ultimate guide ap automation


Your Ultimate Guide to Accounts Payable Automation

What is Accounts Payable Automation?

Accounts Payable automation, also referred to as ‘AP Automation,’ streamlines all activities performed by the Accounts Payable department. From the purchasing of products from vendors and suppliers to approving and paying invoices, automation creates efficiency, which translates into higher levels of productivity and a lower cost of invoice processing.

Your AP department handles massive amounts of data, such as purchase orders, financial reports, supplier and client contracts, and customer invoices. The department’s effectiveness, as well as its efficiency, directly impacts your cash flow position, credit score, and, perhaps most importantly, your vendor and supplier relationships.

Accounts Payable automation takes the tedious hassle out of repetitive tasks. For example, your finance team won’t have to enter a vendor’s information each time an invoice is processed. Automation eliminates manual data entry and can cut down invoice processing expenses by as much as 80 percent. Plus, a software solution will capture all pertinent data and store it in an organized way, allowing the AP department to streamline the entire invoice approval process. But that’s not all—AP automation solutions also have these added benefits:

  • Online tracking
  • Supplier network categorization
  • E-invoicing
  • Payment submission capabilities
  • Reporting capabilities
  • Built-in OCR scanning
  • Payable workflow monitoring
  • Spending analytics
  • Intuitive invoice user interface
  • Multiple payment methods, including ACH & credit card

Why Automate Your Accounts Payable Processes?

The traditional AP workflow—including manual processes, such as paper invoices—can be time-consuming, creating a wide-open space for errors and a long and winding audit trail that can devastate even the most-seasoned accounting professionals. While Accounts Payable automation has been a fascination for some time, not many companies have embraced the tool well enough to improve their overall payable process.

But make no mistake about it, AP automation is no passing trend. Over half of today’s AP teams predict that, by 2021, their companies will eliminate paper invoices.

Today’s top accounts payable (AP) automation stats reveal an astonishing 82% of invoices have at least one exception. An invoice exception occurs when further approval is needed to apply a payment or when the invoice lines don’t match lines on the purchase order (PO). These exceptions can bring your AP processes to a halt. Research also reveals that the best-in-class automation solutions feature two-way and three-way matching, which resolves PO-matching issues.

In short, AP automation helps businesses streamline the Accounts Payable department’s most tedious tasks, saving the company hours of labor, and freeing your AP team to focus on more strategic work.

What is Accounts Payable Software?

Accounts Payable software is an automated accounting system your AP team can use to enhance the productivity and cost savings across your entire organization. AP software uses real-time data capture to automate accounts. Consider any business process that occurs in your AP department—most likely, it’s a lot of hands-on, manual processes that not only leave a lot of room for error but are also time-and resource-intensive and involve a manual approval workflow. All teammates, from the CFO on, are affected.

Instead, imagine a paperless accounting system—the more sophisticated the platform, the better the features. You can handle everything from accounting for fixed assets, depreciation, inventory, invoice management, inventory, and more. When you opt for an AP automation solution, you can eliminate manual tasks, such as payment processing, giving you back time to focus on strategically scaling the business. You’ll see improved accuracy, time savings, and overall financial growth.

How Does an Accounts Payable Automation Solution Work?

An Accounts Payable solution streamlines every action the AP department performs. Whether you’re purchasing a product or service from a vendor or approving and paying invoices, there are several benefits of payables workflow automation, including higher productivity and morale and lower invoice processing costs.

What Accounts Payable Automation Means to Your Finance Team

Your AP team has a solid understanding of everything their positions entail—they’ll realize the benefits of payables automation software almost immediately. But just so you have a better idea, let’s run through those benefits.

Accounts Payable team members might be responsible for a myriad of functions, including vendor invoices and vendor payments, internal payments, management of the general ledger, cash management, and even debt reconciliation. In other words, many businesses obtain goods or services on a credit basis, like your company utilities. A structured agreement outlines when and how these debts are paid and whether interest is added. For just one supplier or vendor, that’s a lot of calculations. Regardless of whether your debts are liabilities or assets, one error in recording or calculating can cause significant damage to your bottom line.

