Accounts payable

What is AP automation and why is it important?

Apr 05, 2024

Along with accounts receivable, accounts payable make up a lot of the regular day-to-day finance operations that you have to manage. Referring to the short-term debt that you owe your vendors and suppliers after they have delivered the goods or services you ordered, accounts payable is a key process in any business.

Managing it well will ensure that you don’t run into cash flow problems, operational issues, or poor vendor relationships. This is why it’s recommended for any business to streamline its accounts payable processes with the help of AP automation software. No more time-consuming data entry, complicated workflows, or payment delays!

What is AP automation?

As the name suggests, AP automation refers to the tools you use to undertake a process of removing manual tasks from your accounts payable process. With these new technologies, you can automate steps such as data entry and invoice matching. It allows you to manage your invoice-to-pay process more effectively in less time.

Some key features include optical character recognition and workflow automation. Ultimately, the goal is to use them so your accounts payable work is easier.

Also, you can check out our article on what is an invoice in accounting to understand the essential role invoices play in financial transactions.

How does AP automation differ from manual processes?

1. Efficiency

AP automation

Enlisting the help of AP automation tools will help you reduce delays in your processes. Instead of letting your employees be bogged down with tedious manual administrative work, you can eliminate these time-consuming tasks that don’t actually require too much human intervention. Your team can work on other tasks that need their attention faster.

Manual process

Doing your accounts payable tasks manually is ultimately inefficient. This is because you’ll have to power through administrative work that is often time-consuming, disallowing you from progressing with other steps that require more attention.

As a result, you’ll be wasting the majority of your time performing manual data entry and payment processing tasks.

2. Accuracy

AP automation

Reducing the manual touchpoints in your process will result in better accuracy. AP invoice automation software is designed to help you automatically and accurately capture data.

Technology like optical character recognition (OCR) will eliminate the possibility of typos. You can also get automatically notified of any suspicious invoices flagged by the system.

Manual process

The amount of human intervention during your data entry and invoice processes will likely increase the risk of errors. You may end up with records that are riddled with typos or inaccurate numbers.

Not to mention that manual invoice matching could also lead to undetected discrepancies. These can cause issues in the long run.

3. Visibility and transparency

AP automation

You can easily track where your invoices are in the process when you use automation solutions. The approval workflow features allow you to click an invoice to view how far it is along the way and which approvers still need to review the invoice. You won’t have to worry about missed or double payments.

Manual process

It’s not uncommon for there to be missed invoices or double payments when you don’t have a lot of visibility. Unfortunately, manual and non-digital processes don’t offer any easy way to track where your invoices are in the accounts payable process. It’s also difficult to ensure that everyone is transparent about their work.

4. Cost savings

AP automation

There is an initial setup cost when you first implement an accounts payable automation solution in your organization. However, you should take into account that your new software will be able to help you reduce labor and training costs, allowing you to save more money in the long run.

Manual process

While you won’t have to shell out on any big one-off fees, you will also need more employees to ensure that you are on top of your manual administrative work. The hiring and training costs associated with it will slowly but surely add up over time.

5. Compliance and security

AP automation

Accounts payable automation software providers are experts in what they do. This means that you are guaranteed better security measures to protect your data from breaches.

With built-in compliance features, you can also prevent fraud and ensure that all your payments comply with government, industry, and tax regulations.

Manual process

With the amount of documentation that you have to take care of during tax filings, it’s no surprise that it can be difficult to manage properly without the help of automation.

As a result, you may be struggling to ensure compliance. Manual processes can also lead to undetected fraud attempts.

6. Approval workflows

AP automation

No more wasting time on your approvals. AP invoice automation introduces customizable approval workflows that allow you to automatically route your invoices through the right approvers.

Set up single or multi-level workflows in advance and route your invoices. Approvers will be automatically notified when there’s an invoice they have to review.

Manual process

Traditionally, getting approval for your invoices means that you have to go from desk to desk to ask for signatures from the right approvers.

If an approver is out of the office, you’ll need to have the invoice on their desk and wait for them to have a look at their pile of documents.

7. Vendor relationships

AP automation

Faster and more accurate accounts payable processes will result in happier vendors. This is because you can ensure that you’ll be able to pay them accurately and on time.

