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Accounts Payable (AP) may not feel exhilarating. I get it. But inexpensively transforming time-consuming, tedious AP processes and enhancing end-to-end visibility? That sounds like a pretty exhilarating bonus waiting on your doorstep.

This is how and when to automate AP, complete with automation tips and lessons learned from the trenches.

What is Invoice Automation?

Invoice automation is a process that uses technology like artificial intelligence (AI) and machine learning (ML) to streamline and automate manual accounts payable tasks.

Invoice processing tools capture, process, digitize, and manage invoices electronically, reducing the need for manual data entry and paper-based processes.

How Does Automated Invoice Processing Work?

Automated invoice processing requires some key elements to make things run smoothly. Here’s a quick breakdown of how AP automation works in general:

  • Invoice capture: Automated invoice processing captures the invoices electronically by scanning paper invoices, or receiving invoices directly from suppliers, via email or electronic data interchange (EDI).
  • Data extraction: Automation software then uses optical character recognition (OCR) technology to extract relevant data such as invoice number, date, supplier details, and line item information.
  • Invoice matching: The system compares and matches invoice data with corresponding purchase orders and delivery receipts. Automated matching ensures that all invoices are accurate and according to the contract terms.
  • Validation and verification: The software validates the extracted data against predefined rules and checks for discrepancies, missing information, and potential errors.  
  • Approval workflow: Invoices are routed for approval based on predefined workflows, allowing approvers to review the invoice electronically, add comments or notes if necessary, and quickly approve or reject the invoice.  
  • Integration with other modules or accounting software: After approval, the invoice data gets automatically transferred to the company's accounting system for further processing. This ensures a smooth transition from invoice processing to payment processing.
  • Reporting and analytics: Automated invoice processing leverages analytics to deliver valuable insights that help your business track invoice status, monitor payment cycles, and identify bottlenecks or inefficiencies.  

Now, onto the process of automating your AP invoice processing.

8 Steps to Set Up Automated Invoice Processing

1. Evaluate Your Current AP Process

Before implementing automated invoice processing, you have to assess your accounts payable processes and identify pain points, bottlenecks, and areas where automation can benefit most.

This will help you choose the right software and set realistic goals for the implementation.

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2. Research and Select Software

Numerous invoice automation software solutions are available in the market, and more will pop up each year. 

Finding the best AP automation software means researching and comparing options based on your business requirements, budget, and scalability. Look for features such as OCR capabilities, workflow automation, integration options, and reporting capabilities. 

We've evaluated top AP automation software, comparing these factors:

Evaluation factors for AP automation software: strengths, niche, and company size; usability; integrations; pricing; support.

These are the tools that stood out, amongst those we evaluated:

3. Customize the Software

Many AP automation solutions offer similar and customizable features to fit your business needs. 

Based on your existing accounts payable process, set up the workflows, validation rules, and approval hierarchies. Configure the software to ensure seamless integration with your accounting modules and other systems or apps.

4. Prepare your Data

Before migrating to the new system, ensure your current invoice data is clean and accurate. Remove duplicates or outdated information and organize your data in a standardized format. This will make the transition smoother and minimize data-related issues.

5. Train your Team

Implementing automated invoice processing requires proper training and change management. Train your AP team and other users on how to use the new software. Familiarize them with the updated workflows and address any concerns or questions they may have.  

6. Run Pilot Tests

Before fully deploying the system, run pilot tests with a few invoices to identify any potential issues or areas for improvement before doing a complete implementation. 

Feedback from the pilot tests should be used to fine-tune the system and make necessary adjustments.

7. Gradual Implementation

Consider taking the piloted approach one step further, going for a gradual implementation approach instead of doing it all at once. 

Start with a subset of suppliers or invoice types and gradually expand to cover the entire accounts payable process. This will minimize disruption and allow for better monitoring and troubleshooting.

8. Monitor and Optimize

Once the system is implemented, you should continuously monitor its performance and gather user feedback. Use the software's reporting and analytics capabilities to identify optimization and process improvement areas.

