What is Accounts Payable Automation?
Accounts payable (AP) automation is the elimination of manual tasks and cost to pay invoices.
AP automation will help your organization:
- improve efficiency—saving time and money
- grant stakeholders increased visibility into the AP process
- save on accounting hiring costs
- eliminate human error
If you’re looking to improve and modernize your accounts payables process, AP automation would be your starting point. It empowers you to streamline your operations, do more with fewer resources and in less time, and limit human input into menial functions.
What is the accounts payable process?
The accounts payable process is:
- Get a quote
- Contract negotiation
- Contract signature
- Invoice collection
- Invoice processing
- Invoice approval
- Invoice payment
Some organizations also include a purchase order approval process before receiving a quote.
Get a quote
You could have just one or several vendors vying to meet your organization’s supply requirements. At this stage, the supplier submits a quote outlining the quantity and quality of supplies they are able to provide and at what price point.
Alternatively, where you have an existing vendor relationship, your vendor wouldn’t need to submit a quote. Rather, you’d issue a purchase order detailing the quantity and other order specifications of the product you’re seeking under the terms of the existing agreement.
When a vendor sends over a quote (say, via email), it can then be collected and stored in your vendor’s folder for later reference in the manual AP process.
Following the initial quote, you may enter into a negotiation to reach a compromise between how much the supplier is willing to sell for and how much you want to pay.
This requires you use a system built out with sufficient security features to protect sensitive information. Unfortunately, many organizations rely on email and Word docs for the back-and-forth of the negotiation stage.
Once an agreement has been reached, the next is for both parties to sign off on the contract. This contract will form the basis for future orders.
Without AP automation, you’d have to run the entire contract negotiation stage manually, and rely on emails, word docs, and spreadsheets attached via email. This method is slow, inefficient, and easily prone to being compromised.
After a vendor delivers the products or services they’re contracted to, they will send over an invoice for the goods rendered.
The invoice should state the product or service delivered, plus other specifications such as quantity, quality, and pricing.
The procurement team member confirms that the invoice provided by the vendor is accurate before forwarding it to an accounts payable inbox (i.e. email@example.com).
Invoice processing involves verifying an invoice by matching it with a purchase order or quote, and transcribing the data into your accounting system.
The finance team is charged with transferring information from the vendor’s invoice into an accounting platform. Some of the details required include the product or service delivered, amount payable, issue date, due date, invoice number, and any special comments.
Once the invoice is transferred into the system, it should be mapped to the appropriate ledger account and classified as an expense due.
The next step is to get the invoice approved by the appropriate stakeholders in the accounts payable process.
Once input in the system, accounts staff must get approval from the appropriate authorities within the organization to complete payment. Many organizations have begun giving accounts staff permission to settle invoices below certain thresholds and only escalate for approval when dealing with a larger amount.
Before an invoice is paid, the accounting department should run through a checklist to ensure the company obtains the most favorable payment terms possible and isn’t exposed to risk. This checklist includes questions such as:
- Was the service delivered? If your organization uses three-way matching, you can match invoices with purchase orders and supply receipts to confirm the authenticity of an invoice.
- Are there early payment discounts? There may be discounts for settling an invoice on time.
- Can we pay this and hit our cashflow goal? The timing of invoice payments can determine whether your cash flow is positive or negative for the period.
With confirmation from the appropriate authority, accounts staff can proceed to pay an invoice via check, ACH, or card—depending on which payment channels they support or that their vendor can accept.
Looking at the workflow detailed above, we can agree on a few points. Manual AP operations are time-consuming, create a lot of room for error, and tie up finance’s talents with tasks that can easily be automated.
How do you automate accounts payable?
By using software to standardize and execute the entire process. Accounts payable isn’t a creative process. Success in accounts payables means doing the same thing quickly and consistently. This is a perfect workflow to optimize with software.
With an automated accounts payable workflow, you can:
- collect invoices via specific modules to match with existing vendor contracts
- loop in the procurement buyer to cross-check with their purchase order and approve quickly
- automatically channel invoices to the accounts team
- automatically match invoices with purchase orders and receipt orders
- involve authorizers and obtain their approval to settle invoices
Accounts payable automation leverages software to complete most of the tasks you’d otherwise have to do manually—with a lower margin of error.
Unlike manual accounts payable operations that require that you send invoices back and forth via email, an automated accounts payable workflow empowers your entire organization to minimize manual tasks, eliminate human error, and focus on other value-add projects.
Automating your accounts payable operations streamlines the entire process so your organization can be more agile with invoices. This is done by processing data faster and automatically transferring information where it needs to be. For more on this, read our guide on better invoice management and payments.
