The Essential Guide to AP Transformation

In this article, we explain AP transformation. Is your business ready? Check out the Ardent research report, “Five Signs You’re Ready for an AP Transformation.”

Learn how to transform your accounts payable processes with AP automation. Spend more time on vendor relationships and business strategy and less time on manual AP tasks.

Understanding the AP Digital Transformation

Digital transformation in accounts payable streamlines back office processes and applies technology such as machine learning (ML)/artificial intelligence (AI) and robotic process automation (RPA). Digital transformation eliminates manual workflow with automation software for efficiency and achieving fraud risk and error reduction. 

More CFOs and financial management teams are adopting AP digital transformation to streamline their payables processes and global payments, saving time and money while improving financial controls and tax and global regulatory compliance. If you follow this digital transformation path, your systems will be intelligent and make you look smarter and more valuable to your company. 

According to Allied Market Research from its 2023 Accounts Payable Automation Market report:

“The global accounts payable automation market was valued at $2.7 billion in 2021, and is projected to reach $8.3 billion by 2031, growing at a CAGR of 12.3% from 2022 to 2031.”

These stats indicate that accounts payable automation software adoption is increasing each year as more companies recognize the benefits of digitally transforming the accounts payable department to create a modern and efficient AP function. 

The Benefits of Accounts Payable Transformation 

Accounts payable transformation through accounting automation is one of finance’s greatest assets, providing enormous benefits to your company. Among the many benefits generated, accounts payable processing costs will be greatly reduced. 

20 benefits of accounts payable transformation are:

  1. Significant time and cost savings, including less hiring needs
  2. Elimination of paper documents, manual processes for data entry, and bottlenecks in AP processes
  3. Improved cash flow 
  4. Ability to take more early payment discounts in time
  5. Error and fraud risk reduction
  6. Collection of W-9 or W-8 supplier tax forms before first payment
  7. Automated tracking of supplier payments for 1099 tax compliance reporting
  8. Automated global regulatory compliance, including sanctions list screening
  9. Invoice processing exceptions through automatic rules
  10. Automated 3-way or 2-way invoice matching with PO and receiver
  11. Guided electronic approvals 
  12. Wider choice of cost-effective electronic global payment methods in many countries and currencies
  13. Faster payment processing and approvals
  14. Multi-entity and consolidated payable views
  15. Automatic real-time payment reconciliation 
  16. Automated current invoice payment status is viewable by your company and suppliers
  17. Speedier accounting close
  18. Increased real-time visibility, including metrics and KPIs trends
  19. AP department, accounting, and finance teams can shift workload to more valuable and strategic initiatives for decision-making
  20. System scalability for growth

With accounts payable transformation, your business, employees, and suppliers will better achieve their goals and have a higher level of satisfaction and insights. 

Which Accounts Payable Steps Can Be Automated?

10 accounts payable steps that can be automated with AP automation software are:

  1. Supplier onboarding and tax compliance
  2. Supplier invoice data capture
  3. Invoice processing
  4. 3-way or 2-way matching 
  5. Invoice approval
  6. Expense management
  7. Global payments
  8. Payments reconciliation
  9. Invoice payment status
  10. Generating metrics and KPI trends

Supplier onboarding and tax compliance 

With the best AP automation software, your business can shift its workload for supplier onboarding to the suppliers through a white-branded self-service supplier portal. Suppliers will be guided to fill out online W-9 or W-8 forms, ensuring that you’ve collected this vital tax information for your 1099s before making the first payment to each supplier. 

For further tax compliance and fraud prevention, AP automation software like Tipalti automatically validates each supplier by matching the tax ID (TIN number) to the IRS database. This step can help your company avoid IRS penalties for incorrect TIN numbers on your 1099 forms filed after the end of each calendar year. 

As part of the onboarding process, suppliers will also indicate the information required for their preferred available payment method. Tipalti finance automation software offers the unique capability of allowing your business to shift or split payment fees with suppliers, if desired, to nudge them towards choosing a cost-effective global payment method. 

Supplier invoice data capture

Suppliers can email invoices, upload them into the supplier portal, or use embedded AI-driven OCR (optical character recognition) software to capture paper invoice data electronically by header and line item. 

Eliminating or digitization of paper invoices results in:

  • Replacing manual data entry with automated invoice processing 
  • Eliminating the need for temporary files and physically matching paper invoices with purchase orders and receiving reports 
  • Eliminating the need to route those same document packages to approvers and back to the accounts payable department for filing
  • Preventing lost documents 
  • Reducing storage costs and space required
  • Automated Invoice processing in time to take lucrative early payment discounts

Invoice processing

AP automation software streamlines time-consuming payables processes associated with Invoice processing. 