Vendors will grow to trust you more when you’re able to maintain this. With automation, you’ll also have more time to spend communicating with your vendors.

Manual process

Maintaining good relationships with your vendors requires constant communication. With manual processes, delays in your payment processing are almost inevitable.

You’ll have to communicate this with your vendors in advance to let them know. Chances are they won’t be happy with it, but it’s important that you stay on top of your updates.

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What are the benefits of AP automation?

1. Improved efficiency

No more long wait times during the approval process. Streamline your AP automation tasks and make them simpler for everyone. You’ll be able to get better approval workflows and data captures, eliminating delays to encourage faster payment processing.

As a result, you’ll see an increase in your employees’ productivity.

2. Cost savings

Reduce labor and training costs by switching to an accounts payable automation platform. There will be an initial setup cost when you first get your software installed, but in the long run, it will save you both time and money.

Not only will you increase your team’s efficiency, but fewer errors also mean lower costs.

3. Reduced errors

Say goodbye to error-riddled reports. Your accounts payable processes aren’t just faster to do with automation, but they’ll also benefit from having fewer errors due to the elimination of human intervention.

Good accounts payable automation software can guarantee top-notch accuracy. Your system will also flag any odd or suspicious information for you.

4. Faster processing

Slow invoice and payment processing is frustrating, especially if it causes unfortunate payment delays. With AP invoice automation, you won’t have to worry about that.

Eliminating manual data entry and complicated approval workflows is sure to cut the time traditionally spent on managing your accounts payable—sometimes even in half!

5. Enhanced visibility

There’s no need to fear end-of-month surprises when you know what is AP automation software.

Collaborating in real-time becomes easier to do, allowing all employees involved to view your accounts payable data through one platform that can be accessed through a web dashboard from anywhere. Track where you’re at in the process at all times.

6. Improved compliance

There’s no denying that ensuring and maintaining that you’re always in compliance with the regulations can be difficult.

However, most AP automation software will have built-in compliance within the system. Paired with the enhanced visibility features that you get, you can ensure that you won’t fall victim to fraud.

7. Streamlined supplier relations

Get better relationships with your suppliers by employing automation tools when doing your accounts payable.

With streamlined processes, you’ll also find it easier to pay all your invoices on time, which in turn will improve your reputation with suppliers.

Not to mention that sending them updates is also simpler when everything goes smoothly.

8. Data analytics

When you’re bogged down by manual work, sometimes it’s tough to make time to generate reports and get data analytics.

By automating your reports and processes, you’ll find that you have more time to properly analyze your data, which will then help you make better and more well-informed decisions.

9. Scalability

The more your business grows, the more accounts payable processes you have to take care of. With the traditional way of accounts payable, this means that you will have to spend more time on it.

The good news is that with accounts payable automation, scaling is easier and doesn’t have to mean getting overwhelmed.

10. Security

Software providers of this nature are experts at what they are doing. This guarantees that you are getting industry-standard security measures by using an automation platform for your accounts payable.

When you have all your data encrypted and stored in a cloud server, it makes data breaches more difficult to perform.

11. Integration with ERP systems

Many AP automation software will provide integration capabilities, which is helpful in making the accounts payable process even simpler.

Instead of a fragmented process with many disconnected systems, integrating your accounts payable automation software with other ERP systems that you use will streamline your information flow and ensure that all systems are working together.

12. Environmental impact

You are reducing the amount of paper used and needed by making the switch to using an automated system. This will not only help you save up on space and costs, but it’s also a step forward in the sustainability initiative.

You will also have less waste that you have to worry about.

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How does accounts payable automation work?

1. Invoice capture and data extraction

Those who know what is AP automation will know that platforms designed for automating the process will have features and technology that allow you to automate invoice data capture.

Rather than having to manually perform data entry, you can extract data accurately in just a few seconds. The primary tool used for this is optical character recognition technology or OCR.

With OCR, you’ll be able to simply scan or snap a picture of an invoice and extract its data automatically. Ideally, you’ll want to receive invoices in a standardized electronic format, but OCR makes paper and PDF invoices easier to capture.

2. Data validation and verification

In traditional invoice processing, you want to make sure that you’re validating and verifying your invoice data after receiving and capturing it. This would typically require you to study each invoice manually to make sure there’s no missing data.

