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A Guide to Accounts Payable Automation

by Kirti Darani - August 28, 2024

Accounts payable (AP) in simple terms is described as the money owed to vendors or suppliers for goods or services purchased on credit. The process involves working with thousands of paperwork everyday relating to approvals and communication.

In the recent survey of the Institute of Financial Operations & Leadership (IFOL) found that 56% of AP teams spent over 10 hours per week on manual invoice processing alone. It further added data errors, exceptions, and discrepancies rank near the very top of accounting concerns. Therefore, maintaining a solid accounts payable system becomes crucial for company’s bottom line. Enter modern technologies like Accounts payable automation that can tackle these problems with ease and proficiency.

Challenges With Paper and Systems

Image finding the most critical verification document in the pile of thousands of papers on your desk. Overwhelming right? Now imagine pulling data with hundreds of different systems to pull and enter the right information. Burned out already? Traditional accounts payable looked exactly this, leading to hours of brain power and time drainage.

What Is AP Automation?

Accounts Payable Automation (AP automation) refers to the technology-driven process of automating the management of a company’s accounts payable processes. Traditionally, managing accounts payable involves manual tasks such as invoice receipt, data entry, approval routing, and payment processing. These tasks are not only time-consuming but also prone to human error, leading to inefficiencies and increased costs. Accounts Payable Automation leverages software solutions to streamline and automate these tasks, thereby reducing manual intervention, improving accuracy, and speeding up the entire process.

AP Automation integrates with existing enterprise systems, such as Enterprise Resource Planning (ERP) systems, to provide a seamless workflow from invoice receipt to payment. With automation of start-to-finish business payment processes companies can go beyond competition and seize every opportunity allowing them to scale in shifting business landscape.

How Does Accounts Payable Automation Work?

AP Automation works by digitizing and automating various stages of the accounts payable process. Here’s a step-by-step breakdown of how it works as compared to manual accounts payable:

Aspect	Manual Accounts Payable	Automated Accounts Payable
Data Entry	Manual entry of invoices, purchase orders, and receipts	Automated data capture from invoices using OCR or e-invoicing
Approval Process	Physical routing of documents for approval	Digital workflow automation for approvals
Invoice Matching	Manual matching of invoices, POs, and receipts	Automatic 3-way matching of invoices with POs and receipts
Error Handling	Higher risk of human errors in data entry	Reduced errors due to automated checks and balances
Processing Time	Time-consuming with manual handling and routing	Faster processing due to automation and streamlined workflows
Audit Trail	Paper-based or limited electronic records	Comprehensive digital audit trails for tracking
Duplicate Payments	Risk of duplicate payments due to manual oversight	Automated systems flag and prevent duplicate payments
Vendor Communication	Manual communication via phone or email	Automated notifications and updates to vendors
Cost	Higher operational costs due to labor-intensive processes	Lower costs due to reduced manual labor and paper usage
Scalability	Limited scalability, difficult to manage increased volume	Easily scalable to handle large volumes without additional resources
Payment Processing	Manual check writing or manual entry of electronic payments	Automated payment processing and scheduling
Compliance and Reporting	Manual tracking and reporting, prone to delays	Real-time compliance and reporting with accurate data
Storage and Retrieval	Physical storage of documents, difficult retrieval	Digital storage with easy and fast retrieval

Why Automate Accounts Payable? Top Benefits of Accounts Payable Automation

Automating accounts payable offers several compelling reasons:

Efficiency and Productivity: Manual AP processes are slow and labor-intensive. Automation speeds up invoice processing, reduces delays, and frees up employees to focus on more strategic tasks. Let’s understand it more with a real life example:

A manufacturing company’s Accounts Payable team faced a bottleneck with manual invoice processing. This time-consuming task consumed 75% of their day, hindering efficiency and accuracy.

OpenBots automated solution transformed their operations. By automating invoice location and upload, the AP team gained the capacity to focus on value-added activities like payment follow-ups and vendor support. This transformation improved efficiency, accuracy, and overall performance. Read full story here.

