automation helps lower overall operational expenses. It also helps capture early payment discounts and avoid late payment penalties.
Enhanced efficiency: Automating repetitive tasks like data entry, invoice matching, and payment processing reduces the time and effort required to manage accounts payable, allowing staff to focus on more strategic activities.
Improved availability: AP automation supports remote and hybrid work by allowing employees to process invoices, approve payments, and manage AP tasks from anywhere, promoting flexibility and business continuity.
Better visibility: Automation can enhance visibility into the AP process by providing near-real-time access to financial data and invoice and payment status, enabling better decision-making and more informed cash flow forecasting and management.
Heightened security: Compared to paper-based systems, AP automation offers advanced security features such as encryption, user access controls, and fraud detection mechanisms. These safeguards protect sensitive financial data, prevent unauthorized access, and help reduce the risk of fraudulent activities.
Error reduction: Automation minimizes human errors associated with manual data entry, invoice processing, and payment handling, leading to more accurate financial records and less time devoted to fixing mistakes.
Stronger supplier relationships: Timely and accurate payments foster stronger relationships with suppliers, potentially leading to better terms, discounts, and improved service. Additionally, supplier portals reduce administrative burdens by allowing vendors to perform status checks and resolve issues independently, improving efficiency and communication.
Scalability: As a business grows, automation can help its AP department easily scale to handle increased invoice volume and complexity without requiring additional resources.
Reporting and analytics: Some automated systems offer reporting tools that provide insights into spending patterns, payment status, and overall financial health, enabling better resource allocation and performance measurement.
Ready to take advantage of these benefits in your organization? Book a demo with one of our AP automation experts to learn more about AvidXchange.