What Is AP Automation and How Does it Work? Complete Guide

There’s nothing hidden about this secret

Handling accounts payable is sometimes a dreary task

Handling AP manually?

Well, that’s the sort of thing that causes people to have nightmares. 

A large list of invoices must be checked, payment approvals must be obtained…and, if possible, no errors should be made throughout the process.

But how? After all your team is human and, we humans tend to make mistakes when put under pressure. 

Luckily for you, there’s a solution: 

AP automation. 

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What’s Accounts Payable Automation?

No,  accounts payable automation doesn’t mean that a group of evil-possessed robots will come and replace your AP team. Quite the opposite, what AP automation does is to help your team to be more efficient. You’ll see instead of manually handling tasks like data entry, invoice approval, and payment scheduling, automation software takes care of it for you. 

Do you want to audit your accounts payable process?

Cool, a good AP software will come with a solid set of analytical tools so you can monitor your operations at any point. 

The Problems with Manual Processes 

When we say that accounts payable is a tedious process we mean it, and you probably already know this, right? Uploading all those critical invoice’ details into your system feels like a complete waste of time and let’s not get started on the hours you’ve to spend to correct that double entry or remove that additional number. The result? Your business ends up with such a slow process that you don’t have a clear idea of what’s happening, something that your supplier will resent putting a negative mark on your relationships. 

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Okay, we get it, manual handling of your accounts payable is bad, what about learning how automating AP works?

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How does AP Automation Work?

Invoice capture

This is the point where things get started,  the software you choose will capture invoice data automatically, it could be either by scanning physical invoices using Optical Character Recognition (OCR) or by extracting information from electronic invoices. No more manual data entry How great does that sound? 

Data validation

Okay so now we move onto a small but important part, checking for accuracy. The system will work to double-check that critical details like invoice numbers, amounts, and vendor information are correct. If something looks off, it can flag the invoice for review.

Matching and approval

How can you know for sure that the information in the invoice you’ve received is 100% honest? AP automation tools match invoices with purchase orders and delivery receipts. If everything aligns, the software can route the invoice for approval. Otherwise, it can notify your team for further investigation.

Approval workflows

Yes, obtaining approval for pending payments is a pain in the back in most cases…or at least it was until automation. Working with a digital solution allows you to set up custom approval workflows based on your company’s policies.

Payment processing

Once approved, the software can schedule and initiate payments based on the payment terms you’ve agreed to. It can also integrate with your accounting or ERP system to update records in real time.

Reporting and analytics

Remember what we said about analytical tools? Well here it’s, AP automation solutions often come with reporting features that provide insights into your spending, payment cycles, and overall AP performance.

Common AP Tasks to Automate 

• Data entry: Automation captures data faster and more accurately.
• Invoice matching: Three-way matching happens immediately 
• Coding invoices: Rules ensure consistent and precise coding.
• Approval routing: Digital routing speeds up approvals and tracks progress.
• Payments: Automation prevents delays and errors, securing better relationships. 
• Vendor management: Keep vendor details updated and compliance in check.
• Expense reporting: Automates receipt capture and reimbursement.
• Fraud detection: Algorithms catch suspicious activity.
• Reconciliation: Matches payments to statements effortlessly.

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Benefits of Accounts Payable Automation 

It saves time

What are the most painful aspects of taking care of your AP operations manually? The time you spend on it, right? So it’s not a surprise to say that one of the main benefits of automating the whole thing including tasks like data entry and invoice matching is the time you save. Think about it if your team is no longer overwhelmed checking all the details by themselves they can focus on more strategic activities.

Error reduction

We have said it before and will keep saying it: Manual data entry is prone to mistakes. And it’s no one’s fault really, there’s just too much information that needs to be processed and our vision is not always perfect. Automation software reduces errors by accurately capturing and validating invoice information, helping you avoid costly payment mishaps.

Cash flow management

Wait, does automating my accounts payable really help me with cash flow management? The answer is a sound yes. Relying on automation gives you better visibility into your cash flow. You’ll know exactly when payments are due and can plan accordingly, making it easier to optimize your liquidity levels. 

Faster approvals

Sending loads of emails with no idea of when you are going to get an answer is truly the scenery of a horror tale. With automated workflows, invoices move quickly through the approval process. The right people receive notifications and can approve payments with just a click, speeding up the whole cycle.

Fraud prevention

AP automation software includes security features like user permissions and audit trails. It can detect any suspicious activity, such as duplicate invoices or payment requests from unknown vendors, helping you prevent fraud.

Better supplier relationships

We mentioned this at the beginning, the simplest way to keep your suppliers happy and loyal is by respecting payment dates. Paying your vendors on time is the basis for maintaining strong relationships. Automation ensures timely payments and can even help you take advantage of early payment discounts.

