What is Accounts Payable Automation?

No finance and administration tasks are as onerous as accounts payable (AP) processing.

According to the Institute of Finance and Administration (IOFM), controllers rank AP as the most labor-intensive, time-consuming, and paper-intensive finance and administration function, topping notoriously burdensome tasks such as accounts receivable (AR), payroll, and tax and reporting.

Manually receiving, approving, posting, and paying supplier invoices costs too much, takes too long, creates too many errors, provides inadequate visibility, and frustrates suppliers and stakeholders.

Manual invoice processing also increases the risk an organization will fall prey to payment fraud.

That’s why organizations of all sizes across all industries are embracing AP automation.

Controllers surveyed by IOFM believe that AP is the finance and administration function that could benefit most from automation.  Seventy-one percent of AP leaders say their department plans to automate in 2023, IOFM reports.  In fact, 44 percent of AP leaders who describe their department as being “largely automated” have plans to deploy more technology for processing supplier invoices.

This article details what AP automation is, how AP automation works, the benefits AP automation provides, and how an organization can start on its way to digital invoice processing.

What is AP automation?

AP automation digitizes and simplifies each step of the invoice-to-pay process – from invoice receipt and general ledger (GL) coding through invoice approval and posting to an ERP application.

Document scanning software converts paper invoices into a digital format.  Electronic invoicing solutions enable suppliers to electronically submit invoices to buyers, receive confirmation that their invoice was received, and check on the status of invoices.  Optical character recognition (OCR), artificial intelligence (AI), and machine learning technology extract and validate the header and line-item data from invoices and assist with or automate the coding of information into the buyer’s GL system.  Robotic process automation (RPA) connects systems and processes so data and images can flow seamlessly.  Workflow automation digitally routes invoices for approval.  And analytics tools provide real-time visibility into operational performance, cash flow, and corporate spending.

Cloud-based AP automation solutions provide accessibility when approvers and other staff work from home or on the go.  Images and data are securely stored in an online archive and can be instantly retrieved at any time, from any location, using a computer, laptop, or mobile device.

Together, these technologies create a frictionless environment for processing invoices.

How does AP automation work?

AP automation converts manual and semi-automated tasks into highly efficient digital processes.

• Capture. Paper invoices are converted to digital invoices through document scanning or document digitization.  Some AP departments use shared services centers or service bureaus to receive and digitize invoices on their behalf.  Invoices submitted electronically via email, fax, File Transfer Protocol (FTP) upload, a portal, electronic data interchange (EDI), or other means are aggregated with the invoice images on a single platform.  Invoice data such as the supplier’s name, invoice number, invoice amount, and remittance address are automatically extracted from the invoice.  Some solutions use machine learning to achieve better data capture performance over time.  Captured data is matched against the purchase order (PO) data residing in the buyer’s ERP application, accounting software package, or system of record.
• Approval. Unmatched supplier invoices or invoices requiring approval (such as high-dollar invoices or invoices from new or strategic suppliers) are digitally routed for review based on pre-configured business rules.  Unlike physical or email routing of invoices, there is no chance that invoices will be sent to the wrong approver.  The AI and machine learning technology built into some AP automation solutions can recognize approval hierarchies and how exceptions were resolved, accelerating workflows over time.  Approvers are notified of invoices awaiting review and are alerted when an invoice awaiting review approaches its due date.  Invoices that are near their due date can be automatically escalated to a manager, based on pre-defined business rules.  AP staff have visibility into the status of invoice approvals.
• Posting. Approved invoices can be posted directly to an ERP application, accounting software package, or system of record through pre-built integrations with the AP automation solution.  Leading AP automation solutions integrate with ERP applications from SAP, Oracle, NetSuite, Workday, and others.  By reducing manual intervention through “touch-free” or “straight-through” posting of invoices, AP departments can boost staff productivity, lessen the possibility of keying errors, accelerate invoice approvals, and enhance visibility.
• Reporting. AP automation solutions provide visibility across the invoice-to-pay lifecycle.  Graphical dashboards display real-time Key Performance Indicators (KPIs) and the status of invoices.  Drill-down capabilities enable AP staff to dig into data to uncover trends and the root cause of problems.  Mobile access keeps decision-makers in the know while on the go.  Exports get invoice information to downstream systems and processes fast.  Ad hoc reporting enables AP departments to easily adapt their reporting when business needs change.  And the centralized storage of invoice images and data makes AP information instantly accessible.

Digitizing and simplifying the entire invoice-to-pay lifecycle eliminates AP friction.

Business benefits of AP automation

AP automation solutions deliver tremendous benefits to departments of all sizes.

• Reduced costs. Highly automated AP departments spend less than one-fourth as much as their peers with little or no technology to process a single supplier invoice, IOFM reports.  AP automation eliminates the manual tasks that drive up an AP department’s overhead.
• Increased staff productivity. Highly automated AP departments process eight times as many invoices per full-time equivalent (FTE) compared to their less-automated peers.  As impressive as that is, AP departments that combine a high level of automation with a high percentage of PO-based invoices are able to process 11 times as many invoices per FTE.  With AP automation, many invoices can be posted directly to an ERP application, accounting software package, or system of record without the need for any human operator intervention.
• Fewer errors. Highly automated AP departments experience fewer duplicate payments and other errors than their peers with little or no automation, IOFM benchmarking data finds.  Automatically extracting and validating invoice data reduces the possibility of typos.
• Faster invoice approvals. It takes highly automated AP departments one-fourth the time as their peers with little or no technology to approve an invoice for payment, IOFM finds.  AP automation eliminates the handoffs and manual tasks that slow invoice approvals down.
• More early payment discounts. Highly automated AP departments capture seven times as many early-payment discount offers compared to their less-automated peers, IOFM says.  Those early payment discounts can partially or completely offset the cost of operating AP.

The separation of duties and other controls built into leading AP automation solutions also reduce the possibility of payment fraud.  And the tracking of all actions taken on an invoice streamlines audits.

These are some of the reasons that more AP departments are embracing automation.

How to get started with AP automation?

There are lots of AP automation solutions out there.  Selecting the wrong one can set your department back.  Here are some strategies for selecting the right AP automation solution for your department.

• Assess your needs. Understand your department’s current processes, document its workflows, and identify pain points.
• Define your goals. Put together a cross-functional team to determine what you hope to achieve through AP automation and the scope of your automation efforts.
• Evaluate technology. Look for tech providers with features and functionality that meet your needs, services to support your automation project, and a proven track record in automation.
• Create a realistic timeline. Develop a project plan that outlines each step of the automation project and the stakeholder, anticipated completion date, and any dependencies.  Keep in mind that frontline AP staff will be stretched thin with their day-to-day responsibilities.
• Build a business case. Document potential hard dollar savings, soft dollar savings, and any cost or risk avoidance.
• Measure. Implement mechanisms for tracking the results of your AP automation project, so you can report back to management and make any necessary adjustments.

Following these steps will help get your department started with AP automation.

Automating your AP process

Invoice processing is a burden on finance departments.  But it doesn’t have to be this way.  With the right AP automation solution, finance departments can reduce their costs, improve staff productivity, increase payment accuracy, accelerate cycle times, and capture more early payment discount offers. Speak with one of our experts to get your automation started.