Accounts Payable Automation: Complete Guide

  • Accounts payable
  • Approval automation
  • Finance
  • 12 min read
Table of Contents

Let’s start with the simple definition to make sure we’re all at the same page about terms while discussing AP automation.

What are Accounts Payable?

With the help of accounting automation solutions, both individual accounting tasks are effectively solved, as well financial, tax and management accounting is fully maintained within an organization. In this article we will focus specifically on the automation of accounts payable.

Accounts payable (AP) are amounts due to vendors and/or suppliers for goods and/or services received that must be paid in the short term. These obligations are classified as current liabilities on a company’s balance sheet. Typical payable items include supplier invoices, legal fees, contractor payments, and so on.

Why do Accounts Payable need automating?

Manual AP processing is often labor-intensive and can lead to significant inefficiencies and errors. Manual accounting in general requires extensive employee involvement, leading to higher labor expenses. Human errors become more frequent and can result in failed transactions, late payments, and inaccurate reporting, all of which can be time-consuming to rectify and damaging to both your company’s financial health and reputation. In addition, the manual process contains too many steps, such as invoicing, document verification, approval and payment, which often leads to delays, errors and inaccuracies in reporting.

Automating the steps that don’t require human touch can turn AP management from a tedious labour-intense process to a streamlined transparent workflow that’s easy to maintain and follow.

Key advantages of AP automation

  • Accuracy
    Automated systems enable businesses to streamline supplier engagement, invoice processing, and payment executions.
  • Efficiency
    By reducing the time spent on manual tasks such as data entry, information verification, and approval, teams can focus on more strategic activities.
  • Speed
    Quick processing of invoices is vital for maintaining smooth cash flow. Longer processing times can damage supplier relationships and affect financial operations.
  • Cost reduction
    Automation can significantly lower operational costs by minimizing manual labor and eliminating late payment penalties.
  • Compliance with regulatory requirements
    Automated systems help businesses adhere to compliance regulations and reporting requirements concerning taxes and transactions. They ensure internal controls are in place related to vendor applications, licensing, and payment approvals.
  • Improving relations with suppliers
    Faster invoice approvals and payments enhance relationships with suppliers. Automation can eliminate delays often associated with manual processes.
  • Enhanced understanding of the accounting process
    Automation provides better visibility into the accounts payable process, enabling finance teams to understand workflows and dentify areas for further improvement. According to the latest survey conducted by IFOL, the current state of automation in accounts payable teams worldwide is the following: 20% – already automated,  41%- planned within next 12 months, 18% – planned, but it isn’t a priority, 21% – No.

Approaching accounts payable automation

Before diving into the implementation of AP automation, businesses should carefully evaluate several key criteria.

Now, let’s agree that for every business they will differ. We’re listing the most common ones that will likely apply to any business.

Data Volume  

Evaluate the current volume of data associated with accounts payable, including metrics such as: time taken to receive and approve invoices, percentage of invoices ready for timely payment, number of suppliers on-boarded, number of invoices received electronically. These metrics can help gauge the complexity and workload of the existing process.

Scalability of the Future Process  

It’s essential to ensure that the future AP process can scale with your business growth. The automation solution should accommodate an increasing workload and adapt to evolving business needs, facilitating smooth collaboration with suppliers.

Actual Need for Automation  

Assess your company’s specific requirements for automation. Different businesses, depending on their size, industry, and operational complexity, will have varied needs. Understanding these needs is crucial before moving forward with automation.

Employee Satisfaction with Current Process  

Gather feedback from employees who manage the AP process. Their insights can highlight pain points and areas for improvement, informing the need for automation.

Company Size  

Consider the size of your organization, as this will affect the scale and complexity of the accounts payable process. Larger companies may have more intricate workflows that require robust automation solutions.

Levels of Automation to Implement  

Determine which levels of automation are suitable for your business. This could range from basic invoice processing to more advanced features such as predictive analytics.