With AP automation, however, you can instantly see if there are any fields missing during the data capture process. Any suspicious invoices will also be flagged by the system. You can set up automatic alerts for these.

3. Invoice approval workflow

Implementing automated approval workflows for your invoices will help you avoid delays in the process. Instead of having to let an invoice cross desk to desk and risk it getting forgotten on its pile, you can customize your workflows on your accounts payable automation software and do the entire process on one platform.

Set up single or multi-level approval workflows depending on your needs. By assigning each invoice to a particular department, you can automatically route it through its corresponding approval workflow. Approvers will get notified that they have an invoice to review.

Before you know it, your invoices will be thoroughly approved.

4. Matching process

Having to manually match your invoices with each of their respective purchase orders and delivery receipts is a tedious and time-consuming process.

However, if you know what is AP automation software, you’ll know that many software providers offer automated three-way matching features.

This allows you to simply upload all three documents and rely on machine learning and AI technology to scan your documents and compare them for you. You’ll be notified of any discrepancies.

Suggested read: What is 3-way matching in accounts payable?

5. Exception handling

Considering that the tasks you have to perform during the exception handling step will differ depending on the discrepancies, you may not be able to use AP invoice automation software to fix all of them.

However, you could use it to automatically mark the discrepancies. If they are caused by internal issues, you could trigger automatic fixes. You’ll also find it easier to communicate with suppliers when you have a clear understanding of what they are.

6. Approval and payment authorization

After invoices are approved, you’ll be able to send them forward for payment. Depending on what your company policies are, you may be able to utilize features that allow payment authorization to be an automatic step.

The personnel responsible for payment authorization will not need to manually go in and authorize the payment before it is authorized to be sent. Use this feature to automatically authorize payments for smaller purchases.

Interesting read: Vendor payment process and how to automate it?

7. Payment processing

No accounts payable process is complete without payments. Once your invoices are ready for payment, make sure that you take note of their deadlines. You want to initiate and process payment before the deadline, as some payment methods will require more time.

Luckily, automated payment processing means that you can make payments on the same platform that you use to process your invoices.

With your vendor data stored on your platform, you won’t have to manually enter it each time. Schedule your payments and allow your AP invoice automation software to take care of the rest.

You’ll be notified when a payment has been received by its recipient.

8. Reporting and analytics

Have your software generate accounts payable reports for you. While you can do it yourself with all the organized data that you have thanks to your AP automation software, it’s still a lot of work, especially if you have multiple reports to create each month.

Luckily, you don’t have to do it yourself.

Most AP invoice automation software allows you to sort and filter through your data. You can pick what information you want to use to generate which reports. This way, you’ll have complete and accurate reports. You also will have access to analytical tools on your dashboard to help you in your decision-making process.

9. Integration with ERP systems

It’s great that AP automation software can hasten the process and give you more visibility, but you want to also make sure that your accounts payable process is not separated and disjointed from other systems you use. This is where integration capabilities come in.

With the right software, you’ll be able to integrate your new system with your existing ERP systems to ensure that you have a smooth information flow.

Ask your software provider to assist you in setting up integrations, which will allow you to directly sync information between different platforms. There’s no need to manually input the same data in multiple systems.

10. Audit trail and compliance

As you complete different steps in the accounts payable process, make sure that you’re taking advantage of the built-in compliance features offered by your accounts payable automation system.

You also want to keep in mind that your software will automatically help you build an audit trail. When audit season comes, take advantage of this.

Don’t make accounts payable even more difficult by piecing together all the information yourself. You can search for all the needed data on your software.

What are the different types of AP automation solutions?

1. Software as a Service (SaaS) solutions

Software as a Service, or SaaS, refers to a particular model of cloud-based systems. You get the same features as you would from cloud-based AP automation solutions, with your data stored in an external cloud server. These features can be accessed from anywhere as long as you have an internet connection.

However, the difference is that with SaaS, you will be paying for the software on a subscription model with a cheaper initial setup cost.

2. In-house automation systems

Instead of using cloud-based solutions, you can also opt for an in-house automation system. This will require you to have an in-house server that you can use to store your data.

The way it works is that you can purchase a software license and download it in-house. It’s also possible to make your own software, but this requires a lot of expertise.