Regularly review and update the workflows, rules, and configurations to adapt to changing business needs.

Doing it right > doing it fast

Doing it right > doing it fast

I’ve been on many accounting automation projects—some good and some… not so much. Slowing things down at the start to take a calculated approach can save teams a ton of time doing rollbacks and re-work later.

What Needs To Be Done After Invoice Processing Is Automated?

Automating invoice processing is only the first step towards a more efficient accounts payable process. To fully leverage the benefits of automation, there are a few additional tasks that need to be done:

  • Supplier onboarding: You need to onboard your suppliers to the new process and inform them about the changes.
    • Provide guidelines on how to submit invoices electronically.
    • Address any questions or concerns they may have.
    • Collaborate with them—if they bring up concerns, take them seriously.
  • Security and compliance: With automation comes the need for enhanced security and compliance measures.
    • Ensure your automated invoice processing system complies with industry regulations and data protection requirements. 
    • Implement robust security protocols to protect sensitive financial information and prevent unauthorized access.
  • Integration with Other Systems: Invoice processing is just one part of the broader financial ecosystem. To maximize efficiency, you'll need to integrate your automated invoice processing system with other relevant systems, such as procurement, inventory management, and payment processing, to enable seamless data flow and eliminate manual data entry across different systems.
  • Continuous improvement: Automation is not a one-time endeavor. It requires ongoing monitoring, evaluation, and continuous improvement.
    • Regularly review the performance metrics and identify bottlenecks or inefficiencies.
    • Task a member of your tech team with automation and process improvement, so you always have someone to reach out to.
    • Make necessary adjustments to optimize the process.
    • Encourage feedback from users and implement suggestions. 

When To Set Up Invoice Automation

Knowing the right time to implement AP automation in your business is vital. Here are a few indicators that suggest it's time:

  • High invoice volume: Manual processing can be very time-consuming if your business regularly processes a high volume of invoices. Automating the process can significantly reduce the processing time and free up your resources for more value-added tasks.
  • Frequent errors or discrepancies: If you often encounter human errors or discrepancies in your manual invoice processing, the solution is simple: Remove (most of) the human element. Automated systems' validation and verification capabilities ensure accuracy and compliance, minimizing errors that can lead to potential financial risks.
  • Lack of visibility and reporting: Manual invoice processing often reduces visibility and timely reporting capabilities. Automating expense tracking and invoice status makes identifying bottlenecks or analyzing payment cycles easy. Automated systems provide real-time insights and analytics, enabling better financial management and decision-making.
  • Growth and scalability barriers: Manual payment processing becomes increasingly inefficient, making scaling your business challenging. Automated systems are designed to handle a growing volume of invoices without compromising accuracy or speed. It can also adapt to changing business needs and accommodate new suppliers or invoice types.

If any of these sound familiar, invoice automation is likely in order.

What Size Companies Should Set Up Invoice Automation?

Invoice automation isn't limited to a particular company size. Here is how small companies and large organizations with complex accounting structures can benefit from setting up invoice automation:

  • Small businesses: If your small business has limited resources and relies heavily on manual processes, implementing invoice automation is within reach and often even more affordable than your current processes. Many vendors offer AP automation through a cloud-based, Software-as-a-Service (SaaS) model, saving your small business time and upfront capital.
  • Medium-sized businesses: Medium-sized businesses face challenges similar to small businesses but on a larger scale. They deal with a higher volume of vendor invoices and have more complex workflows and approval hierarchies. If this describes your company, automating invoice processing can significantly improve efficiency, reduce costs, and improve cash flow and financial management.
  • Large enterprises: If you work in a large enterprise Accounts Payable department and receive a large volume of invoices, manual processing may seem nearly impossible to manage efficiently. Automated invoice processing provides the scalability and flexibility to ensure consistency, accuracy, and compliance across multiple departments and locations.

Regardless of the size of your company, invoice automation can bring significant benefits to your accounts payable process.

For example, an AP efficiency benchmark report by the Institute of Finance and Management (IOFM) shows that automation significantly reduces the average cost of processing invoices, regardless of volume.