Software Alignment with Financial Objectives  

Understand your business’s unique financial requirements and ensure that the chosen software aligns with your overall financial objectives. This will help improve financial performance.

By meticulously assessing these criteria, businesses can make informed decisions regarding the automation of their accounts payable.

It very well may be that it’s too early to automate, or on the contrary, implementing any new automation now will become so time-consuming and expensive that it’ll never bring ROI. Alligning your AP automation process with the abovementioned criteria will help avoid unreasonable expenses and really upgrade your accounting practices.

Most common bottlenecks in automating accounts payable and how to avoid them

Successful automation of accounts payable significantly depends on understanding common bottlenecks on the way and implementing proactive strategies to minimize risks. Let’s take a look at the most common issues companies face when implementing automation of accounts payable.

1. Upfront Costs of AP Automation Software  

The cost of AP Automation Software is a critical factor for businesses.Many companies focus solely on the initial costs of AP automation software without considering the broader picture, including ROI (the return on investment). It can be misleading. This narrow perspective can lead to hesitation and poor decision-making.  

Advice: Perform a comprehensive cost-benefit analysis. Include savings from reduced manual processing, error rates, improved vendor relationships, and potential discounts. A clear understanding of ROI helps to make an informed decision, ensuring that the investment aligns with long-term financial objectives.

2. Data Integration Challenges  

Organizations often use a variety of accounting software, from modern ERP systems to outdated legacy tools. This can lead to incompatibility issues, as systems may differ in standards, formats, and data structures.  

Advice: Plan for thorough integration from the onset. Assess your existing systems and choose automation solutions that offer compatibility and customization options. Engage IT experts to design an integration strategy that minimizes disruption and ensures data flows smoothly across platforms.

3. Data Security Concerns  

With the automation of accounts payable, sensitive financial data is at risk from fraud, data leakage, and unauthorized access. Ensuring data security is paramount.  

Advice: Select AP automation software equipped with robust security measures, such as multi-factor authentication, encryption, and secure data storage. Regularly audit security protocols and ensure compliance with financial regulations and data privacy laws to mitigate risks.

4. Change Management Issues  

The transition from manual AP processes to automated systems requires a significant rethink of existing workflows. This may be due to the fact that certain roles or people become unnecessary in business. Employees may resist changes, fearing job loss or disruption.  

Advice: Communicate transparently not only about how the new technology will work but also about the benefits of automation, emphasizing how it can streamline workflows and reduce repetitive tasks. Involve stakeholders in the planning process, offer training, and reassure them about new roles that may emerge as a result of the transition.

5. Supplier Resistance and Community Engagement  

The effectiveness of AP automation can depend on vendor support and the existence of a user community. It’s not just your employees who can get hung up on their habits. The introduction of an automated AP system can also cause inconvenience to suppliers who are hesitant to change their invoice submission process. 

Advice:  It is best to explain to the supplier how expedited invoice processing will bring him direct benefits, and even offer support or training for his employees. Highlighting how the changes can benefit them can enhance cooperation.

Choosing the AP automation software

Selecting the appropriate accounts payable (AP) automation software is critical for streamlining financial processes and improving overall efficiency. Here are essential criteria to evaluate when choosing AP automation software, ensuring that it aligns with the specific needs of your business:

1. Integration Capabilities

Seamless integration with existing accounting systems is essential for ensuring smooth data flow and maintaining operational efficiency.

2. Extended Capabilities

Businesses may face multiple challenges beyond simple invoice processing, including budgeting, forecasting, and reporting. It’s vital that the chosen software can address these needs without requiring a complete system overhaul.

What to Look For: Evaluate features like e-invoicing, payment processing, advanced reporting and analytics, vendor management, and compliance features. Look for software that offers modular capabilities; this way, you can add functionalities as needed, rather than paying for an entire suite of tools upfront.