If you’re a large enterprise, you likely owe money to many outside entities, such as affiliates, freelancers, publishers, marketers, suppliers, and vendors. In some cases, your team might rely on interdepartmental lending. For instance, if your marketing department borrowed funds from R & D, your AP staff creates an internal invoice to record the transaction. Later, when the payment is received, the debt is reconciled.

Your Accounts Payable department is an essential part of your company’s success. If you’re unsure what you owe and when, you could miss out on growth opportunities with your vendors, such as early payment discounts. They also provide an accurate representation of the company’s financial status. You might have $50,000 coming in every month, but what if you owe $60,000 per month to your vendors and suppliers? With AP automation software, you can run reports that give you invaluable insights that can be used to strategically refine not only your AP processes but your overall operation.

Why Should the CEO Care about AP Automation?

CFOs and finance managers are directly aware of the complexity of Accounts Payable. They have a full understanding of how automation eliminates lag time, increases payment accuracy, and lowers processing costs. CEOs, however, are often on the fence regarding whether to invest in AP automation. They most likely understand that automation of any task will eventually lead to cost-savings, but the initial cost of automation software sometimes makes them hesitant to invest.

The benefits of AP automation are commonly not seen at the corporate level. Efficient document management and fast invoice processing is key to the AP department, but the CEO is rarely involved in these tasks. CEOs fail to see how AP automation can benefit the entire company. Also, they are often reluctant to take on new initiatives when operations are moving along with minimal challenges. Why change when the AP department is accustomed to processing invoices manually?

Accounts Payable automation that’s worth investing in will come with a wide range of globally-optimized solutions and world-class customer support. Want to get your CEO on board with AP automation? If so, make sure to discuss the benefits outlined below when making your case.

9 Benefits of Accounts Payable Automation

Imagine having 100% visibility across all of your AP processes and not having to switch back and forth between financial and ERP systems (accounting software such as NetSuite, QuickBooks Online, and Sage Intacct) to view invoices. AP automation reduces processing bottlenecks and produces a thorough audit trail, which is vital for compliance, especially when sourcing from global suppliers.

Here’s a look at the top nine benefits gained from AP automation:

1. Avoid Late Payment Fees

The invoice time cycle is reduced by 50 to 80 percent with AP automation. Instead of spending large amounts of time locating and verifying invoice data, you can quickly access the AP automation software database to determine which invoices have the closest due dates. You can then use this time-saving benefit to focus on reconciling invoices before they become past due, avoiding late payment penalties.

2. View the Small Details

Most of the time, the smallest details on an invoice are the most important. Invoice automation software gives you detailed information on all attempted and executed payments. Use software to produce reports and take advantage of auto-highlight features to pinpoint unmatched and rejected transactions. Download reports into an Excel document while acquiring advanced analytical capabilities that fuel a fast month-end close.

3. Take Advantage of Early Payment Discounts

Automating the approval of invoices creates a standardized, smooth workflow, which is highly favored by suppliers and vendors. When the payment approval process is automated, you have the leverage to negotiate favorable payment terms and early payment discounts. Take the saved money to drive other essential business needs.

4. Reduce Headcount

With built-in OCR technology, Accounts Payable software reduces the need for an excessive headcount in the AP department. By lowering headcount, you can designate employees to other departments where their knowledge and assistance enrich core operational activities.

5. Mitigate Instances of Fraud

The best AP automation software deploys extensive verification coding to ensure all invoices are correct. It highlights unknown suppliers and sends alerts to appropriate entities to make them aware of the possible fraudulent activity. Invoice number control eliminates the double-inputting of invoices.

At the heart of an audit is proving what happened, how it happened, and who was behind it. AP automation gives you deep insight as to who authorized payments and what types of verification steps they went through before approval. When fraudulent activity is suspected, Accounts Payable automation software gives you a clear picture of who is responsible.

6. Achieve Optimal Oversight and Transparency

AP automation software gives you full control over who has access to AP data. Set permissions to ensure only those with approval authority can approve payments. Implement a Segregation of Duties (SoD) approach to have all invoices double-checked for errors by multiple entities. SoD not only creates an expansive digital audit trail, but it streamlines approvals and results in a robust internal controls framework for all AP processes.

