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The Importance of Accounts Payable (AP) Automation

June 9, 2020

The phrase “time is money” has never been more true than it is now. 

Companies are constantly trying to improve efficiency by cutting costs, saving money, and automating as many processes as possible—which can all be accomplished with accounts payable (AP) automation software. AP, a vital part of any organization, also offers insight into other crucial metrics, including cash flow management, fraud recognition, and vendor relationships.

Implementing AP automation software allows companies of all sizes to automate and streamline their account payable processes, which helps remove tedious manual tasks while providing better control and visibility into important financial and supplier data. 

What is AP automation software?

AP automation software helps companies with invoice management, empowering them to manage large volumes of invoices and financial transactions between themselves and their suppliers. Furthermore, these solutions enable organizations to capture and process supplier invoices with limited or no human interaction by providing a digital process previously handled by an accounting team. 

This software can be used by accountants and members of the accounting department responsible for accounts payable. It can also be used by managers and executives to monitor AP processing activities. AP automation solutions can be delivered as standalone products or as a part of accounting suites that also include accounts receivable (AR) automation software, billing software, invoice management, and payment processing software features. This type of software is integrated with accounting software or accounting modules of ERP systems.

AP automationImage Source: To Increase

The first step in AP automation involves capturing the data in digital format—usually through a form of scanning or capture method, such as optical character recognition (OCR). The AP software routes the invoice through a predetermined workflow that follows a set of logical steps created by the organization. The invoice and its relevant data are sent to a company’s ERP system, which organizes and stores all relevant information, allowing it to be easily accessed in the future. Finally, the ERP system pays the invoice, usually by electronically transferring the funds to the vendor. A good AP automation software allows reporting and other insightful metrics to run from any stage of the process.

Find the best AP Automation Software, here.

Why are more companies turning to AP automation software?

While most accounting solutions include AP features, many do not provide functionality to manage complex AP processes. 

Companies choose AP automation software to:
  • Reduce manual work
  • Minimize human errors
  • Eliminate manual tasks
  • Avoid duplication payments
  • Capitalize on early payment discounts

This software simplifies complex AP activities and helps accountants manage large volumes of supplier invoices. It improves the efficiency and the accuracy of the AP department and helps with other accounting activities such as facilitating the use of financial close software.

Another reason more companies adopt AP automation software is to eliminate unnecessary manual intervention that can slow down an AP team's processes and efficiencies. When using manual AP workflows and procedures, from invoice receipt to payment, there are too many steps that require humans to intervene. Each of these manual steps increase the time taken for invoice processing, gaining the correct approval, and ultimately, making the final payment. In addition, every manual mediation allows for accounting errors, which can cost a company valuable time and money during the month-end close while they fix mistakes. AP automation software can help eliminate most of these hands-on steps, allowing account payable teams to do more than just track down and pay bills.

Common features of AP Automation

The top rated AP automation products on G2 all share similar automated attributes that help organizations streamline processes for their accounting and AP professionals. 

Some of these elements include:

  • Invoice approvals/matching
  • Integration with accounting or ERP software
  • Data capturing
  • Payment

Creating automated workflows for the approval of invoices and matching POs eliminates the need for human contact at this point of the process. With AP automation software, invoices are automatically sent to the appropriate approver, and can provide automatic reminders of upcoming deadlines. Some software also has the functionality to compare POs to their corresponding invoices, and flag any inconsistencies for follow-up.

Related: Key Components of Accounting Automation

Accounting and ERP software need to receive a company's financial information, so it’s crucial that AP automation software integrates seamlessly with these systems. Organizations need to make sure their new AP software is a good match for the systems they already have. For example, both should have similar levels of security and should be able to communicate with each other. The AP system must be able to receive information about vendors and purchase orders from the ERP or accounting software

Manually entering data from invoices into an accounting system is tedious and vulnerable to human error. Humans might miss some of these errors and create avoidable costs. Companies use AP automation software to avoid this data entry process, by allowing the software to automatically capture data from invoices, and then link this information to their accounting system.

The final step in AP automation is payment. Once a payment is approved by the appropriate party, the payment can be scheduled and automatically sent on a specified date. This process allows companies to avoid having a person track down the invoice, payment due dates, and eligible discount deadlines of a particular invoice. AP automation makes payment processing easier and also provides several payment options, making it easier to pay electronically. This eliminates the possibility of fraud or the excess costs of physically cutting a check.

Slow adoption of AP automation software

Even though AP automation software can reduce costs, errors, and human interference, 59% of businesses have not implemented any form of AP automation. This means that only around 40% of companies have capitalized on the benefits of this software, leaving a massive growth opportunity for this category.

With all of the possible money and time savings functionalities of this software, why aren’t more organizations adopting AP automation? A number of reasons might impact slow adoption, including: not enough money, not interested, adverse to change or new technology, or their accounting services department just isn’t big enough. Even with these constraints and worries, it would be important for any company that hasn’t automated their account payable process to evaluate what they have versus what they need. Based on their findings, they should educate themselves about AP automation software and determine if it’s the right software for them.

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