What is AP Automation?

In today's fast-paced business environment, efficiency is the key to maintaining a strong competitive edge. One area where businesses can significantly improve in efficiency is in their accounts payable processes. 

Accounts payable automation, or AP automation, is the use of technology to streamline and automate the tasks involved in managing a company's payables. This includes the receipt, processing, and payment of invoices. By using AP automation, your business can reduce manual effort, minimize errors, and improve overall financial control.

Here is everything you need to know about AP automation, including the challenges it solves, its benefits, and how to find the right platform for your business.

What is AP Automation?

AP automation involves using software solutions to handle the tasks traditionally performed manually in the accounts payable department. These tasks include data entry, invoice processing, approvals, and payments. 

The goal of AP automation is to make these processes more efficient and accurate, allowing your business to manage your payables more effectively and with fewer resources. Invoices are typically received electronically in the AP automation framework. You can accept invoices either via email or a dedicated payment portal. 

The software then extracts irrelevant data from the invoices, such as vendor information, amounts, and dates. Your platform will automatically enter the data into the company's accounting system, eliminating the need for manual data reentry. 

The invoice is then routed for approval according to predefined workflows, ensuring that they are reviewed and approved by the appropriate personnel. Once you approve them, the invoices are scheduled for payment, which can also be automated to help ensure timeline-accurate payments. 

Avoiding delays in AP processing can promote better relationships with your vendor partners and minimize friction with clients.

How Do Accounts Payable Automation Solutions Work?

AP automation solutions perform a multi-step process to capture, analyze, and use invoice data. Stage one involves receiving electronic invoices in formats such as PDF, EDI, or through a dedicated online portal. 

You can also convert paper documents to digital ones. Advanced optical character recognition (OCR) tech can be used to extract data from scanned paper invoices. Your platform will then validate the data against predefined rules and cross-reference it with purchase orders to help ensure accuracy. 

Validated invoices are then routed through the automated workflows for approval. You can customize these workflows to match your organization’s approval process and help ensure that validated documents are sent to the appropriate team member.

Once you or your designee give the invoice the green light, the system will automatically schedule the invoices for payment. You can process payments through various methods, such as wire transfers or checks. The software will automatically record the transaction in your integrated accounting system.

The top AP automation solutions help provide real-time reporting and analytics capabilities. You can use these tools to track your payables, monitor cash flow, and gain insights into spending patterns. 

Traditionally, you would have to gather this data and perform the reporting process manually. The old-school approach further compounds the time investment required for manual accounts payable processing. 

Integrating your automated platform with your enterprise resource planning (ERP) system will help provide even more value. An integration will help ensure that data flows seamlessly from the AP system to the ERP, keeping your data accurate, up-to-date, and consistent across all platforms.

Challenges With Manual Accounts Payable

It’s easy to fall victim to the “If it ain’t broke, don’t fix it” mentality when it comes to accounts payable. After all, if cash flow is stable and your invoices are getting paid on time, why change anything? 

In reality, manual accounts payable processes are very broken, and they could be holding your business back from maximizing profitability. 

Here are some of the many challenges your company will run into while processing APs manually:

Data Entry Errors

People make mistakes. Even the most diligent workers are going to mess up from time to time. While many of these errors may be relatively minor and easy to fix, others could take weeks to discover and drastically impact the accuracy of your accounting records. 

These mistakes could lead to compliance issues, discrepancies in your accounting records, and other problems that are extremely costly and difficult to fix. Some potential repercussions include overpayments, duplicate payments, or late payments. Regardless of which of these errors you encounter, someone will be negatively affected.

Wasted Time

Is manual accounts payable processing really the best use of your team's time? Manual AP processes are incredibly time-consuming and labor-intensive. Your AP staff must spend considerable time on tasks such as opening mail, entering data, and chasing approvals. 