You’ll get similar automation features as cloud-based platforms, but you won’t get automatic updates.

3. Cloud-based AP automation

Depending on your business needs, a cloud-based AP automation solution might be ideal. With cloud-based systems, your data isn’t stored in an in-house server, but rather in the cloud. This means that it will be accessible from anywhere, allowing you to still manage your accounts payable even when you’re not physically in the office.

You and your employees will be given login credentials that you can use to access your dashboard no matter where you are.

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What are the common features of AP automation software?

1. Optical character recognition (OCR) technology

Considering that invoice data capture and extraction is a big part of accounts payable, a feature commonly found in AP automation software is optical character recognition technology.

It allows you to forgo manual data entry. Instead, you can scan or take a picture of your invoice to extract its data.

Related read: Benefits of OCR in expense management system

2. Electronic invoicing (e-invoicing)

While it’s possible to automatically scan data from paper or PDF invoices, electronic invoices streamline accounts payable even further.

An electronic invoice will have a standardized format that structures data in a way that is automatically recognized by your system without the need for manual data entry. Your suppliers can send e-invoices straight to your platform.

3. Workflow automation

A big point of interest that draws people into accounts payable automation software is the ability to automate and digitize your approval workflows.

Instead of having to run from desk to desk to drop off invoices and get physical signatures from approvers, you can route each invoice through your automation software.

4. Integration with ERP and other systems

The problem with traditional processes is that often you have a disjointed information flow, which leads to time wasted on syncing it up. Say goodbye to all that hassle by using your software’s integration features.

You will be able to easily integrate your new AP invoice automation software with other systems and automatically sync them up.

5. Automated payment processing

When thinking of what is AP automation, it’s inevitable that you’ll think about automated payment processing. It’s a feature offered by most if not all, accounts payable software.

You get the ability to automatically create and schedule payments, as well as send them through a single platform. All it takes is a few clicks!

Related read: What is invoice processing in accounts payable?

6. Security and data encryption

Good security and data encryption are arguably one of the most important AP automation features. When you’re trusting your data with a third party, you want to ensure that it is safe.

Luckily, software providers will have industry-standard encryptions and store your data in a cloud server with plenty of security measures.

What are the factors to consider when selecting an AP automation solution?

1. Business goals and needs

The software provider that you select for your new accounts payable automation solution must be in line with your business needs. It’s recommended that you review your current processes and make notes of what your needs and pain points are, as well as what goals you have with your new solution.

2. Scalability

The point of using an AP automation solution to help you with your processes is to make sure that as your business grows, you won’t have trouble growing alongside it.

Keep this in mind when picking your software provider, as you want a platform that will be able to scale with your growth.

3. Integration capabilities

While it’s great to automate your accounts payable, you also ideally want to integrate it with your other systems. This helps provide a better information flow for your organization and eliminates discrepancies between the different systems. Pick a software provider that has the integration capabilities that you want with your existing platforms.

4. User-friendliness

Other than having robust features, you also want your AP automation software to be user-friendly and easy to use. No matter how great the features and customization functions of your system are, your employees will not be able to take advantage of them if they can’t use the platform.

5. Customer support and training

Make sure that you know that your software provider has a good customer support reputation. As you use the software, it’s likely that you will need assistance with queries, questions, and issues. It’s important that you know you will be supported through these. Ideally, you would also be able to request some training with the system.

6. Customization options

Every organization will have different workflows, policies, and preferences. The best AP invoice automation software for your business is one that offers customization options. These will allow you to configure your rules and workflows on the platform according to your existing processes and company policies. You won’t have to complicate things by making changes this way!

7. Mobile accessibility

See if the software providers you’re looking into have a mobile app that can support your main web dashboard. You want good mobile accessibility, preferably with a lot of features available to you on the app. This will be especially useful if you travel a lot or have flexible working hours.

8. Security measures

While most AP automation solutions will have industry-standard certifications and security measures, you still want to ask questions about what they do to ensure that your data is safe with them. It’s important that the provider you go with can guarantee that they do everything they can to combat security risks.

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How to implement AP automation?


Assess your requirements

Start by doing a thorough review of your current processes. This will help you identify what your pain points are and what you need from an accounts payable automation solution.