7. Improve Management of Cash Flow

With a clear picture of financial spend, you can make better cash flow decisions. Use automation to determine where money-saving opportunities exist and take advantage of them through invoice payment prioritization. For example, AP automation reveals there is a 10 percent early payment discount you are missing out on each month. You are currently paying a handful of invoices two weeks early that come with no early payment discount. Use invoice payment prioritization to adjust the payment schedule and capitalize on the early payment discount.

8. Diminish Errors

There’s very little room for error with automated invoicing. Built-in OCR scanning captures data and stores it automatically from the moment the invoice is uploaded. Plus, the solution will automatically highlight deviations when invoices don’t match POs.

9. Provide Superior Customer Service

Have you ever had a supplier contact you regarding an invoice? Without AP automation, it can take hours to locate the relevant invoice, which hinders productivity and can be frustrating to the supplier. AP automation reduces invoice retrieval times and allows you to answer questions quickly. The superior customer service you can deliver to suppliers results in a better supply chain.

5 Ways to Get the Most out of Accounts Payable Automation Software

1. Create Electronic Invoices

Paper invoices require large storage space and are a headache to sort through, especially come tax season. Use e-invoicing, a feature of AP automation, to send and receive invoices electronically. Customize threshold definitions and parameter rules to meet your precise needs, and tap into an online supplier portal for a bird’s eye view of your entire supply chain. Access the portal as needed to see which suppliers are active and which ones are inactive.

2. Use Electronic POs

Not only can you create electronic invoices with AP automation software, but you can create electronic POs too. Enjoy automatic routing of POs to ensure they are approved on time and then transmitted to the supplier.

3. Perform Two-Way and Three-Way Matching

Set customized tolerance ranges and use two-way and three-way matching to lower instances of double payment and fraudulent activity. When invoices aren’t matched, automated PO matching initiates multi-level actions to identify the problem. You can integrate the PO matching with your end-to-end supplier payments workflow to enjoy a high invoice process adoption rate.

4. Integrate with ERP

Barriers between business units are detrimental to cash flow visibility and decrease efficiency across the entire enterprise. ERP allows you to break through these barriers, but many companies find it difficult to integrate ERP software with other systems. Accounts payable software can be seamlessly integrated with ERP to reduce the AP workload and eliminate errors. Use the integration to enhance the invoice-close process and shorten the invoice payment cycle.

5. Make Business-To-Business Payments

AP automation makes it simple to make business-to-business (B2B) payments. Access the online AP dashboard to view which payments need to be made, as well as which ones have already been approved. Automated B2B invoice payments are cost-efficient and typically range anywhere from 25 cents to $5 per invoice. Compare to manual invoice processing, which is around $15 each, and you can imagine the savings, particularly for companies that process hundreds or thousands of invoices each month.

How Does Accounts Payable Automation Improve Supplier Relationships?

Many businesses fail to see the direct relationship between their AP departments and vendors. When AP processes are efficient and streamlined with other operational activities, this improves a company’s rapport with suppliers and can lead to significant savings through negotiations.

Generally, the procurement department is tasked with nurturing vendor relationships and handles everything from contract negotiations to pinpointing early payment and other discount opportunities — yet the AP department largely influences these relationships.

According to the data, nearly half of all businesses pay 10 percent of their invoices late. Almost 20 percent of businesses admit that one out of five invoices aren’t paid on time, and only five percent say they pay on time every time. Even more mind-boggling is that 12 percent of businesses don’t monitor invoice processing at all and have no clue as to how many are paid late.

Late payments are disrespectful and damage your brand’s reputation, in addition to putting your supply chain at risk. The majority of late payments are caused by slow invoice processing and a lack of automation. No business is perfect. Paying an invoice late once a year is understandable. Paying invoices late every month reveals poor management and could potentially be the demise of a company.