6 Benefits of Automated Invoicing

Take it from someone who's worked in AP and supervised teams; automated invoice processing lightens everyone's load through a wide range of business benefits. Here are just six key wins:

  1. More time and cost savings: With AP automation, processing effort and time are reduced, and the approval process is streamlined overall, freeing up time to work on higher-level work. 
  2. Improved accuracy and compliance: Automated systems use data validation and verification to ensure accuracy and compliance with company policies and industry regulations, reducing the risk of financial errors and penalties.
  3. Faster approval and payment cycles: Automation eliminates the need for physical paperwork and manual invoice routing, speeding up the approval process and ensuring timely supplier payments.
  4. Enhanced visibility and reporting: Analytics and real-time visibility into invoice status, payment cycles, and supplier performance enable better financial management, forecasting, and decision-making.
  5. Improved supplier collaboration: Electronic invoicing improves collaboration with suppliers by providing a standardized and streamlined process for invoice submission, approval, and payment. This reduces the time and effort required for dispute resolution and enhances vendor relationships.
  6. Scalability and adaptability: Automated invoice processing systems help scale to meet a growing volume of invoices and adapt to changing business needs. It also helps accommodate different invoice types, workflows, and approval hierarchies, ensuring consistency and efficiency as your business embarks on digital transformation and expansion.

Downsides to Setting Up Invoice Processing

Fine, I’ll admit it—automated invoice processing may also present some potential challenges. Here are a few of the common ones:

  • Resistance to change: When introducing automation, you can count on some resistance from employees who prefer the status quo and don't favor the work required to improve business processes

I can't tell you how many times I've seen this in the workplace, especially in accounting. Effective change management and proper training are crucial to address this resistance and ensure a smooth transition.

  • Integration issues: Integrating the automated invoice processing system with best-in-class AP (or ERP) systems can be complex and sometimes fraught with glitches. It requires careful planning, coordination, and IT support to ensure smooth data flow and compatibility between systems.
  • Poor supplier adoption: Getting suppliers on board with the new electronic invoicing process can be tricky. Some suppliers may be just as resistant to change as employees. Communicating the benefits to suppliers and providing support and guidance during the transition is vital.

Invoice Automation Best Practices

Bear with me for just one more numbered list. After all, this is the one where you get to learn from my mistakes. Pay attention to these areas, and you’ll have a much smoother transition to the new system:

  1. Defining clear objectives: Clearly define the objectives and goals you want to achieve with automated invoice processing. This will help you stay focused and measure the success of the implementation.
  2. Involve key stakeholders: Involve key stakeholders from different departments, including finance, IT, and procurement, in the decision-making and implementation process. This involvement will secure the buy-in and collaboration you need across the organization.
  3. Standardize invoice formats: Encourage suppliers to submit invoices in standardized formats to facilitate automated data extraction, by providing clear guidelines and coaching those that don’t seem to be getting it.
  4. Regularly review and update workflows: To adapt to changing business needs, regularly review and update the workflows, business rules, and configurations of your automated invoice processing system. These reviews will support ongoing optimization and efficiency.
  5. Engage in continuous training and support: Provide continuous training and support to your accounts payable team to ensure they're comfortable and confident when using the new system. Remember to address any questions or concerns they may have and encourage feedback for improvement.
  6. Monitor performance metrics: Regularly monitor performance metrics such as processing time, error rates, and approval cycles. These metrics can be leveraged further to identify other areas for improvement, like cash flow management.

Regardless of your company's size, niche, or structure, AP automation can transform all of your tedious manual tasks and improve overall AP visibility inexpensively. The key to reaping its benefits is learning from those who’ve done it before and then tailoring it to your own biz.

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Moira Alexander
By Moira Alexander

Moira Alexander is a recognized thought leader and the founder of PMWorld 360 Magazine and Lead-Her-Ship Group, a digital content marketing agency.

Leveraging her 17 years of experience in accounting, financial reporting, and financial systems implementation, Moira has written content for fintech businesses for over ten years and been named one of the top global female B2B content thought leaders and influencers.