Although invoice processing can refer to the complete process from invoice receipt to approval and payment, the step described here is more limited. This step refers only to performing steps on the invoice to check the supplier’s validity to avoid fraud, check OFAC sanctions and other  blacklists, and detect exceptions like duplicate payments of invoices or other problems with the invoice that results in errors.

As an example, Tipalti AP automation software uses over 26,000 rules for payment validity and duplicate invoice payments that can trigger discrepancy exceptions for the AP team to resolve. It automatically screens suppliers against blacklists, including OFAC sanctions lists. Global regulatory compliance is an automated process. 

3-way or 2-way matching 

AP automation software automatically matches electronic invoice data with digital purchase orders and receiving reports, if applicable. This type of invoice matching is called 3-way or 2-way matching. The process ensures that your company pays for invoiced goods or services under the same terms as the relevant purchase order when items are received. 

Invoice approval

AP automation automatically routes digital invoices with views of electronic supporting documents to authorized approvers via a guided email or mobile app approval process. 

Expense management

Expenses automation software (in combination with AP automation software) lets your company manage employee spend and expense reimbursement. Employees can choose to submit business-related expense reports with photo receipts through a mobile app. Approvers can approve employee expense reports for reimbursement through the mobile app or reject certain expenses. The Expenses automation software automatically screens for adherence to company expense reimbursement policies. 

Global payments

AP automation software makes global electronic payments quick and easy and can help you offer and use more cost-effective payment methods. (For example, international wire transfer fees are very high and only make sense for certain large transactions.) Your company can use less expensive global payment methods. 

Tipalti automation software for global supplier payments offers a choice of payments in 196 countries and 120 local currencies. Your suppliers like the ability to be paid in their currency. 

Payments may be scheduled in large batches with a variety of payment methods. You’ll be able to view the total amount to be paid in an entire batch and can choose to reschedule invoice payment dates. 

Payments reconciliation

Automatically reconciling payments in real-time saves significant amounts of finance department staff time. You can expect to accelerate the monthly accounting close by up to 25%. 

Invoice payment status

AP automation software provides status notifications in the supplier portal to confirm invoice receipt, approval, and payment date. Some status types may also be emailed to suppliers. 

One of the large drags on accounts payable staff time is responding to numerous vendor inquiries about when they can expect their invoices to be paid. AP automation software eliminates this time wasting and reduces frustration to improve employee morale. 

 How can your business achieve AP transformation benefits?

Download our eBook, “The Controller’s Guide to AP Automation” to learn how your growing business can go beyond mundane manual tasks to efficiency, freeing time for strategic work. 

Use AP automation software with self-service supplier onboarding with accurate contact and preferred payment method information, including W-9 or W-8 forms, AI-driven digital invoice capture and processing, guided approvals, automated supplier invoice payment status, and validation processes to reduce fraud and errors and ensure global regulatory and tax compliance.

Signs Your Business is Ready for Change 

Your business is ready for AP transformation change when using manual data entry and paper documents. Paper invoices and purchase orders, are inefficiently received, manually matched, lost in-transit, and stored at a cost. 

Are you paying fraudulent supplier invoices? If the accounts payable department has slow processing time, resulting in losing lucrative early payment discounts, your company has a profit leak that requires plugging.

Are vendors and third-party partners being paid on time? Have you experienced inventory shipment holds due to slow payment? Can you quickly pay global suppliers on time using their preferred payment method and currency? Do you have real-time visibility into cash flow, spend management, and payables by entity?

If accounting uses spreadsheets to track supplier payments for 1099 submission, that’s another sign that it’s time for a change. If it takes your business too long to close the books each month, get ready for the digital transformation of accounts payable through automation to help solve that problem. 

How to Begin Your AP Transformation 

Research to find the best end-to-end procure-to-pay automation system. This system could include AP operations, expenses, procurement from the supply chain, and finance automation software for payables, employee expense reimbursements, and global payments. An AP automation solution is add-on software that integrates with your ERP system or accounting software.

To begin your roadmap for AP transformation, consider your individual business needs and make a wish list of capabilities in cloud-based AP automation software. 

Consider the software provider’s customer retention rate and customer service. For example, Tipalti AP and finance automation software achieves a 99% customer retention rate and a 98% customer service satisfaction rate. The Tipalti customer base is over 3,000 companies. Read customer case studies and testimonials to acquaint yourself with the software benefits you’ll receive through AP transformation. 

Summing It Up

In AP transformation, your business streamlines and automates business processes. The benefits of digital AP transformation include time and cost savings from replacing a paper-based system causing inefficiencies. Other benefits of AP transformation are reduced error rates and fraud risk, tax and global regulatory compliance, cash flow improvement, better vendor management and supplier relationships, and real-time visibility. 

Download our eBook, “What’s Next?: How Finance Innovates with Hyperautomation.”

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