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What is AP automation? A complete guide to accounts payable automation

6 minutes read
Published on 15-02-2024

Accounts payable (AP) is a financial function within the accounting department that safeguards corporate cash by controlling the flow of payments to vendors. The main responsibility involves the reviewing, allocation and processing supplier invoices to ensure they are paid accurately. Nestled between an organizations’ procurement and payments functions, it ensures that vendor invoices are legitimate (not fraudulent), correct, and are “OK to pay”. 
Primarily a manual operation, organizations implement Accounts Payable automation solutions to improve the speed and accuracy of the AP process.  The solutions are a prime example of how organizations can apply modern technology to streamline financial operations and improve productivity. In this comprehensive guide, we will explore what AP automation is, its many benefits, and some key factors to consider when choosing the right solution for your business.

AP Automation Guide topics:

1.    How does AP Automation work?
2.    Why is AP Automation important for businesses?
3.    What are the benefits of AP Automation?
4.    Problems of manual accounts payable processes
5.    What AP Automation can help with
6.    What is the cost of AP Automation?
7.    Typical costs of AP Automation Solutions    
8.    What ROI can you expect from implementing an AP Automation solution?    
9.    What to look for when selecting an AP Automation vendor/software
10.  Serrala AP Automation AI-enabled software    
11.  FAQ - Frequently asked questions    


What is AP Automation?

Accounts Payable Automation, often referred to as AP Automation, employs technology and software to manage and streamline the accounts payable function within an organization. It automates tasks such as invoice processing, vendor communication, approval workflows, and payment management. The purpose of AP automation is to create a streamlined, more efficient process, transforming this vital part of an organization’s operations from a time-consuming manual exercise to a seamless, hassle-free proceeding.   

By eliminating manual, paper-based processes, AP automation brings increased efficiency, accuracy, and cost savings to the accounts payable department.

 

How does AP Automation work?

Accounts Payable automation solutions replace the manual, time-consuming tasks performed by AP teams with efficient, automated processes. Let’s take a look at a few of the key aspects of how AP automation works.

Electronic Invoice capture

Electronic invoice capture is the first step in AP automation. E-invoicing involves the digital processing of invoices, extracting relevant data such as vendor details, invoice numbers, amounts and dates. AP automation systems can capture invoices in various formats, such as PDF, XML, EDI or scanned paper invoices and may be delivered by email, through supplier portals, or using FTP or web services. This digitization eliminates the need for manual data entry, reducing errors and speeding up the processing of invoices.

Automated Invoice Verification 

In AP automation, digital invoice data undergoes verification through data-matching algorithms. These algorithms cross-reference invoice details with purchase orders (PO) and goods receipts (GR) to validate the information, preventing fraud and ensuring accurate receipt of goods or services without price or quantity discrepancies. Advanced systems can automate payment posting upon achieving a 3-way match (PO, invoice, and GR) or a 2-way match (invoice and GR), streamlining the verification process.

Automated approval and Exception handling workflows

After verification, invoices that cannot be automatically posted will be processed using automated workflows. Approval workflows route invoices to buyers for review and approval. Exception handling workflows route invoices with a vendor, price, quantity, or tax discrepancy to the appropriate business user for resolution. The workflows can be tailored to your organization's specific requirements, with designated individuals or departments reviewing and approving invoices electronically based on the vendor, cost center or other criteria. The system sends automated reminders and escalations to business users to ensure invoices are processed as quickly as possible.

Payment Facilitation

Once an invoice is processed, it is posted for payment. At this point, the accounts payable department can facilitate payments based on the vendor’s predefined payment terms. It can automatically schedule payments, taking into account discounts for early payments, to ensure vendors are paid accurately and on time.

Reconciliation reporting

The flow of funds to vendors can be tracked by the AP automation software in real-time. The software can instantly generate reconciliation reports that provide the accounting team with insights into actual and planned cash flows. Having detailed information on outstanding payments, allows organizations to manage cash flow more effectively and make informed financial decisions.

Archiving and auditing

Finally, AP automation systems archive all relevant documents, ensuring easy access for future reference and audits. This not only keeps your records organized but also aids in compliance with regulatory requirements. The system can generate audit reports that facilitate responses to periodic internal and external audits, further enhancing transparency and accountability across the entire automated accounts payable process.

Why is AP Automation important for businesses?

