AP automation: What it is and how it works

The growing interest in accounts payable (AP) automation quite accurately reflects the general mood among today’s business leaders: While there are many new opportunities available, competition has never been fiercer and there is simply no longer any room for laborious procedures or inefficient operations. With the remarkable AI-driven capabilities of modern technologies, and a greater focus on efficiency and strategy, process automation has truly come into its own—and companies are quickly realising its power to free them from the burden of paper-heavy practices and error-prone manual accounting tasks.

In their latest survey, the Institute of Financial Operations & Leadership (IFOL) found that 56% of Accounts Payable teams spent over 10 hours per week on manual invoice processing alone. And as everyone knows, that kind of data entry can lead to errors which cost you money and time. In fact, if you are anything like the respondents in that IFOL report, you will agree that “data errors, exceptions, and discrepancies” rank near the very top of your accounting concerns. Thankfully, these are the kinds of challenges that accounts payable automation can handle with ease.

What is AP automation?

Accounts payable automation uses powerful AI-driven technologies to help you streamline and enhance your accounts payable processes from start to finish. It begins with electronic invoices, which can be received through a portal, directly from a supplier, or converted from paper to digital formats. The process then enables you to rapidly validate master data, and seamlessly match invoices against procurement documents such as purchase orders and goods received notes—which leads to swift approvals and timely payments.

This process reduces the need for manual intervention, which then lowers the risk of errors and enhances overall efficiency. The best AP automation solutions support real-time data processing and confident decision-making—which are critical for maintaining cash flow and financial health within your organisation. And when you are faster and more accurate at processing transactions, this not only simplifies your operations but also strengthens your supplier relationships.

The pitfalls of paper-based accounts payable

Paper-based and manual AP processes can reduce the operational efficiency of your organisation. They hinder the availability of invoice and payment status information for both you and your suppliers. They drain resources due to manual processing, data entry, and reconciliation. And when your teams are chasing paperwork and fielding payment status calls, they are not carrying out more strategic and pressing tasks. This can result in suppliers who are stressed and unhappy—and that has a direct impact on your business, from your negotiating power to your ability to take advantage of early payment discounts.

Benefits of AP automation

Speed. Accuracy. Efficiency. These are the first things that people associate with process automation. However, when integrated business solutions are combined with modern AP best practices, the outcome goes beyond the AP landscape and helps to support greater collaboration and visibility across all your teams and stakeholders. Here are just a few of the key benefits you can gain when you automate your entire invoice-to-payment process:

• Improved efficiency: By measurably and meaningfully streamlining the invoicing and payment process, AP automation reduces the time required for approvals and increases overall productivity.
• Reduced costs: Automation significantly reduces the cost of processing invoices by minimising manual input and associated labour costs, as well as reducing expenses related to document storage and handling.
• Better cash flow management: AP process automation results in faster payment cycles, opportunities for early payment discounts, and on-demand insights into balance sheets, all of which help to increase working capital and optimise cash flow.
• Improved supplier relationships: Beyond ensuring more timely payments, AP automation paves the way for reassuringly predictable processes and reliable communication channels—building better supplier relationships and satisfaction.
• Consistency with global regulations: By centralising updated compliance data from around the world, you can significantly reduce risk and enable faster decisions when new global opportunities arise.
• Improved accuracy: Most errors are unintentional… but not all of them. Integrated AP automation tools can help you prevent accidental errors—and detect fraudulent ones—before they occur.
• Manage non-PO invoices and invoices for services: The power of AI and machine learning means that today’s AP automation systems can amalgamate and process a variety of disparate data sets, without missing a beat.

What is accounts payable process automation?

Accounts payable process automation is a method of minimising human intervention and eliminating error-prone tasks from the accounts payable—or trade payables—process. This is achieved by using accounts payable software integrated with an online business network that connects trading partners digitally.

How does accounts payable process automation work?

