Regardless of a company’s size, the accounts payable (AP) department fulfills an essential role within the organization’s overall operations.
Those team members ensure that the business purchases goods from a supplier or creditor and pays the balance back within a small window of time. If a company falls behind with its accounts payable obligations and cannot process invoices in time, it risks incurring late fees.
Even worse, a history of not paying suppliers or creditors could damage a business’s relationship with the entities it depends on to run successfully. Many companies are exploring the opportunity to conquer accounts payable challenges with automation.
What is accounts payable automation?
Accounts payable (AP) automation is a category of technological accounting and finance software solutions that focuses on streamlining many of the tasks and processes that are typically time-consuming and accomplished by hand.
This kind of automation also has significant potential to improve visibility into a company’s finances. You can imagine the catastrophes that could result if an employee loses an invoice, for example. Many automated solutions automatically import financial records into a digital system. Then, workers are no longer dealing with paperwork that’s easy to lose or even mistakenly discard.
What kind of processes are best suited for AP automation?
As you can probably imagine, there are plenty of processes that an accounts payable team could automate. Business decision-makers should ideally determine which of their current financial duties take the most time or are the most error-ridden. Here are some of the most commonly automated AP responsibilities.
Invoice/purchase order approvals
Automation facilitates automatically approving invoices or purchase orders that fall within the particular parameters you set. Or if a specific team member is the lone responsible party for allowing the processing of a company’s invoice or purchase order, an automated system can route those documents to the right person without delays.
Invoice status checks
Most of the leading providers in the AP automation space enable users to see the status of all outstanding invoices instantly. Users can also sort invoices by customer, the number of days unpaid, the amount due and more.
Invoice categorization upon arrival
Suppliers may send their invoices in a wide variety of different file formats while using several different fonts and ways of displaying the information in a digital format. Those variations can make it hard to extract the desired information from an invoice to properly categorize it. Optical character recognition (OCR) tools can understand the text on an invoice and sort it as needed as the document arrives.
Accounts payable automation can also save your employees time by checking the information on them against parameters set up in your system. If problems arise, the automation tool can alert the person responsible, prompting them to contact the right individual or company to address the discrepancy.
Invoice payment approvals and processing
Once the designated person approves an invoice for payment, an automated system can ensure that the funds go to the correct party on the right date. These benefits can prevent human errors that could result in an invoice unintentionally getting paid late.
Those are only some of the tasks you could automate in the accounts payable department. However, looking over those will give you an idea of why this kind of automation is so appealing and how it could save time and money.
What benefits come from AP automation?
Now that you know some of the ways that companies automate their accounts payable process, you’re probably wondering how that option could benefit your company. For starters, it could decrease the number of paper invoices you handle.
Lush, the company specializing in handmade skincare and cosmetics, used to print out and distribute each of the 120,000 invoices handled monthly by its North American division. However, that often led to employees misplacing documents or allowing too much time to pass before the respective individuals dealt with them. Now, an automated system sends 92% of the invoices to where they should go, cutting down on overall time spent.
Accounts payable processes can also free up employees to spend their time on more rewarding tasks. The University of Florida received approximately 180,000 invoices annually from more than 50,000 vendors. It spent nearly a year to transition to an automated system. Doing so dramatically rebalanced the institution’s workflow. Some vendors previously sent 3,000 invoices monthly, which employees handled manually. Automation opened their schedules.
Automated AP processing can also work well at large volumes. PepsiCo also wanted to automate its AP processes at some of its international offices. However, doing so meant finding a system that read multiple languages, as well as Cyrillic text. The brand got an OCR solution that could take information from invoices and send them for verification. The tool handled more than 21,000 documents and nearly 40,000 pages in its first three months of use without issues.
A Business Insider Intelligence report about AP automation also indicates that B2B companies utilizing digital payment platforms notice 81% lower processing costs and a 73% reduction in processing cycle times.
Other evidence suggests that automating accounts payable can reduce instances of internal fraud by reducing the number of employees that can access invoices.
Getting started with AP automation
By now, it should be clear to you why many decision-makers in business view AP automation as a must-have option, particularly as their operations scale up. If you’re interested in seeing what can happen for your company if you automate your accounts, begin by investigating the most time-consuming processes.
In one example, Quickfire Restaurants devoted several hours per week to manage 90 invoices manually. After automating accounts payable, those hours reduced to only 30 minutes, letting staff maximize their available time on the clock. Spend time talking to your employees and getting their input on which tasks take them the longest to do, or which duties are the most prone to errors.
Listen to your suppliers – and more specifically – any complaints they have. Do they often contact you and say it takes too long to check the status of an invoice? If so, automation could help. Once you have a thorough list of problems to solve or situations you hope to improve with accounts payable automation, look for solutions that fit those needs or that you could adapt to suit them.
Set a budget and be prepared to give those figures when you start talking to businesses that can help you move forward with accounts payable automation. Find out whether you can pay your bill per month or sign up for an extended contract. Also, keep in mind that there may be specialized features available to you at an extra cost, so your budget may need to accommodate those.
Finally, choose some metrics you can use to figure out if accounts payable automation is working as well as you’d hoped. They could relate to the time spent, time saved, the number of invoices processed and other statistics that make sense for your business. Check the data often (such as every month) to see how things change and decide whether you need to make tweaks to improve the results.
What the future of AP automation looks like
Many people who have not yet decided to automate accounts payable may wonder if this kind of technological progress is a mere fad. However, market analyses indicate it is not. For example, MarketsAndMarkets estimates the accounts payable automation market to show an 11% combined annual growth rate from 2019 to 2024. The company’s analysis also points out that the North American market, as well as the consumer goods and retail sectors, are likely to show substantial growth during the specified timeframe.
Help your business thrive with AP automation
As the above examples show, accounts payable departments typically have to deal with lots of manual processes, all of which could result in lost invoices and disgruntled suppliers. Automating accounts payable is a readily available option that could enable your company to overcome those challenges and spend more time stimulating business growth.