Organizations continually strive to improve efficiency, reduce costs, and enhance their overall operational performance, and automating accounts payable through the utilization of software solutions has emerged as a game-changer in this regard. It offers a host of benefits that make it a critical tool for businesses of all sizes. Let’s take a look at a few key reasons why AP automation is important for businesses:

Streamlining Processes

Traditional, manual accounts payable processes are inherently time-consuming and prone to errors. With AP automation, routine tasks like data entry, invoice matching, and approval workflows are automated, reducing the time required for invoice processing. This streamlined process not only accelerates operations but also ensures greater accuracy in financial transactions. As a result, employees can redirect their focus towards more strategic tasks, adding value to the business.

Saving Time and Money

One of the most significant advantages of AP automation is the significant time and cost savings it brings. Reduced reliance on manual labor for data entry and processing translates into lower operational costs. Moreover, automating payment processes can lead to early payment discounts, saving businesses even more money. This newfound efficiency results in faster vendor payments, improving relationships and potentially opening doors to more favorable terms.

Processing More Invoices without Increasing Staffing Levels

As businesses grow, so does the volume of financial transactions. This growth often necessitates hiring additional accounting staff to manage the increased workload. AP automation solutions alleviate this need by enabling staff to handle higher transaction volumes with ease. The solutions can auto-post simple invoices based on defined business rules and help staff complete complex processing tasks with less effort. This way, organizations can rapidly expand the business and keep administrative overhead under control.

Businesses That Benefit the Most from an Automated AP workflow

AP automation can benefit a wide range of businesses, but there are a few types of enterprises that will really make the most of a streamlined process.
For example, large enterprises that handle a high volume of invoices can really benefit, as the optimization of routine tasks on a large scale can have a massive impact in terms of saving time and money.
Retail and ecommerce companies can also benefit, as processing high volumes of supplier invoices and payments can be made more efficient.
There are clear benefits for manufacturing, hospitality, finance and service-based companies too. On the whole, any business that deal with suppliers and invoicing on a significant scale will benefit from AP automation. 

What are the benefits of AP Automation?

Embracing AP automation is not just a strategic move; it's a vital step toward staying competitive and resilient in the evolving business landscape. The benefits of AP automation include reduced costs, improved efficiency, enhanced financial control, and more. 

Reduced Costs and Overheads

AP automation reduces costs and overheads by eliminating the need for manual data entry, physical storage of documents, and paper-based processes. Automation streamlines the AP workflow, reducing the time and labor required for tasks like invoice processing, approval, and payment processing. 

Improved efficiency and Accuracy from errors

AP automation improves efficiency by automating routine tasks and reducing the potential for human errors. It aids the processing of invoices, minimizes the risk of data entry mistakes, and ensures that invoices are matched accurately with purchase orders and receipts. With AP automation, invoices are processed accurately and efficiently, saving time and resources.

Improved Time efficiency

AP automation expedites the entire accounts payable process, enabling faster invoice approvals and payment processing. Invoices move through the system at a much faster pace thanks to automated workflows. These workflows not only accelerate the time to payment but also streamline operations, allowing staff to concentrate on more strategic activities that drive the business forward. Improved time efficiency also benefits suppliers who receive payments sooner, potentially leading to better relationships and negotiated discounts.

Financial visibility & control

Automated accounts payable processes increase visibility and control over vendor payments. Organizations gain real-time insights into financial data so they can monitor cash flow, track spending, and analyze vendor performance, which enhances their decision-making capabilities.

Compliance & fraud prevention 

AP automation includes built-in controls and audit trails that help organizations meet compliance requirements. The system enforces approval hierarchies and processes, ensuring adherence to internal policies and external regulations. Moreover, automation systems can detect and prevent fraud by flagging irregularities or unauthorized changes in the AP process, contributing to a more secure financial environment.

Real-time reporting 

Automated accounts payable solutions often offer real-time reporting and analytics capabilities. These reports provide instant insights into spending patterns, payment history, and other financial data. This transparency empowers organizations to pivot and adapt quickly in a dynamic business landscape.

ESG Sustainability

Environmental, Social, and Governance (ESG) sustainability is a growing concern for businesses. AP automation reduces the environmental impact by significantly reducing paper usage, contributing to sustainability initiatives, and demonstrating a commitment to responsible business practices.

Problems of manual accounts payable processes

Manual AP processes have long been the standard in the world of finance and accounting. However, these traditional methods can cause a number of issues to arise, which can be mitigated by implementing an automated process. Let’s consider a few problems caused by using a manual accounts payable process. 

