AP automation: What it is and how it works

The surging interest in accounts payable (AP) automation quite accurately reflects the general mood among today’s business leaders: While there are lots of new opportunities out there, competition has never been fiercer and there’s simply no more leeway for arduous procedures or inefficient operations. With the amazing AI-driven capabilities of modern technologies, and greater focus on leanness and strategy, process automation has truly come into its own—and companies are quickly realizing its power to get them out from under the weight 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 AP 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’re anything like the respondents in that IFOL report, you’ll 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 tackle 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 end to end. It begins with electronic invoices, which can be received though a portal, directly from a supplier, or converted from paper to digital formats. The process then lets you rapidly validate master data, and seamlessly match invoices against procurement documents such as purchase orders and goods receipts—which leads to fast 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 organization. And when you are faster and more accurate at processing transactions, this not only simplifies your operations but it also strengthens your supplier relationships.

The pitfalls of paper-based accounts payable

Paper-based and manual AP processes can drag down the operational efficiency of your organization. They deter the availability of invoice and payment status information for both you and your suppliers. They drain resources due to manual handling, data entry, and reconciliation. And when your teams are chasing papers and fielding payment status calls, they’re not doing more strategic and pressing tasks. This can lead to suppliers who are stressed and unhappy—and that has a direct impact upon your business, from your negotiating power to your ability to leverage early payment discounts.

AP automation benefits

Speed. Accuracy. Efficiency. These are the first things that people associate with process automation. But when integrated business solutions are paired with modern AP best practices, the result extends 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 realize 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 cuts the cost of processing invoices by minimizing manual input and associated labor costs, along with reducing expenses related to document storage and handling.
• Better cash flow management: AP process automation leads to speedier payment cycles, opportunities for early payment discounts, and on-demand insights into balance sheets that all help to boost working capital and optimize 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 centralizing updated compliance data from around the world, you can significantly reduce risk and empower faster decisions when new global opportunities knock.
• Increased accuracy: Most errors are unintentional… but not all of them. Integrated AP automation tools can help you prevent accidental errors—and spot fraudulent ones —before they happen.
• 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 minimizing human intervention and eliminating error-prone tasks from the accounts payable—or trade payables—process. This is done 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 over and over and didn’t respond well to any deviations or complexities. The AI and cloud-connected brains in today’s AP solutions eat complexity for breakfast. They learn as they go and process different types of data with ease—delivering customizable workflows and on-demand reporting. Below are a few of the main 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 allows for 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 paths for invoice approval, where invoices are electronically routed based on specific criteria such as invoice amount, vendor, or cost center—so that the right person can approve the right invoice at the right time.
• Electronic data interchange (EDI): EDI allows 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 empowers 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 digitized.
• Invoice matching and validation: Automated systems match invoices with corresponding purchase orders and receipts, validating 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, making sure that the right documents go to the right people (with the right 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, optimize financial resources, and comply with regional regulations.

How to automate accounts payable

It’s not systems failures that derail digital transformation projects—it’s bad planning and poor communication. These proven strategies can help you create and execute 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 pinpoint specific needs and set the stage for a tailored automation solution.
• Choose the right AP automation software: Select software that aligns with your organization'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 like 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.
• Build a strong communication, feedback, and training strategy: The best software integrations happen when managers take time to learn the pain points and wish lists of all their core teams. Take time to communicate your company’s top-down goals and rationale for choosing new solutions. Restructure roles and responsibilities to ensure that automation doesn’t take away jobs, but that it frees your teams up to develop more strategic and marketable skills.

How to choose AP automation software

As you face unprecedented competition and uncertain market forces, you have to seize every opportunity you can to be leaner and faster, and to gain greater data-driven insight and visibility into every part of your operation. Technologies that—just a few years ago—would have been “nice to have” have now become essential. It’s more important than ever that you develop an informed and long-term strategy for building up a technology portfolio that exactly meets your unique needs, and easily allows you to scale and pivot with the shifting 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.
• Prioritize user-friendliness and intuitive interfaces: Opt for software with an intuitive interface to minimize the learning curve and maximize adoption rates among your staff. User-friendliness is key to fully leveraging the software's features.
• Assess security and compliance features: It is crucial that the software has strong security measures to protect sensitive financial data—and that it supports compliance with regulatory requirements in all countries where your company operates.
• Review vendor reputation and support services: Investigate the vendor's reputation in the market and the quality of their customer support. Reliable customer service is essential for quick issue resolution and for ensuring continuous system performance.

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