Their time and energy could be better spent on more strategic activities that help your business accomplish its long-term goals. Cutting back on wasted time is one of the keys to taking the next steps in your business. Freeing up your existing workforce to focus on more dynamic activities will allow you to seize new opportunities without taking on bloated payroll costs.

Lack of Visibility

Do you have a real-time view of your accounting procedures and workflows? If you're still processing accounts payable manually, the answer is probably not. Manual processes make it difficult to track the status of invoices and payments. 

This lack of visibility can lead to missed payment deadlines, late fees, and strained relationships with your vendors. Promoting better visibility and giving yourself access to real-time data will lead to better decision-making. You can evaluate the state of your business using accurate, up-to-date data and identify risk or potential problems with cash flow before negatively impacting your bottom line.

Approval Bottlenecks

Think about your own business for a moment. How many people are authorized to approve accounts payables before the invoices are finalized and your vendors are paid? If only one or two people are allowed to approve AP invoices, you could face approval bottlenecks that lead to delayed payments and frustrated vendors.

While it is important to limit who can approve accounts payable requests, you also need to ensure that pending requests are approved efficiently so that your vendors receive prompt payment. Automating the approval process will help ensure that pending invoices get to your desk sooner while preventing your team from having to spend time chasing you down to get a signature.

High Processing Costs

The cost of filing an invoice and issuing payment manually can be significant when you consider factors such as:

• Labor
• Paper
• Printing
• Mailing 

These costs can add up quickly, especially if your business engages in a large volume of transactions.

Fraud Risk

Manual accounting processes are more susceptible to fraud and unauthorized payments. Without proper controls and audit trails, it's easier for fraudulent invoices to go unnoticed for weeks or potentially even months.

Digitizing your AP invoices makes it much easier to conduct audits, analyze trends, and identify suspicious behavior. If you notice something unusual, you can quickly launch an investigation and determine whether it was an honest mistake, an instance of fraud, or something else entirely.

A Lack of Scalability

Growing your company is undoubtedly one of your many goals as a business leader. While most scaling issues focus on the front-end side of operations, such as processing orders and maintaining inventory, you’ll also need to ramp up back-office activities, including AP processing.

Bringing in even one new accounting staff member will cost you tens of thousands of dollars every single year. If you hire more employees too soon, your payroll expenses will become bloated and encumber long-term growth. If you wait too long to give your AP processes extra help, they may face feelings of burnout and frustration.

7 Benefits of AP Automation

Implementing an accounts payable automation solution is the clear path forward for your business. Here are seven key benefits of making the jump:

1. Increased Efficiency

Automating AP processing significantly reduces the time and effort required to verify documents and make payments. You can automate data capture, validation, and other workflows related to accounts payable, allowing your accounting staff to focus on more value-added tasks.

2. Improved Accuracy

Do you want to leave accounting errors in the rearview mirror for good? Automation minimizes the risk of human error and data entry and processing. Your staff will no longer have to engage in tedious and redundant tasks that increase the risk of a typo or other data entry error. 

They can use this additional time to tackle more important tasks that help deliver meaningful value to the organization.

3. Enhanced Visibility

Manual AP processes can often leave you feeling like you're working in the dark. You won't have a clear view of cash flow or short-term outgoing expenses. Through automation, you can gain access to real-time insights into cash flow invoices and pending payments. 

This data helps you manage your cash more effectively and helps ensure you have the liquidity necessary to seize emerging opportunities.

4. Faster Approvals

Accounts payable automation sets the stage for faster document approvals and less wasted time. Your team can automatically forward documents to you when they are ready for your signature, and you can give your final approval electronically from anywhere. 

This feature gives you the freedom to address your other responsibilities without inadvertently causing delays in accounts payable processes.

5. Cost Savings

Freeing up capital and eliminating waste are some of the keys to long-term business growth. Automation can drastically reduce your AP-related labor costs and allow you to tap into critical resources for other business tasks. You’ll also be able to reduce or eliminate printing, mailing, and paper-related expenses.