Manual data entry

One of the most significant challenges of manual AP processes is the need for extensive data entry. Data entry is a labor-intensive, time-consuming task that often involves transcribing data from invoices, purchase orders, and other documents into accounting systems. Not only is this process tedious, but it's also highly susceptible to human error.

Time consuming 

Entering invoice data manually into an ERP of financial accounting system is incredibly time-consuming. It takes time for AP users to handle, sort, and route paper invoices for review and approval.  This can quickly lead to a backlog which could ultimately slow down operations and damage relationships with suppliers.

Human error

Manual data entry can be a monotonous task, which increases the likelihood of mistakes being made. Even the most diligent employees can make mistakes, which can lead to inaccuracies, potentially resulting in overpayments, underpayments, and reconciliation issues. 

Invoice tracking and management

Manual invoice tracking and management is time-consuming and prone to errors, especially when dealing with a high volume of invoices. The risk of lost invoices is a significant concern in manual processes. Managing a large number of invoices manually slows down the overall process, requiring careful attention to ensure accurate payments and proper data logging. Switching to an automated accounts payable system eliminates these issues, creating a more efficient and error-resistant invoice management process. 

Delays and inefficient processes

A manual accounts payable process can ultimately lead to delays and inefficiency. Whether it’s the slow process of tracking invoices, routing approvals or the hassle of having to deal with paper documents, there are many in the process that can lead to delays and ultimately impact a company’s ability to operate steps efficiently. 

What AP Automation can help with

Accounts Payable automation solutions offer a comprehensive set of tools to reduce manual work, streamline operations, and enhance efficiency. Let's delve into how AP automation transforms various aspects of accounts payable.

Automated Compliance

AP automation ensures adherence to regulatory requirements by automating compliance checks. It eliminates duplicate invoices, detects potential fraud, and verifies that all transactions comply with global and local financial regulations. The solutions reduce the need for manual audits and ensuring the organization stays on the right side of the law.

Automated data entry

Manual data entry can be reduced through automation by capturing and digitizing invoice data, minimizing the risk of data inaccuracies and duplicate entries.

Automated Expense management

Accounts payable automation streamlines the expense management process by automatically processing and categorizing expenses, making it easier to track and manage corporate spending.

Purchase Order Management

Automation through AP software links invoices to purchase orders, verifying that goods or services were received. This automation reduces manual effort in cross-referencing and minimizes the risk of overpayments.

Fraud detection

Advanced algorithms and AI-driven capabilities enable AP automation to identify suspicious patterns and detect fraud. It helps protect the organization from fraudulent activities and potential financial losses.

Invoice matching

 Processing accounts automates the matching of invoices with purchase orders and receipts. This meticulous matching process reduces the risk of errors and discrepancies, streamlining the verification process.

Vendor Management

Through automation your business maintains vendor profiles, tracks vendor performance, and streamlines communication with suppliers, improving vendor relationship management using a B2B Vendor Portal.

Payment Scheduling

Facilitate payment scheduling based on due dates and terms, ensuring that payments are made on time and optimizing cash flow management by automating your accounts function.

Reconciliation

Automate the reconciliation process, ensuring that financial statements and records match, thus reducing the need for manual reconciliation and eliminating errors.

Analytics and Reporting

Accounts payable automation provides real-time reporting and analytics, offering insights into spending patterns, vendor performance, and cash flow. This data empowers businesses to make informed decisions and plan strategically without the need for manual data compilation.

What is the cost of AP Automation?

The cost of implementing AP automation solutions can vary significantly depending on the size of your organization, the complexity of your existing processes, and the specific features and capabilities you require. While there's an initial investment, the long-term savings and benefits can be substantial.

Typical Costs of Accounts Payable Automation Solutions

1. Software Licensing and Implementation: The core cost involves purchasing or subscribing to the AP automation software. The pricing model may be subscription-based or involve a one-time purchase fee, which can range from a few thousand dollars to several hundred thousand dollars for large enterprises.
2. Integration: If you require integration with existing accounting systems or other software, there may be additional costs for integration services. This can vary based on the complexity of your systems and the extent of integration required.
3. Training and Support: Training your staff to use the new system effectively is essential. Training costs will depend on the complexity of the software and the number of employees who need training. Ongoing support and maintenance costs are also a consideration.
4. Hardware and Infrastructure: While many AP automation solutions are cloud-based, some organizations may need to invest in additional hardware or infrastructure to support the software.
5. Customization: If your organization has unique requirements, customization of the software may be necessary, incurring additional costs.