Get feedback from your employees and observe which parts of the accounts payable process are causing the most difficulties.


Set clear objectives

Before you identify which software you want to use for your organization, make sure that you set clear objectives of what you want to achieve.

It gives you a clearer guideline of the direction you want to go. Once your new system has been implemented, you’ll be able to measure its success against these objectives.


Select the right software

Do your research before you pick a platform. Avoid selecting the first software provider that you come across.

Instead, compare the features of several different providers and put them side by side with your requirements and objectives.

You want to go with the provider who you think best fits your business needs and goals.


Data migration

Once you have a software provider selected, you want to set up the platform so that you can start using it.

Ask for assistance from your provider to migrate your accounts payable data onto the software.

You should also integrate it with your other existing systems to ensure you have a smooth information flow.


Workflow arrangement

If you already have existing accounts payable workflows, you also want to establish them on your new software. Use the customization options to arrange your invoice and payment approval workflows.

If you don’t have one established yet, it’s recommended that you create different approval workflows on your platform for future accounts payable payments.


Employee training

Before your employees can start using the new platform, you will need to conduct employee training sessions first. This allows your employees to get familiar with the platform and ask questions or raise concerns they may have.

It’s also recommended that you help onboard employees during or after the training sessions.


Reporting and analytics

Those who know what is AP automation will want to make the most of your AP automation software.

With all these automation tools and features available to you, take advantage of them and easily generate accounts payable reports.

You’re guaranteed to have better analytics, which will help with forecasting and decision-making.


Quality assurance

As with any other sort of implementation, the process involves a lot of trial and error.

You want to make sure that you’re doing a lot of testing and listening to your employees’ feedback.

It’s also a good idea to assign someone to be your quality assurance person to get better feedback.


Supervising and auditing

Make sure that you pay close attention to your newly implemented AP automation solution even after you’re through with the testing period.

Keep your objectives in mind and measure the effectiveness of your new software against them.

You should also schedule and perform regular audits to identify where you’ll need to make adjustments.


Constant improvement

Just because you’ve already implemented an automation solution, it doesn’t mean that you can’t make improvements to further streamline your accounts payable process.

With the quick development of new technologies, you’ll want to tweak your processes as you go along.

Make the necessary changes whenever you see fit.

Example(s) of the effect of AP automation

Smaller businesses may be able to get away with doing their accounts payable processes manually, but it’s much harder to do for bigger companies. Take the example of a multi-national enterprise. With over 100,000 invoices to process each year, it’s possible to manage these month-by-month manually.

Instead of persisting with this challenge, —which led to confusion and delays across different teams—the company decided to implement accounts payable automation. An intuitive dashboard allows employees from different departments to start using it for invoice approvals.

As a result, the process is painless and easy to understand for everyone involved. The finance team is able to process thousands of invoices per month with ease and approval delays are easily avoided.

With how important accounts payable processes are to your business, AP automation is without a doubt one of the best ways you can increase efficiency within your operations. It’ll improve the productivity of your employees, make payment processes faster, and help you get rid of errors.

New technological developments have provided modern businesses with the right tools to automate their accounts payable easily. There’s no reason for you to not make the switch and use accounts payable automation software.

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Eliminate your manual data entry tasks and say goodbye to the hassles they come with by employing optical character recognition. Invoice matching and payment processing can also be done on the same platform, helping you streamline your processes further. There’s no need for multiple systems to manage your accounts payable.

Complete with customizable automated approval workflows, you’re all set to reduce the amount of time spent on your accounts payable processes. With AP automation, you’re also guaranteed better accuracy, productivity, and efficiency!

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What is the difference between AP automation vs AR automation?

AR, or accounts receivable, refers to the management process of money that you will receive from your customers. This means that AR automation would include features that help you automate sending invoices to your customers and receiving payments from them.

On the other hand, AP automation refers to the process of automating invoice processing and sending payments to your vendors.

How much does AP automation cost?

It depends on what software provider you choose. However, you’re guaranteed to save money in the long run despite the initial costs. Your costs per invoice could be reduced to less than half of what they used to cost you!

How do you automate accounts payable?

The best way to automate your AP processes is by using accounts payable automation software. This will gain you access to features and new technologies like OCR, e-invoicing, approval workflow automation, and many more.