3. User-Friendly Interface

The effectiveness of AP automation largely depends on user adoption. A complex or unintuitive interface can hinder usability and lead to implementation issues.

What to Look For: Choose software with a clean, intuitive design that allows users to navigate easily without extensive training. A focus group or trial can help gauge user experience before committing.

4. Training and Support

Adequate training and support are critical for successful implementation and ongoing operations. Insufficient support can lead to inefficiencies and employee frustration.

What to Look For: Look for vendors that offer comprehensive training resources, including online tutorials, webinars, and user documentation. Evaluate the availability of customer support channels (phone, email, chat) and the responsiveness of the support team. Consider whether the vendor provides ongoing maintenance and software updates, along with consulting services.

5. Vendor Reputation and Longevity 

The credibility of the vendor plays a significant role in software reliability and support. A vendor with a solid track record is more likely to deliver consistent quality and updates.

What to Look For: Research customer reviews, case studies, and industry ratings to determine the vendor’s reputation in the market. Engaging with other clients or networks can provide insights into experiences and satisfaction levels with the software. 

6. Scalability

As your business grows, so will your accounts payable needs. Scalable software can adapt to fluctuations in invoice volume, evolving business processes, and new financial systems.

What to Look For: Choose software that can handle increasing transaction volumes without a performance drop. Additionally, the software should offer features for multiple locations, currencies, and compliance regulations that cater to global operations if needed. 

Successful AP automation and its perks

Success is a measurable thing, and it’s important to have a starting and a finishing point in mind before you embark on the automation quest. However, ROI is far from the only perk of AP automation, thought the most measurable and obvious one.

ROI is an aggregated result from many small steps taken to achieve optimized workflows. So, we’ll list the milestones one can look for to assess the results of accounts payable automation.

1. Streamlined Invoice Processing

AP teams can automate the entire life cycle of bill processing. This includes extracting data from incoming bills (both paper and digital), matching them to purchase orders, requesting approvals, and authorizing payments. This lowers stress levels among employees and reduces delays associated with manually collecting and matching data.

2. Efficient Data Entry

Automating data entry significantly cuts down the manual workload involved in entering data into AP systems. Automation tools can effectively read unstructured documents such as invoices and receipts. Utilizing Optical Character Recognition (OCR) systems platforms enhances data extraction from various invoice formats (JPEG, PDF, emails, etc.), improving efficiency and accuracy.

3. Transparent Approval Process

Automated approval workflows facilitate the smooth routing of invoices for approval, minimizing human error during the approval stages. This transparency ensures that invoices are reviewed by the appropriate personnel without delays or miscommunication. Conditions applied to approval workflows will allow for additional approval steps fro high-value POs and bills.

As bonuses, we get enhanced accountability in budget management and cost verification processes.

4. Improved Supplier Management

Automation can also apply to the supplier registration and onboarding process, communication, maintenance, and payment schedule management. Streamlined supplier management processes contribute to better working relationships, smoother supply chain operations, and improved product quality. A more organized and effective supplier base that supports overall business operations. 

5. Cost Management

6. Automated Report Generation

AP automation tools can generate comprehensive reports on the efficiency and performance of accounts payable processes. Having easy access to detailed reports allows for better tracking of financial metrics and performance indicators, improved decision-making through data-driven insights and easier identification of areas for optimization.

For further insights you can explore the benefits of different AP automation solutions here that illustrate successful AP automation implementation and its outcomes:

Approveit’s case study on Bill Approval Automation;

Streamline accounts payable process with Robotic Process Automation (RPA);

Streamline accounts payable process with Intelligent Document Processing (IDP).

Conclusion

In summary, accounts payable automation presents a powerful opportunity for businesses to streamline their financial processes while achieving significant cost savings and operational efficiencies. The right AP automation software can vastly enhance financial performance, ensuring that companies not only keep their books in order but also maintain robust supplier relationships.

Enjoyed the reading?

Subscribe to our fresh artiles, product updates and news