Enhanced Accuracy: Human error is a common issue in manual data entry. AP Automation minimizes errors by using OCR and other technologies to capture and validate data accurately.
Cost Savings: AP Automation can significantly reduce operational costs. The systems are designed to help avoiding late payment penalties and taking advantage of early payment discounts.
Better Compliance and Security: Automated workflows ensure that invoices are processed according to company policies and regulatory requirements, reducing the risk of non-compliance.
Visibility and Scalability: Real-time access to financial data through automated reporting tools allows for better decision-making and handle complexities as business scales.

Best Practices for Implementing AP Automation

Involve Stakeholders Early:
- Engage key stakeholders, including finance, IT, and procurement, in the planning and implementation process to ensure alignment and buy-in.
Set Clear Objectives:
- Define clear objectives for what you want to achieve with AP Automation, such as reducing processing time, improving accuracy, or increasing visibility.
Start with a Pilot:
- Begin with a pilot program to test the AP Automation software in a controlled environment before rolling it out across the organization.
Ensure Data Accuracy:
- Clean and standardize your data before implementing AP Automation to avoid issues with data extraction and validation.
Monitor and Measure Success:
- Establish key performance indicators (KPIs) to measure the success of your AP Automation implementation and identify areas for improvement.

How to Select an Accounts Payable Automation Software?

Choosing the right AP Automation software is critical to the success of your automation efforts. Here are some factors to consider:

1. Integration Capabilities:

Ensure that the software can integrate seamlessly with your existing ERP system and other financial tools.

2. User Experience:

The software should be user-friendly and intuitive, with a clean interface that allows users to easily navigate and complete tasks.

3. Scalability:

Choose a solution that can scale with your business as it grows, accommodating increased invoice volumes without sacrificing performance.

4. Vendor Support:

Consider the level of support provided by the software vendor, including training, implementation assistance, and ongoing technical support.

5. Cost:

Evaluate the total cost of ownership, including upfront costs, licensing fees, and ongoing maintenance costs. Compare this with the expected ROI from automating your AP processes.

6. Security and Compliance:

Ensure that the software meets your organization’s security standards and complies with relevant regulatory requirements.

Conclusion

As AP businesses face unprecedented competition and uncertain market forces the need to seize every opportunity with careful planning and execution becomes must. The remarkable capabilities of accounts payable automation open immense potential to accelerate growth and transform your accounts payable processes. Get started today!

FAQs

How much does AP automation cost?

The cost of AP Automation can vary depending on the software provider, the size of your organization, and the features you require. It typically includes licensing fees, implementation costs, and ongoing maintenance. However, the return on investment (ROI) from reduced manual labor, increased efficiency, and cost savings often outweighs the initial expenditure.

What is RPA in accounts payable?

Robotic Process Automation (RPA) in accounts payable involves using software robots to automate repetitive tasks, such as data entry, invoice processing, and payment approvals. RPA enhances AP Automation by handling high-volume tasks with speed and precision, reducing the need for human intervention.

What is the future of accounts payable?

The future of accounts payable is increasingly digital, with more organizations adopting accounts payable automation solution and RPA to enhance efficiency and accuracy. Emerging technologies like artificial intelligence (AI) and machine learning are expected to further optimize AP processes by providing predictive analytics, fraud detection, and more advanced automation capabilities.

How does AP Automation integrate with existing ERP systems?

AP Automation software integrates with existing ERP systems through APIs (Application Programming Interfaces) or other integration tools. This integration allows for seamless data exchange between the AP Automation system and the ERP, ensuring that all financial data is synchronized and up-to-date across platforms.

About Kirti Darani

Meet Kirti, a senior copywriter with a Master's degree in marketing and a passion for technology. As a skilled wordsmith, she specializes in helping tech leaders articulate their vision and translate complex concepts into engaging content that resonates with their audience. Outside of work, Kirti enjoys expressing her artistic side through nail art and photography.