What ROI can you expect from implementing an AP Automation solution?

The return on investment you can achieve by implementing an AP Automation solution depends on your strategic goals. Streamlining workflows, reducing error-prone manual work, preventing fraud, and increasing controls can deliver significant benefits, but performing an ROI analysis will help you determine the potential time and cost savings you can expect based on your existing process. To understand the potential ROI of AP automation for your business, use Serrala’s AP calculator to see just how much you and your organization could save.

The potential savings from AP Automation include:

1. Reduced Operational Costs: By automating manual tasks, such as data entry, invoice processing, and approval workflows, you reduce the need for manual labor, paper, and office supplies. This leads to significant cost savings over time.

2. Improved Efficiency: AP automation streamlines processes, enabling faster invoice processing and approval, which can result in early payment discounts. This efficiency contributes to cost reductions and better cash flow management.
3. Reduced Error Rates: Automation significantly reduces the risk of errors, such as duplicate payments or incorrect data entry, which can lead to costly mistakes and disputes.
4. Better Vendor Relationships: Timely payments and improved communication with vendors often lead to more favorable payment terms and discounts, further enhancing savings.
5. Enhanced Financial Control: Real-time reporting and financial visibility can help identify areas where costs can be optimized and enable better decision-making and audit responses.

While the initial costs of integrating an AP automation process can vary, the potential for savings is substantial and often justifies the investment. It's crucial to conduct a cost-benefit analysis specific to your organization to determine the precise return on investment (ROI) you can expect from automating your accounts payable function.

These savings provide both financial and non-financial benefits that will give organizations a competive edge.

What to look for when selecting an AP Automation vendor/software

When considering an AP automation software solution, carefully evaluate the various aspects of the solution to ensure it aligns with your business needs and objectives.
To help you make an informed decision, here is a list of questions to consider.

Basic Features:

1. Automation

  • Does the software automate common tasks like data extraction, validation, matching, and posting. 
  • How easy is it for users to define business rules that drive automation without requiring IT assistance?

2. Reporting and Analytics

  • Does the software provide robust reporting and analytics tools to monitor financial data and invoice processing?

3. User Interface (UI)

  • Is the UI intuitive and easy to use, facilitating efficient adoption by your team?
  • Can you customize the UI to suit your specific workflow requirements?

4. Integration with ERPs/Accounting Software

  • Is the software compatible with your existing ERP/accounting software?
  • What integration options are available, and how seamless is the integration process?

5. Flexible Deployment Options

  • Does the software offer flexible cloud-based solutions, on-premises options, or both?
  • What are the advantages and disadvantages of each deployment method for your organization?

6. Customer Support

  • What customer support options are available, and what is the typical response time?
  • Is there a knowledge base, FAQs, or training materials for self-help?

Advanced Capabilities:

7. AI, ML and RPA

  • Does the software leverage artificial intelligence and machine learning to increase automation of complex tasks such as fraud detection?
  • How does AI enhance the efficiency and accuracy of the system?

8. Scalability

  • Can the software scale to meet the needs of your business as it grows?
  • Are there additional features or modules available to support scalability?

9. Training and Onboarding

  • What training options are provided for your team to effectively use the software?
  • Is there onboarding assistance to ensure a smooth transition to the new system?

10. Software Updates

  • How frequently does the software receive updates, and are they included in the subscription?
  • What is the process for implementing updates, and do they require any additional resources?

11. Company Size/Scale

  • Is the software suitable for businesses of your size and industry?
  • Are there specific features designed for different scales of operation, from small businesses to large enterprises?

By addressing these questions, you can make an informed choice that optimizes your AP processes and benefits your organization.