Scalability

If you are a start-up or a recently launched business with a vision to grow at some point, this benefit is for you. As your company evolves , your AP processes need to scale. Using accounts payable software makes it easy to handle a higher volume of invoices without needing to hire additional staff or use extra resources. 

Data insights

With real-time reporting and analytics, you gain the insights that matter into your AP operations. You can keep an eye on performance metrics, identify bottlenecks, and make data-driven decisions.

Myths about AP Automation

Aside from the sci-fi plot of robots conquering the world, some common misconceptions can make you doubt whether automation is the right choice for you. 

AP automation will replace my team:  Repeat this with us: Automation isn’t meant to eliminate jobs but to make them easier. Your team can focus on productive tasks rather than manual data entry and paperwork.

It’s too expensive: While there is an initial investment, the cost savings from reduced errors, faster processing, and improved cash flow can completely outweigh the upfront expense.

It’s only for big companies: Businesses of all sizes can benefit from AP automation. Many solutions are scalable, so you can find one that fits your needs and budget.

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Does AP Automation Replace My ERP System?

Quick answer: No

But let’s see why 

AP automation software is designed to work alongside your ERP, not replace it. These systems integrate to improve your existing workflows. For example,  it could be the case where your automation software pulls one of your suppliers’s information and purchase order data from your ERP and automatically updates the system when payments are made. This integration ensures your records stay accurate and up to date, without duplicating work.

The ROI of AP Automation

We have already spoken about the benefits but what about the money you’ll save and the opportunities you could find to make even more money still?

Labor costs 

Yeah, that’s right 

Automating tasks that used to require manual effort, gives you the chance to reduce the time your team spends on AP processing. Remember this doesn’t mean eliminating jobs but reallocating resources to projects that are really important for your company’s goals.

Early payment 

The great thing about paying your suppliers on time? You get special treatment. Many suppliers offer discounts for early payments. With AP automation, you can take advantage of these opportunities, reducing the overall cost of goods and services.

Better Forecasting

Think about it, if you could access real-time information of your payables, you could make more accurate financial forecasts, helping your company plan for the future and optimize cash flow.

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Can AP Automation Reduce Fraud?

AP automation can significantly lower the risk of fraud thanks to several built-in security measures. It maintains detailed audit trails, making it easy to track all actions and identify any suspicious activity. But how? Well most AP automation programs automatically perform data validation, check for inconsistencies and duplicate invoices, and report anything unusual.  On top of that? You can also set up role-based user permissions so that only authorized staff can approve or initiate payments. Additionally, supplier verification tools help confirm their legitimacy, reducing the chance of paying the wrong invoices.

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How to Automate Your Accounts Payable?

Assess your current process

The most important part here is to be honest with yourself, how are your processes going at the moment?  Where are you seeing the most struggles? Take a close look at your current AP workflow so you can identify pain points and areas that could benefit from automation.

Set clear goals

What do you hope to achieve with AP automation? How automating your processes can help your company to get closer to its end goals? Whether it’s reducing processing time, improving accuracy, or cutting costs, having clear objectives will guide your implementation.

Choose the right solution

Yes, automation can do wonders for your business but not every software will be the same. Based on your needs, research and select a software solution that aligns with your requirements and integrates well with your existing systems.

Train your team

One of the most common challenges we see when implementing automation is the lack of knowledge, having poorly trained people trying to use a new system is a recipe for chaos. Ensure your staff knows how to use your choosen software. Provide training sessions and resources to make the transition as simple as possible.

Monitor

Okay so you finally have the software installed, is the job done? Not completely. Once the software is in place, monitor its performance and gather feedback. Use this information to make any necessary adjustments and continuously improve

How to Choose the Best AP Automation Solution

• Ease of use: Choose a solution that is user-friendly and doesn’t require extensive training. The easier it is to use, the quicker your team will adopt it.
• Integration capabilities: Ensure the software integrates seamlessly with your existing accounting or ERP system. This will simplify data syncing and make your workflow smoother.
• Customization options: Your business may have unique AP processes, so look for software that allows you to customize workflows and approval hierarchies.
• Security features: Robust security measures are a must. Look for features like encryption, user permissions, and fraud detection.
• Scalability: Choose a solution that can grow with your business. You want software that can handle an increasing volume of invoices as your company expands.
• Reporting and analytics: Insights into your AP performance are valuable. Make sure the software offers full reporting options to help you track metrics and improve processes.
• Customer support: Reliable customer support can make a big difference. Check if the provider offers timely and helpful assistance when you need it.

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