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What Is AP Automation and How Does it Work? Complete Guide

Table of Contents

• What’s Accounts Payable Automation?
• The Problems with Manual Processes
• How does AP Automation Work?
• Common AP Tasks to Automate
• Benefits of Accounts Payable Automation
• Myths about AP Automation
• Does AP Automation Replace My ERP System?
• The ROI of AP Automation
• Can AP Automation Reduce Fraud?
• How to Automate Your Accounts Payable?
• How to Choose the Best AP Automation Solution
• Key Takeaways

What’s Accounts Payable Automation?

No, accounts payable automation doesn’t mean that a group of evil-possessed robots will come and replace your AP team. Quite the opposite, what AP automation does is to help your team to be more efficient. You’ll see instead of manually handling tasks like data entry, invoice approval, and payment scheduling, automation software takes care of it for you.

The Problems with Manual Processes

When we say that accounts payable is a tedious process, we mean it. Uploading all those critical invoice details into your system feels like a complete waste of time. The result? Your business ends up with such a slow process that you don’t have a clear idea of what’s happening, something that your supplier will resent, putting a negative mark on your relationships.

How does AP Automation Work?

Invoice capture

The software captures invoice data automatically, either by scanning physical invoices using Optical Character Recognition (OCR) or by extracting information from electronic invoices.

Data validation

The system checks for accuracy, double-checking critical details like invoice numbers, amounts, and vendor information.

Matching and approval

AP automation tools match invoices with purchase orders and delivery receipts. If everything aligns, the software can route the invoice for approval.

Approval workflows

Digital solutions allow you to set up custom approval workflows based on your company’s policies.

Payment processing

Once approved, the software can schedule and initiate payments based on the payment terms you’ve agreed to.

Reporting and analytics

AP automation solutions often come with reporting features that provide insights into your spending, payment cycles, and overall AP performance.

Common AP Tasks to Automate

• Data entry: Automation captures data faster and more accurately.
• Invoice matching: Three-way matching happens immediately.
• Approval routing: Digital routing speeds up approvals and tracks progress.
• Payments: Automation secures better relationships.

Benefits of Accounts Payable Automation

It saves time

One of the main benefits of automating is the time you save.

Error reduction

Automation software reduces errors by accurately capturing and validating invoice information.

Cash flow management

Automation improves your visibility into cash flow.

Faster approvals

Automated workflows speed up the approval process.

Fraud prevention

AP automation software includes features that help detect suspicious activity.

Better supplier relationships

Automation ensures timely payments, maintaining strong relationships.

Scalability

Using accounts payable software makes it easy to handle a higher volume of invoices without needing extra resources.

Data insights

Gain valuable insights into your AP operations with real-time reporting.

Myths about AP Automation

AP automation will replace my team: Automation isn’t meant to eliminate jobs but to make them easier.

It’s too expensive: Cost savings from reduced errors and improved cash flow outweigh the initial investment.

It’s only for big companies: Businesses of all sizes can benefit from AP automation.

Does AP Automation Replace My ERP System?

AP automation software is designed to work alongside your ERP, not replace it.

The ROI of AP Automation

Automating tasks can reduce labor costs and allows for early payment discounts.

Can AP Automation Reduce Fraud?

AP automation dramatically lowers the risk of fraud with built-in security features like user permissions and audit trails.

How to Automate Your Accounts Payable?

Assess your current process

Identify pain points in your current AP workflow.

Set clear goals

Define what you hope to achieve with AP automation.

Choose the right solution

Select a software solution that aligns with your requirements.

Train your team

Ensure your staff is knowledgeable about using the software.

Monitor

Once the software is in place, monitor its performance and gather feedback.

How to Choose the Best AP Automation Solution

• Ease of use: Choose a user-friendly solution.
• Integration capabilities: Ensure it integrates with your existing systems.
• Customization options: Look for customizable workflows.
• Security features: Look for robust security measures.
• Scalability: Choose a solution that can grow with your business.
• Reporting and analytics: Ensure it offers detailed reporting options.
• Customer support: Reliable support is essential.

Key Takeaways

• What It Is: Accounts payable automation uses technology to streamline tasks, reducing errors and boosting efficiency.
• How It Works: The software captures, validates, matches, routes, and processes invoices while integrating seamlessly with your accounting or ERP system.
• Key Benefits: Automation saves time, minimizes errors, speeds up approvals, enhances cash flow management, reduces fraud risk, and improves supplier relationships. It's scalable and provides valuable data insights.

Amy Deiko

• Amy is a procurement writer and MBA student passionate about innovative business processes.