Early process automation tools were more like assembly line robots than anything else. They did one thing repeatedly and did not respond well to any deviations or complexities. The AI and cloud-connected brains in today’s AP solutions handle complexity with ease. They learn as they go and process different types of data with ease—delivering customisable workflows and on-demand reporting. Below are a few of the key players in today’s best AP automation systems:

• Artificial intelligence (AI) and machine learning (ML): With these technologies at their core, AP automation systems improve over time by learning from historical data. This enables the rapid initiation of even the most complex workflows—enhancing accuracy and speed across the board.
• Optical character recognition (OCR): OCR converts images of typed, handwritten, or printed text into machine-encoded text, typically from a scanned document. The application of AI has markedly improved the accuracy and flexibility of its capabilities.
• Robotic process automation (RPA): Rather than physical robots, RPA uses software robots (bots) to automate repetitive manual tasks. Like everything else, these bots have evolved enormously in the past few years and can now handle more complex and unpredictable tasks.
• Digital workflow automation: This involves the creation of automated routes for invoice approval, where invoices are electronically directed based on specific criteria such as invoice amount, supplier, or cost centre—so that the right person can approve the right invoice at the right time.
• Electronic data interchange (EDI): EDI enables the computer-to-computer exchange of business documents in a standard electronic format between business partners. This helps to boost accuracy and speed—and also enables stricter privacy and security controls.

Which accounts payable tasks can be automated?

Each company will have its own unique protocols and workflows. The list below simply outlines some of the tasks that are most commonly automated:

• Data entry and invoice capture: Typically, OCR technology combined with AI is used to quickly and accurately capture invoice data, as well as any other paper documents that need to be digitised.
• Invoice matching and validation: Automated systems match invoices with corresponding purchase orders and receipts, verifying accuracy before further processing. This ensures payments are made only for verified transactions, enhancing financial control.
• Approval routing and workflows: Pre-defined rules are established for invoice approval processes, ensuring that the correct documents reach the appropriate people (with the correct level of security).
• Payment scheduling and execution: Automated systems schedule payments based on due dates and company cash flow strategies. They then execute payments, manage electronic fund transfers, optimise financial resources, and comply with regional regulations.

How to automate accounts payable

It is not system failures that derail digital transformation projects—it is poor planning and inadequate communication. These proven strategies can help you create and implement a successful AP automation project:

• Assess current AP processes and identify gaps: Begin by thoroughly reviewing your existing accounts payable processes to identify inefficiencies and areas that could benefit from automation. This assessment will help identify specific needs and lay the groundwork for a tailored automation solution.
• Choose the right AP automation software: Select software that aligns with your organisation's specific needs. Consider factors such as compatibility with existing systems, ease of use, scalability, and the ability to support global operations, if necessary.
• Set up digital invoice capture (OCR and e-invoicing): Implement technologies such as OCR and e-invoicing to transition from paper-based to digital formats, a fundamental process for reducing manual data entry and increasing accuracy.
• Configure automated workflows and approval hierarchies: Establish clear rules and workflows for invoice processing and approvals. These should be designed to streamline processes, reduce delays, and ensure compliance with company policies.
• Develop a robust communication, feedback, and training strategy: The most effective software integrations occur when managers take the time to understand the challenges and wish lists of all their core teams. Take the time to communicate your company’s top-down goals and the reasoning behind choosing new solutions. Restructure roles and responsibilities to ensure that automation does not take away jobs, but rather frees your teams to develop more strategic and marketable skills.

How to choose AP automation software

As you face unprecedented competition and uncertain market forces, you must seize every opportunity to become leaner and faster, and to gain greater data-driven insight and visibility into every part of your operation. Technologies that—a few years ago—would have been “nice to have” have now become essential. It is more important than ever that you develop an informed and long-term strategy for building a technology portfolio that precisely meets your unique needs, and easily enables you to scale and adapt to the changing business landscape. Below are just a few of the steps involved in evaluating AP automation software:

• Understand your AP process requirements: Clearly define your automation needs, including essential features that will address specific challenges within your current processes.
• Evaluate scalability and flexibility: Ensure the software can accommodate growth and adapt to changing business processes and regulations.
• Ensure integration capabilities with existing systems: The software should integrate seamlessly with your existing ERP and financial systems to maintain data consistency and streamline operations across business functions.
• Prioritise user-friendliness and intuitive interfaces: Choose software with an intuitive interface to minimise the learning curve and maximise adoption rates among your staff. Ease of use is key to fully making the most of the software's features.
• Assess security and compliance features: It is essential that the software has robust security measures to protect sensitive financial data—and that it supports compliance with regulatory requirements in all countries where your company operates.
• Review supplier reputation and support services: Investigate the supplier's reputation in the market and the quality of their customer support. Reliable customer service is essential for prompt issue resolution and for ensuring continuous system performance.

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