What Is AP Automation?

Accounts payable (AP) processes are not always easy or straightforward when done manually. Before modern technology gave businesses software solutions aimed specifically at digitising and streamlining financial processes such as accounts payable, finance teams typically had to wade through stacks of paper and physical filing systems to ensure everyone was paid on time.

However, even though AP technology has evolved, the accounts payable process still isn’t always smooth or simple. Paper documents have been exchanged for digital documents, and filing cabinets have made way for digital drives and folders, but the procedural complexities remain. Now, however, a light has emerged at the end of the tunnel: accounts payable automation (AP automation).

Accounts payable automation technology has helped finance teams truly streamline their accounts payable processes, making tasks quicker to achieve and allowing team members to focus on more important jobs while eliminating human-based errors.

So, what is AP automation, and how does it work?

Video: What Is AP Automation?

What Is Accounts Payable Automation (AP Automation)?

Before we discuss AP automation in detail, let’s define it. AP automation is the handling of accounts payable activities, such as receiving invoices, paying invoices, coding, and reconciling payments with digital technology that can automate routine steps, speeding up the process and reducing the chances of accidental errors.

AP automation software technology typically also provides organisations with helpful insights via dashboards, giving teams the data needed to manage the process and clearly diagnose any problems that may come up. Additionally, dashboards make it easy for finance leaders to retrieve and audit relevant data.

AP automation and the tools that enable it are increasingly being built directly into business financial management software suites, making it easier for organisations to use. Such software features give finance and AP teams real-time access to key accounts payable information, including AP ageing, invoices awaiting approval, and payments in transit.

How Does Accounts Payable Automation Work?

The AP automation process can be quite straightforward. The AP automation software digitises your vendors' and suppliers’ invoices, typically turning them into a standard digital format. It then processes those digital invoices and the information within them, including paying those vendors and suppliers.

At the beginning of the automated accounts payable process, the technology uses optical character recognition (OCR)—a system that turns images and words into machine-readable text—to obtain the relevant data from the documents.

Some AP automation technologies use artificial intelligence (AI) and machine learning (ML) to improve the process, recognising patterns that emerge from repetitive actions or inputs over time to home in on greater accuracy and speed.

For example, the system may offer certain general ledger codes or approval routing based on previous experience. Through tailor-made rules aimed at customising certain processes for a specific business, AP automation has the potential to remove the need for manual intervention for the majority of invoices.

Why Automate Accounts Payable?

There are several reasons why your organisation should automate its accounts payable processes. Firstly, it saves time for your finance team, allowing them to focus on more important tasks during the working day.

Not only is it a time saver, but it is also a money saver. By reducing manual efforts, organisations can save on processing costs and reduce the need to hire additional staff as they expand and scale.

AP automation can also help finance teams better manage payments and cash flow. Plus, it enables smoother audits during tax time, less fraud, and fewer errors. Moreover, it can also enhance financial control over supplier payments.

Just as important, the digitisation involved in automating accounts payable processes helps to provide businesses with improved visibility into outgoings, a factor that can help to improve cash flow management and forecasting.

Top Accounts Payable Tasks to Automate

There are a number of tasks that should be priority focus areas for automation. By automating these tasks, finance teams are likely to have more time to focus on high-value tasks beyond labour-intensive data entry and other manual work arising from traditional AP activities.

Data entry: Eliminate the need to enter each invoice number, ABN, item line, and price. With AP automation, you no longer need to enter every piece of information, removing the risk of errors.

Coding invoices: AP automation allows finance teams to create rules for general ledger codes for each invoice. This also removes the risk of errors and gives the finance team back time.

Invoice matching: Using AP automation, you can match your invoices to various supporting documents, such as order documents and purchase orders. Invoice matching brings accuracy, efficiency, and speed to organisations.

Approval routing: Through approval routing, AP automation sends all approvals to the correct parties without any manual engagement. This also allows teams to track the progress of the approvals.

How to Automate Accounts Payable?

To create automated accounts payables processes, organisations generally implement AP automation software either as a software-as-a-service (SaaS) model, delivered via the cloud, or as an on-premises application, hosted on a company-owned server.

Some organisations may choose on-premises applications if they want to manage their own systems, while others may opt for the SaaS model if they don’t want to worry about the additional infrastructure involved in hosting their own software. This option also allows businesses to pay for such a service via a subscription, rather than through capital expenditure.

Be mindful that every organisation has different workflows, processes, and internal mechanisms through which things get done. Thus, as with any new system implementation, staff will need to undergo training and walkthroughs to understand the AP automation solution. With this in mind, it helps if the solution is easy to use and comes with extensive documentation and customer assistance or success services.