6. Reduced Fraud Risk

Digitizing your AP processes allows you to monitor and track everything. You can quickly identify abnormalities in accounts payable requests and better safeguard your business against instances of fraud. 

Automation technologies will match invoices with purchase orders and contracts to help ensure that only valid AP requests are paid.

7. Scalability

Accounts payable automation sets the stage for business growth. As the volume of transactions you engage in increases, your automation technology can easily scale up to meet changing demands. You can take on more AP invoices without needing to hire more staff or drive up payroll costs.

How to Select AP Automation Software

Choosing the right AP automation software is crucial for maximizing the benefits outlined above and ensuring a smooth rollout of your new technology. 

Here are some key factors to consider when selecting accounts payable automation software:

Identify Your Motivation

While you're understandably excited to start exploring technologies and making a wish list of features, the first thing you need to do is identify your motivation for automating accounts payable. Be specific. List out your goals, what benefits you hope to achieve, and how investing in such a technology will impact your business both in the short and long term.

Make sure that your goals are clear and measurable. Identify what will count as a success and what metrics you will use to help ensure that your new technology investment is delivering the expected return on investment (ROI). 

Having a clear plan in place will help you mobilize stakeholders and encourage your employees to buy into the initiative.

Determine Must-Haves and Nice-to-Haves

After you determine why you're investing in accounts payable automation software, make a list of your must-have features. These items should be your non-negotiables. If the software you're considering doesn't have one of these capabilities, you should immediately remove it from your list.

You should also make a list of nice-to-have features. These are add-on tools and capabilities that you prefer to have in your software but you're willing to compromise on to make sure all of your must-have boxes are checked.

Create a Short List of Potential Solutions

Use your criteria to identify a handful of potential software solutions that align with the needs of your business. While there are dozens of solutions out there, try to limit yourself to only four or five options that would work for you. 

Do plenty of research and get team members from every level of your organization involved in the selection process, especially your account payable employees, as they will be using these tools every day.

Take Advantage of Demo Opportunities

The best way to determine whether an AP automation software is right for your business is to try it out. Top solutions providers are confident in their products and are more than willing to schedule a demonstration so that you can see the tool in action. 

Take advantage of these demo opportunities and gather feedback from your team after each session. Be critical during demonstrations. Make a list of what you like, what you don't like, and any questions you may have.

Gather Feedback and Make a Decision

Have a conversation with your staff and decide whether a solution is still in contention or if it can be crossed off your list. Encourage everyone to be open and honest during these meetings. Make sure that they know that you value their feedback and want to hear criticisms of the solution you are considering.

Remember, people from various levels of your organization can each help provide a unique perspective on the good and bad of AP software. For instance, one of your accounting team members may be able to offer a perspective or take that you had not thought of because you are looking at the solution from a high level.

The Role of ROI in AP Automation

The concept of accounts payable automation is incredibly exciting. It can save you and your team time, reduce errors, and cut costs. However, any conversation about implementing new tech will always boil down to two things — ROI and time to value. 

Are you going to get enough bang for your buck? How long is it going to take your business to reach a break-even point? The good news is that AP automation technologies excel in both regards. Once your platform goes live, you’ll realize near-instant cost savings and begin recouping some of your initial investment costs. You’ll also unlock long-term savings via labor efficiency gains and reduced need for accounting staff. 

AP automation tech also helps provide some benefits that are difficult to quantify in terms of ROI. One of the most notable perks includes improved vendor relationships. Everyone likes getting paid in a timely manner. Improving the accuracy and efficiency of your AP processes can enhance vendor relationships, lead to better terms, and potentially open the door for discounts.

Learn More About AP Automation

Accounts payable don’t have to be a pain point or source of inefficiency for your business. You can transform it into one of your greatest strengths with the right set of tools and a few strategic integrations. Epicor offers robust AP automation technologies that you can use to become more efficient and nimble at accounts payable processing. 

Contact us our team to learn more. Let’s jumpstart your journey toward better efficiency and long-term cost savings.