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Accounts payable costs can pile up quickly. Modern businesses use accounts payable automation software to minimize the costs of running the accounts payable department.

AP automation software uses technologies like artificial intelligence (AI), intelligent document processing, and natural language processing. These technologies help process invoices, make data-driven decisions, and extract and enter data from invoices into your accounting system.

In this guide, I explain the meaning of accounts payable automation and how it can streamline the accounts payable workflow.

What Is Accounts Payable Automation?

Accounts payable (AP) automation is the process of using software to automate repetitive tasks. These systems use modern technologies like robotic process automation (RPA), optical character recognition (OCR), and AI to automate processes.

For example, AP solutions can automatically match invoices to purchase orders. Alternatively, you can configure the system to automatically route invoices to a team member based on your approval process.

Does AP Automation Really Help That Much?

AP automation can save you a serious amount of money.

According to an IOFM report, the average cost of processing invoices based on volume is:

Invoice volumeAverage cost of processing an invoice with automationAverage cost of processing an invoice without automationPer-invoice cost difference owing to automation
Less than 20,000$12.98$15.97$2.99
20,000–100,000$4.24$6.10$1.86
More than 100,000$3.18$3.62$0.44

Regardless of your invoice volume, AP and invoice automation can save you thousands of dollars across all of your invoices. In addition to lowering invoice processing costs, AP automation systems save the AP department plenty of time and resources, allowing them to focus on tasks that require a human touch.

How Accounts Payable Automation Works

The AP automation process starts when you receive an invoice. An end-to-end automation solution can extract extra information from the invoice, execute the complete AP workflow, and process the payment.

There are three components to any AP automation system:

Organizing Invoices and Receipts

An AP automation system organizes invoices from multiple places, including the invoices in your inbox, invoices received via a supplier portal, and invoices mailed to you on a piece of paper. The system converts paper-based invoices into electronic invoices.

CFOs trying to help the AP department save time by automating manual tasks can rely on AP automation software, as the AP department will no longer have to sort and organize invoices.

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Approving, Paying, and Matching Invoices

After the AP automation software extracts the information from invoices and puts it into the system, the relevant AP team members must approve the invoice.

The system automatically routes the invoice to the right team member. The team member must check the invoice for accuracy and compliance with contractual terms. In some systems, you can automate the contract matching process to do this for you.

The system sends the approved invoices to your accounting software or ERP system for payment.

Once the payment goes through, the AP system matches the invoices with the amount and beneficiaries mentioned in the bank statement.

Recordkeeping and Audit

All invoices and payments are added to a database, so you can refer to them when needed in the future. Plus, executing the entire AP workflow using a single system helps create an audit trail. You can track a specific invoice or payment whenever needed during an audit without much hassle.

AP Automation Software vs. DIY Automation

You can use an AP automation solution or take a DIY approach. If you’re not technically savvy, it’s easier to use software. The DIY approach requires some technical knowledge, even when you use a no-code tool.

The Easier Choice: AP Automation Software

AP automation software solutions come at a cost. But select the right solution and you’ll more than cover its cost in the form of saved time and faster and more efficient processes.

Here’s how accounts payable automation software executes the accounts payable process:

  1. Digitize invoice data: AP automation software uses OCR to read and convert invoices into digital data. Alternatively, you can enable vendors to directly submit an electronic invoice.
  2. Invoice matching: The system compares invoice data with corresponding purchase orders and delivery receipts. Automated matching ensures all invoices are accurate and according to the terms of the contract.
  3. Route invoice for approval: The system routes the invoice to the relevant team member or department based on preconfigured rules. You can also set up alerts or reminders to ensure timely approval.
  4. Payment: Once an invoice is marked as approved, the AP automation system executes the payment or schedules payment based on your contract terms. This ensures you’re using the available credit period and optimizing cash flow. Alternatively, the system can execute payments in real-time when an early payment discount is available. The system also transmits relevant information to your accounting system, which in turn updates your balance sheet.
  5. Reconciliation: Once the payments are disbursed, the system matches payments with the figures in the bank statement to ensure the amount and beneficiaries are correct.
  6. Reporting: One of the best parts of using an AP automation system is insightful reporting. The system uses data collected when executing AP processes to generate detailed reports. These reports include information on where your business is spending money and help identify opportunities to minimize costs.

End-to-end automation software eliminates the need for paper invoices. It takes care of the manual processes, so your payables department can focus on more strategic tasks.

The Wallet-First Choice: DIY AP Automation

Automating AP processes yourself will save you money, but it can be quite time-consuming.

The easiest way to automate your AP workflow is to use a no-code automation tool like Zapier. For example, you can configure Zapier to pull information from your invoices.