Ultimately, with the right AP automation software and an effective implementation, businesses can foster an optimal return on investment through time saved, up-to-date financial oversight, and more accurate cash flow management.

What Are the Benefits of AP Automation?

When you’ve implemented AP automation software, you can expect to see multiple benefits within the organisation. Your finance team won’t be the only one that gains from this solution.

These are some of the benefits of AP automation:

• Staff can focus on high-value tasks rather than menial tasks like data entry.
• Fewer manual errors when automation is involved in accounts payable processes. This reduces the need for various departments to deal with problems and handle supplier and vendor complaints.
• No need to store paper, have filing cabinets, and pay postage and delivery costs. (subject to local regulations)
• Payments are prompt, creating a better supplier/vendor relationship.
• Automation makes audits and compliance tasks easier. Security and accessibility features alert users when fraudulent activity is detected.

How to Select AP Software?

With all of that in mind, how do you ensure that you have the right AP automation software?

To pick the right automated payment software, follow these four steps.

1. Planning: Leaders should coordinate and put together a cross-functional team that can identify the organisation’s goals for AP automation.
2. Gathering: The accounts payable department points out how your current AP processing works, then it creates a list of needs for AP automation software. By the end of this stage, leaders should have a request for proposal (RFP) and send it to vendors that meet those needs.
3. Vendor evaluation: Organisations then evaluate the proposals from vendors that match the RFP. When looking over the proposals, you need to keep in mind features, costs, and implementation approach.
4. Vendor selection: This is when you choose the vendor that matches what you’ve put on your RFP. It’s highly recommended, before you lock in a vendor, that you request demos and develop detailed discovery documents so you’re certain about your choice.

Accounts Payable Automation for Small Businesses

Small businesses don’t have the capacity to hire an entire accounts payable team or a finance department, and they cannot take the same risks as conglomerates. When a smaller business is starting out, its reputation—especially with vendors and suppliers—is very important.

This is when AP automation can relieve tension and pressure off small businesses. These are the ways small businesses can benefit from AP automation software.

1. Save Time: Time is precious for small business owners, so AP automation software removes the need for data entry, allowing you to focus on growing your company.
2. Reduce Risk: When manually handling supplier and vendor invoices, you run the risk of making mistakes. AP automation software handles the processing and payment of invoices.
3. Financial Savings: Small businesses do not have that much leeway when it comes to their bottom line. Every dollar counts, especially when you’re just starting out. AP automation helps companies save money as they don’t need to hire someone to handle AP; automation also allows them to invest their time and money on more important tasks.
4. Reputational Benefits: Reputation is an important pillar for small businesses. Mistakes occurring when paying vendors and suppliers could potentially impact a firm’s reputation and relationship with those vendors. Using AP automation software reduces the risk of errors, improving relationships with suppliers and vendors.
5. Security: With the increase in cybersecurity attacks and fraud, small businesses may not have the capacity to handle a breach in their organisation. The AP automation software has security capabilities to ensure that the correct amounts are going to the correct vendor.

Accounts Payable Automation With NetSuite

Automating accounts payable with NetSuite’s AP solution can help businesses—both large and small—save time, remove errors, and increase productivity. Automation is not just about digitising your workflow but also about freeing you up for more high-priority tasks.

NetSuite accounts payable automates the review, approvals, and payment of supplier invoices, giving you greater control over the full procure-to-pay process. Maintain detailed vendor records, create and manage purchase requests, and improve data accuracy by automatically matching invoices to the correct vendor and purchase order.

Automated journal entries eliminate the need to manually enter debits and credits, saving time and ensuring accurate payment recording.

NetSuite also provides real-time insights into the entire accounts payable process to reduce the potential for lost bills or fraudulent invoice payments.

AP Automation FAQs

What is an AP automation system?

An AP automation system is digital software that processes the accounts payable tasks automatically. The software turns vendors' and suppliers’ invoices into digital format, processes those invoices, and creates digital documents for paying vendors and suppliers. It can be hosted either on-premises or in the cloud.

What is AP automation vs. AR automation?

Accounts payable (AP) and accounts receivable (AR) are two concepts at opposite ends of the spectrum. AP is the money an organisation owes to its suppliers and vendors, whereas AR is money that customers owe to an organisation.

In a similar vein, AP automation is different to AR automation. AP automation is the automatic process of handling invoices, paying invoices, coding, and reconciliation. AR automation is the process of digitally automating tasks and processes that revolve around the finances owed to an organisation.

Is AP automation worth it?

AP automation should be considered by organisations that feel consistently time-poor and by finance teams that struggle to keep up with the influx of invoices.