Businesses operating in the retail and manufacturing industries are especially impacted by their supply chains. A single loss of a vendor due to poor AP processes could leave the entire company scrambling to meet customer demands. AP automation expedites invoice processing and leads to vendors being paid on time for each invoice, even when multiple invoices are involved. As vendors take note of on-time payments, they are likely to offer discount opportunities. Solid relationships ensure suppliers are more apt to deliver parts, products, and services on time.

With a strong digital accounts payable automation solution in place, the AP department can adequately support other departments, including procurement and finance. By showing these departments where payments are being held up and the reasons why, it becomes possible to address the issues swiftly. AP automation also enhances procurement processes by delivering valuable insight and data that can be used with spending analytics, which helps identify vendors operating outside of a company’s policies. You can analyze the data to see which vendors have not complied with contracted terms, along with those who seem to need additional nurturing to solidify a healthy relationship.

To further improve vendor relationships, AP automation makes it possible to alert vendors when invoices have been paid. In the event invoices are not paid on time, real-time status updates are sent to vendors via email to keep them up to date on when to expect payment. This eliminates their need to contact the AP department. AP automation can even be used to alert vendors that they need to update their payment information. It can also be used to collect and validate VAT, W-8, and W-9 information using a KPMG-approved interface.

How to Eliminate Bottlenecks with Accounts Payable Automation

The AP department does much more than pay bills. When efficiently managed, AP processes can improve the bottom line by eliminating bottlenecks.

Everywhere we look, digitization is all around us. For companies that have yet to deploy AP automation, bottlenecks within AP processes are a common occurrence. Bottlenecks are more often than not a result of human error. AP automation minimizes the need for employees to be involved in receiving and processing invoices.

There is a large amount of time and money invested into processing large volumes of invoices. This time and money could be put to better use with AP automation. And while sending an invoice to the AP department may seem simple and minimal in terms of labor and time, there’s actually much more involved. The invoice has to be uploaded to the company’s accounting system and then verified and matched with its corresponding PO. From here, it is sent to the appropriate entity for approval. Once approval has been obtained, it comes back to the AP department, where a payment can be applied.

There are many forms of payment options, and vendor preferences dictate which one to use. For example: Some suppliers may prefer to be paid via PayPal, while others accept ACH payments only. When you’re dealing with hundreds or thousands of suppliers and you don’t have AP automation, keeping up with all of their payment preferences can be a headache. Not knowing which payment method is preferred by a particular vendor is a bottleneck in itself. It slows down invoice processing and delays payments.

Other bottlenecks that occur within AP invoice entry and processing include:

  • Missing information, like payee’s tax ID information;
  • Invoices in unreadable formats;
  • Invoices requiring additional information in order to comply with the Foreign Account Tax Compliance Act;
  • Invoices arriving from payees in foreign countries.

All of these bottlenecks are easily eliminated with AP automation. Your suppliers will enjoy a pleasant onboarding experience, and the automation service provider will take care of everything. From securing invoice and payment approvals to checking accounts for sufficient funds and making sure all suppliers are paid according to their preferred payment method, you don’t have to worry about any of the related tasks.

Whether it be a wire transfer, Global ACH, PayPal, or US ACH payment, you don’t have to log into individual banking portals to reconcile payments. Switching back and forth from one financial system to the next to locate invoice data is a thing of the past with AP automation. You don’t even have to think about which payments are due. You’ll receive helpful alerts when invoices are nearing due dates and aren’t set up on automatic payments. For those that are set for auto-pay, you’ll receive notification once a payment has been applied.

Accounts payable automation automatically captures details from invoices. Whether it’s a docx., XML, PDF, or .jpg file, your AP department doesn’t have to go through the tedious and time-consuming task of manually entering information. AP automation eliminates this bottleneck while reducing the occurrence of human error and streamlining the accounts payable workflow.

Wrapping it All Up

Imagine all that the AP department can do when invoices have been received, matched, and paid overnight?

Just because the finance team goes home at 5 o’clock doesn’t mean AP automation software goes to sleep. It continues storing, receiving, and processing invoices around the clock via the cloud. Mobile access allows anyone with authorization to access the invoice database to view invoices, check status updates, and approve on an as-needed basis. With first-rate customer service, the right automation solution future-proofs your operations and delivers reliable, end-to-end AP performance.