Remember that there are various challenges to using a no-code automation tool. First, it needs to integrate with other software solutions you use for invoicing, data entry, and payments.

If the automation tool doesn’t integrate with one of the solutions, you can’t create an end-to-end automation workflow.

The exact process for setting up AP automation yourself depends on the tools you use. If you’re not sure where to start, Zapier is your best bet.

However, it’s best to invest in a complete AP automation solution if you want to directly start automating workflows and be able to get support when something doesn’t work.

Benefits of AP Automation

In addition to streamlining the AP department’s workflow, AP automation offers benefits across multiple business areas. Here are the most noteworthy benefits of AP automation:

Cost Savings

AP automation saves money on multiple fronts. For example, automation systems integrate with business apps, eliminating the need to manually transfer information.

You also make fewer mistakes when using software, saving you time correcting them down the road.

Since AP automation allows you to process invoices and make payments faster, it helps you take advantage of early payment discounts.

Getting early-payment discounts can be quite a challenge without automation—according to IOFM, most businesses take advantage of less than 21% of early-payment discount offers, and 12% of businesses don’t collect any early-payment discounts.

Improved Efficiency and Accuracy

Efficient processes help reduce the cost of AP processes, speed up approval cycles, allow resources to be allocated to more value-adding tasks, such as analyzing spending patterns, and improve employee productivity.

AP automation software also improves accuracy because it’s not subject to the risk of human error like your staff is. When you automate accounts payable processes, you minimize the probability of human error.

Accuracy is critical because it helps you stay compliant, build trust with suppliers and stakeholders, and generate accurate reports that enable you to make sound financial decisions.

Team Collaboration

Teams involved in capturing and approving invoices have real-time access to all invoices and files. This enables teams to collaborate on invoices without the hassle of finding the document, confirming details over email or phone, and navigating inaccuracies.

All teams—AP, finance, and accounting—can view the same data no matter where they are. This enables teams to solve discrepancies faster.

For example, when a supplier calls regarding a discrepancy in the payment, AP can speak to accounting and refer to the transaction in the system without having to manually find the transaction in the bank statement. They can collectively resolve the supplier’s query more efficiently, thanks to centralized access to AP data.

Improved Vendor Satisfaction

AP automation systems also offer benefits external to your company. Consistently paying vendors on time builds a good rapport, making you a preferred business partner. This rapport can be an asset when you need an urgent delivery or a favor when you’re in a sticky situation.

Data-Driven Decision Making

Data is your business’ fuel for growth because it helps you make informed decisions.

In fact, the 40% of organizations that make data-driven decisions are at the top of their game compared to those that make decisions based on gut feelings.

AP automation solutions consolidate the information from all transactions in real-time. It uses this information to create interactive charts and detailed reports.

These charts and reports offer finance teams the transparency, insights, and ability to track financial metrics needed for strategic decisions.

Fraud Prevention

Fraud prevention is a big challenge.

Here’s why: According to PwC’s Global Economic Crime and Fraud Survey 2022, more than half of large companies experience some sort of invoice-related fraud each year.

To get some perspective on how much this could cost a business: According to The Financial Professional Census Report 2022, which surveyed 2,750 senior finance professionals, the estimated average annual cost of invoice fraud is $280,000 per middle-market business.

AI-powered automation solutions can identify inconsistencies in transactions, reducing the potential for these frauds to succeed. The system monitors all transactions, and when there’s an anomaly, the system notifies the relevant team member.

The best systems have built-in security and accountability features that make it easier to detect fraud and identify the person responsible for it. Preventing fraud is critical for compliance and protecting your assets.

Bringing Software Back into the Conversation

AP automation software is your key to lowering the cost of automating AP processes. Integration with financial systems and supplier acceptance are the most pressing challenges when implementing AP automation.

That’s why a small share of companies have automated their AP processes. As Vijay Ramanathan, the president of MineralTree, highlights in an article:

Only 10% of businesses have fully automated their AP process, and only 38% of SMBs have even partially automated it.

Modern software solutions solve these challenges. Businesses that implement AP automation software spend less time on inefficiencies associated with manual processes.

Put AP on Autopilot

AP teams already have a full plate. Instead of making them spend time on manual data entry and converting physical supplier invoices into e-invoices, empower them to work on strategic tasks like analyzing cash flows and spending patterns.

Use AP automation software to automate invoice approval, payment processing, and other manual tasks in your workflow. If you do, you’ll be able to lower your overall AP costs, empower your AP team to do more, and make smarter decisions based on real data.

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By Arjun Ruparelia

Arjun is an accountant-turned-writer. After a stint in equity research, he switched to writing for B2B brands full-time. Arjun has since written for investment firms, consultants, and SaaS brands in the Accounting and Finance space. He loves chatting about business, balance sheets, and burgers.