Accounts Payable Automation: Maximizing AP Efficiency

Managing accounts payable (AP) manually is daunting as it involves navigating stacks of paper invoices, manual data entry, and tedious approval workflows, leading to inefficiencies, errors, and delays. 

Organizations increasingly turn to automation to streamline their accounts payable processes. AP automation solves many challenges faced with manual accounts payable, providing efficiencies, cost savings, and enhanced visibility into financial operations. 

In this article, I will explore the fundamentals of AP automation, including how it works, its benefits, and key considerations for selecting the right AP software. I’ll also discuss specific areas of accounts payable that are ripe for automation. Keep reading!

Challenges With Manual Accounts Payable

Financial Miscalculations and Human Errors

Human errors, such as inputting the same invoice twice, typos, or miscalculations, often occur in manual processes. Correcting these mistakes requires more manual accounting work and can damage vendor trust. Over time, these errors can accumulate, potentially resulting in dissatisfied clients, significant financial losses, and audit challenges.

Manual Data Entry Consuming Valuable Time

Traditional accounts payable practices involve manual data entry, where employees manually enter details from physical invoices into accounting systems. 

This process is not only time-consuming but also exhausting, mainly when there is a large number of invoices to deal with. The long hours of data entry can delay payment timelines, often resulting in late fees or dissatisfaction among suppliers.

Challenges in Tracking and Managing Invoices

Traditional paper-based accounts payable processes can often result in a lack of transparency in invoice management. It can be difficult to determine whether an invoice has been approved, is still awaiting approval, or has been paid. 

This lack of clarity can lead to communication challenges within the organization and with vendors, making it harder to keep track of invoices. 

Additionally, misplaced or lost invoices can make the situation even worse. Without an efficient tracking system, reconciliations at the end of the month or year can become time-consuming and tedious.

Inefficiencies and Delays

Without automation, the AP process can be slow and inefficient. It becomes even more complicated when invoices go missing or approval is pending due to someone's absence. 

These delays can lead to missed payment deadlines, resulting in late fees or penalties. Furthermore, early payment discounts can be missed due to delays in processing.

Online businesses, particularly those experiencing rapid growth, also face challenges such as fragmented payment data, manual spreadsheet work, and the risk of single payment gateway dependency. Solutions like DepositFix offer advanced payment solutions tailored to address these specific operational challenges. 

What Is AP Automation?

Accounts payable automation, also known as AP automation, is the use of technology to manage payable processes digitally rather than manually. It involves automating manual, repetitive tasks such as payment approvals, invoice processing, vendor management, and reporting. 

How Does AP Automation Work?

AP automation streamlines the receipt of invoices, approval management, and payment processing for buying organizations, all within a unified platform. It comprises three primary components:

1. Invoice Reception

Invoices can be received in electronic format or converted from paper to electronic format. Available electronic invoicing methods include PDF invoicing, B2B/EDI connections, or receipt via a supplier portal, facilitating the seamless data flow. 

Paper invoices, on the other hand, require scanning and processing using artificial intelligence or OCR technology to extract and store data in the cloud.

2. Matching and Workflow:

After collecting data, invoices are cross-checked with purchase orders and goods receipts. If needed, they are directed to the relevant person for approval before being sent to the ERP for payment processing.

3. Archive and Audit:

All invoices are securely archived, and their complete audit trails are documented for easy financial audits. The electronic archival of invoices simplifies the search and retrieval processes, enabling quick access to invoices from any location and at any time.

Key Accounts Payable Tasks Suitable for Automation

AP tasks that most benefit from automation are the ones where you can increase accuracy or cut processing time, saving you money:

• Invoice Matching: Automation enables automatic matching of invoices to supporting documents like purchase orders and receiving documents, streamlining the process and improving accuracy.
• Data Entry: Automate data capture from source documents and reduce processing time while minimizing errors associated with manual entry.
• Approval Routing: Electronic routing of documents to approvers accelerates the approval process and provides better tracking throughout the workflow.
• Coding Invoices: Establishing rules for automatic general ledger coding eliminates inconsistencies and saves time compared to manual coding.
• Payment Scheduling and Execution: Automation ensures timely and accurate payments, leveraging early payment discounts and avoiding late fees that may occur with manual processes.
• Expense Reporting and Reimbursement: Automated expense solutions streamline the capture, categorization, and approval of expenses, facilitating timely and accurate employee reimbursements.
• Vendor Management: Automated vendor management systems maintain updated vendor details, track communication, and ensure compliance with contract terms, fostering stronger vendor relationships.
• Fraud Detection: Advanced algorithms monitor transactions to detect suspicious activities, enhancing security against potential AP fraud.
• Reconciliation: Automation tools reconcile bank statements with recorded payments, identifying discrepancies and maintaining accurate financial records.
• Analytics and Reporting: Gain insights into AP processes through automated analytics, identifying areas for optimization and improving decision-making.
• Tax Compliance and Reporting: Automated solutions ensure proper documentation, generate required AP reports, and calculate tax liabilities, reducing the risk of non-compliance penalties.