No more endless email threads or back-and-forth on attached documents before you have an agreement. AP automation simplifies tasks and empowers your team to focus on more intensive work. It also lowers your cost per invoice.
What are the benefits of accounts payable automation?
You save money, reduce errors, and avoid last minute surprises that can impact your monthly net cash flow.
Lower your cost per invoice
A manual AP workflow involves several touchpoints where you need direct human input to keep your work flowing:
- collecting invoices via email
- confirming invoices side-by-side with a purchase order and clearing any discrepancies with the vendor
- rerouting invoices to the accounts department
- matching invoices with purchase orders and supply receipts
- confirming with all related stakeholders before issuing payment
All these touchpoints are manually completed when you’re running a traditional AP sequence. This creates a pileup of work at accounts that’ll require more hands on deck to keep the process going as your business grows.
Automated accounts payable provides cost savings that can be channeled elsewhere to help you achieve revenue targets.
Employees manually analyzing data is a recipe for disaster. People inevitably overlook things and miscalculate, misanalyze, and even overanalyze.
Software, on the other hand, requires that you set it up, specify instructions, create rules, and define what your workflow will look like just once. After that’s done, you can set and forget it and it’ll keep running smoothly.
Avoid surprises that disrupt cash flow
One big disadvantage of manually running AP operations is that you never have a big picture view of what’s happening with your invoices. There’s no way to track invoices, determine whether there are enough funds to settle them, verify your vendors’ accepted payment channels, and if there are any penalties for late payments. This leaves a lot of room for nasty surprises and last-minute rushing.
An automated AP processing system keeps track of invoices so you can stay informed and plan accordingly before they’re due.
Save time, so you can do more interesting things
Not only does manual AP require more hands to keep it running, but it cuts into time your finance staff could otherwise invest in more productive tasks.
An automated AP process limits the need to execute tasks manually and frees your team to focus their energy elsewhere.
AP automation software guide
Automation holds the key to success. This is simply because it leverages the power of software to work harder, faster, and more accurately than humans can.
Here are several of the best accounts payable automation solutions you should be looking at to transform your manual processes.
Bill.com is a full-stack AP solution that promises to streamline your accounts payable operations so you can spend 50% less time processing invoices.
The platform offers automated invoice collection, review, approval, and payment in one place—essentially eliminating the need to string together Excel, email, and other tools to manage your accounts payable process.
Bill.com’s automated accounts payable toolkit includes:
- An invoice inbox where buyers can forward invoices for OCR to capture invoice data. This eliminates the need for manual data entry, reviews, and approvals.
- Approval workflows that highlight who signs off and where on each invoice
- Streamlined payments that settle once you sign off. You can pay suppliers via ACH & wire vs. manually writing dozens of checks weekly
- Auto-sync and reconciliation with your accounting tools
AvidXChange is what you get when you combine powerful purchase ordering, invoice management, and bill pay into one tool. AvidXChange is equipped with advanced features so you can collect invoices, extract data from them with OCR, settle them electronically, and move all that data right into your accounting app with ease.
Although a younger entrant into the accounts payable field, Stampli offers a solid accounts payable product that includes invoice management, approvals, and payments. Stampli simplifies the process of capturing invoice data, authenticating, and making payments on them.
Mineraltree doubles down on the AP process with a solution that streamlines the accounts payable process into one you can easily set up and run with minimal tinkering.
Want to get an invoice recorded into the system? Simply scan or send it to your invoice inbox and Mineraltree’s OCR will take it from there. Or maybe you need approval before working on an invoice? Mineraltree generates approval processes that managers and approvers can complete in seconds to keep the ball rolling.
Finally, with authorization and security being the last step, Mineraltree collects authorizations from responsible staff via a clean UI before settling invoices.
As well, Mineraltree integrates with a huge number of ERP systems to enable users to sync their product line easily into the invoicing process.
Tipalti, like Bill.com, is one of the more popular AP providers out there—and for good reason.
- Vendor management features
- Powerful workflows for automating your AP
- Granular controls over the entire AP process
- Global payouts with multiple currency support and instant invoice settlement
Tipalti is designed to serve as a one-stop toolkit for medium to larger organizations that can better leverage the variety of tools it offers for simplifying the accounts payable process.
What is spend management software?
Spend management is the process of controlling your cash outflows.
Invoices are just one way your company spends money. And using software to automate manual tasks isn’t unique to just ap automation.
Spend management software gives you control and visibility over all of your spend, while automating tasks. This includes employee expense management, payroll, rent, investments, and managing to your net cash flow targets.