Serrala AP Automation AI-powered software 

Serrala AP automation solutions centralize and standardize processing of PO and Non-PO invoices across multiple locations, business units and enterprise systems. The SAP-embedded FS² AccountsPayable and cloud-native Alevate AP solutions enable organizations to capture vendor invoices digitally,  touchless processing of invoices and manage invoice processing, approval and posting from start to finish. 
Serrala AP automation solutions enhance global visibility and control over vendor payments and provide real-time information and detailed reporting and analytics to drive continuous process improvements within the AP organization. Organizations choose Serrala AP Automation solutions to: 

  • Maximize AP Speed & Accuracy: Reduce manual tasks and save valuable time and effort with automated invoice processing workflows that increase your 3-way match and straight through processing rates.
  • Establish a Global Invoice Processing Hub: Use the same standardized AP process for all invoices globally to increase efficiency, improve compliance, and support global shared services centers.
  • Handle Greater Invoice Volumes: Leverage intelligent robotic process automation to process more invoices, faster and with greater accuracy and quickly onboard new business units. 
  •  Flexibly Route Invoices for Approval: Send invoices to the appropriate individual for handling using flexible business rules that reduce the number of times an invoice is touched and adapt to your changing business needs. 
  •  View Real-time Invoice Information:  Gain greater insights into AP performance and quickly detect and resolve issues from a centralized dashboard that presents detailed invoice status information and the ability to drill down to transaction details. 
  •  Ensure Compliance: Automate process controls to meet legal, fiscal and industry requirements including country-specific e-Invoicing mandates, data privacy regulations and other standards. 

Our software can be flexibly adapted to meet your requirements, meaning you can streamline your accounts payable process in the way that works best for your brand. 
We have a proven track record of helping companies succeed through award-winning AP Solutions from Serrala, helping Zurich North America transform its financial transaction processing, helping Honeywell implement a single global AP process, and guiding GNS towards containing its payment costs and improving its payment security. 
Interested in finding out how Serrala’s AP automation services can help your business thrive?  Request a demo today and we’ll get you on the path towards a fully streamlined accounts payable process.

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FAQ - Frequently Asked Questions

Q: Why is AP automation important for a business?

A: AP automation is vital for businesses because it streamlines the accounts payable process, reducing manual work, and increasing efficiency. It results in cost savings, minimizes errors, and provides better financial control. Businesses can process invoices more quickly, improve vendor relationships, and gain real-time insights into their financial data. Additionally, AP automation helps with compliance and reduces the environmental impact by reducing paper usage.

Q: Who needs AP automation

A: Any business handling high volumes of invoices or payments will benefit from a fully optimized AP automation process. AP automation is also valuable for companies looking to scale rapidly without proportionate increases in staff. In essence, any business seeking to enhance financial efficiency, reduce costs, and improve accuracy can benefit from AP automation.

Q: Does AP automation improve the invoice approval process?

A: Yes, AP automation significantly improves the invoice approval process. It automates approval workflows, allowing invoices to move through the system faster, reducing approval bottlenecks, and ensuring timely payments. The system can also send automated reminders and escalations to buyers, who can then review and approve invoices using a web browser or mobile application. The ability to approve invoices anytime, anywhere enhances the overall efficiency and transparency of the process.

Q: How does AP automation prevent duplicate payments?

A: AP automation uses automated data matching to cross-reference invoices with purchase orders and receipts. When a duplicate invoice is detected, the system flags it and sends it back to the vendor, preventing double payments. Automatically detecting duplicates also reduces unnecessary work by the accounts payable team.

Q: Can AP automation handle cross currency and international payments?

A: Yes, many AP automation solutions are capable of handling cross-currency and international payments. They can automatically convert currency and ensure compliance with international regulations, making them suitable for businesses with global operations or vendors in different countries.

Q: What is the cost of AP automation?

A: The costs of AP automation will depend on your organization size and the volume of invoices you process. It's important to conduct a thorough cost-benefit analysis to determine the exact cost and the potential savings for your specific business. We recommend using Serrala’s AP calculator to evaluate the potential ROI of AP automation for your business. 

Q: What is AP automation vs AR Automation

A: AP automation focuses on streamlining the accounts payable process, automating tasks such as invoice processing and payment management. On the other hand, Accounts Receivable (AR) automation automates the processes involved in receiving payments from customers. While AP automation deals with outgoing payments, AR automation deals with incoming payments, including invoicing, payment processing, credit and collections. Both processes are essential for optimizing a company's financial operations, with AP focusing on payables and AR on receivables.

Further resources on AP automation

Explore some of our other resources covering the topic of AP automation.
•    Discover our step-by-step guide to calculating the potential savings of AP automation.
•    Learn how to reduce the cost of your accounts payable process and unlock efficiency with our AP automation solutions.

Interested in a demo? Get in touch today.

Learn more about our AP automation software.

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