Automated Invoice Processing

Automated invoice processing involves using software to automate the steps of invoice processing. This process involves extracting invoice data seamlessly from your business system into your ERP, which saves you time and money while increasing accuracy and reducing the risk of fraud.

To use invoice processing automation, you require the right software to streamline AP processes by automatically paying supplier invoices. Additionally, digital invoices are a crucial component of workflow automation. 

Compared to manual invoices, automated invoices move much faster through workflows. AP automation reduces the workload of accounting departments by automating several tasks. 

This includes matching prices, data entry, and purchase orders, which the automation software can easily handle.

How To Automate Invoices

Now that you know what automated invoice processing is, here are some practical ways for invoice automation:

• Email Reminders: Use automated email reminders to inform clients about upcoming, due, and overdue invoices.
• Recurring Invoices: Set up recurring invoices for retainer clients or subscription services to save time on repetitive invoicing tasks.
• Automatic Payments: Automate payment processing for recurring invoices. This provides convenience to both you and your clients.
• Scheduled Invoices: Schedule invoices for future payments, allowing you to focus on business tasks without worrying about invoice generation.
• Invoicing Software: Use invoicing software to create professional invoices quickly. This software has features such as automatic billing and online payment options.

Benefits of AP Automation

Automating invoice processing offers numerous advantages:

• Faster Approval Process: Automated approval processes are quicker and more efficient than manual ones, reducing overall processing times.
• Cost Savings on Labor: Automating repetitive tasks can free up staff members to focus on more important tasks, increasing productivity and efficiency.
• Reduced Error Rates: Automating data entry processes reduces the number of errors.
• Decreased Instances of Duplicate Invoices and Payments: Automating the invoice and payment processes can help reduce the number of duplicate invoices and payments, improving accuracy.
• Lower Costs of Manual Processing: Automating the invoice process can help businesses save money by eliminating expenses associated with manual processing, such as postage and paper.
• Efficient GL Code Assignment: Automation can enable users to assign GL codes without having to access the company's accounting platform directly, saving time and improving efficiency.
• Enhanced Relationships: Automating tedious tasks can help employees focus on building better relationships with vendors, improving transparency and communication.
• Increased Opportunity for Early-Payment Discounts: Automating the payment process can enable companies to take advantage of early-payment discounts, saving money in the long run.

How To Choose AP Software

When selecting AP automation software for your business, there are four key steps you should follow to ensure you make the right choice:

• Planning: Assemble a diverse team to define your company's objectives for AP automation.
• Requirements Gathering: Document your current accounts payable processes and compile a list of requirements for an AP automation solution. This phase culminates in creating a request for proposal (RFP) and sending it to qualified vendors.
• Vendor Evaluation: Assess the proposals received from vendors in response to your RFP. Evaluate various aspects of their proposed solutions, including features, costs, and implementation strategies.
• Vendor Selection: Asses how well the top contenders align with your requirements. This may involve developing detailed discovery documents and requesting product demonstrations before making your final selection.

To help you determine the ideal AP automation software for your organization, consider the following structured checklist:

• Understanding Your Needs: Conduct a thorough assessment of your organization's AP processes, transaction volumes, and specific requirements to identify essential features.
• Scalability and Flexibility: Ensure the software can adapt and scale as your organization grows, accommodating both current and future business dynamics.
• User-Friendliness: Prioritize a user-friendly interface to facilitate efficient adoption by employees, reduce the learning curve, and enhance productivity.
• Integration Capabilities: Verify that the software seamlessly integrates with your existing ERP systems, financial platforms, and other critical business tools to facilitate data flow and prevent silos.
• Security and Compliance: Confirm that the software adheres to stringent security standards to safeguard sensitive financial data and assists in meeting regulatory and compliance requirements.
• Advanced Features: Look for advanced functionalities such as machine learning algorithms for fraud detection, Optical Character Recognition for invoice capture, and robust reporting tools for insights.
• Vendor Reputation and Reviews: Thoroughly research the vendor's industry reputation, track record, and customer feedback to ensure reliability and continuous support.
• Support and Training: Assess the vendor's support level during and after implementation, ensuring adequate training resources are available for your team's effective use.
• Cost Implications: Evaluate the total cost of ownership, including setup, licensing, maintenance, and potential upgrade expenses, aiming for a balance between price and value.
• Customization Capabilities: Seek software with customization options that allow you to tailor functionalities to specific operational requirements, recognizing your organization's unique needs.

Conclusion

Accounts payable automation significantly benefits businesses seeking to streamline their invoice processing and enhance overall efficiency in financial operations. Use technology to automate repetitive tasks, reduce errors, save time, and improve visibility into their AP processes.

AP automation software can streamline various aspects of accounts payable, from invoice matching and data entry to approval routing and payment scheduling. This can lead to faster processing times, labor cost savings, and reduced error rates. In addition, automation can facilitate efficient GL code assignment, enhance vendor relationships, and increase opportunities for early payment discounts.

When selecting AP automation software, carefully plan, gather requirements, evaluate vendors, and consider factors such as scalability, user-friendliness, integration capabilities, security, and support. Choose the right software that aligns with your organization's needs and goals, maximize the benefits of accounts payable automation, and drive greater efficiency in your financial processes.