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What is Accounts Payable (AP) Automation and How Does it Work?

By Annapoorna

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Updated on: Nov 17th, 2023

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11 min read

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Accounts payable (AP) automation, mostly a cloud-based system, allows businesses to automate invoice operations for accounts payable. It is used by businesses to automate time-consuming manual AP tasks such as invoice processing and payment reconciliation. 

Continue reading as we discuss more about what is accounts payable automation and how to automate the accounts payable process.

What is Accounts Payable Automation?

Before we get into the accounts payable automation trends, let’s understand what is AP automation

Accounts payable automation automates everyday business operations such as receiving invoices, coding, routing for approval, vendor payment and reconciliation. It helps reduce human interaction, in turn eliminating errors.

A qualified stakeholder is still required to authorise invoices and payments, but with AP automation software, they may do so on nearly any device with the touch of a button.

How Does AP Automation Benefit Businesses?

Here are some ways that AP automation benefits businesses:

  • Improves accuracy and reduces errors: Manual data processing can often lead to inconsistencies in record-keeping and inaccurate financial reporting. Accounts payable automation reduces the possibility of human error by using optical character recognition (OCR) technology and intelligent data extraction. These systems extract data from invoices and other documents, ensuring it is captured and recorded appropriately.
  • Increases cost savings: Automation minimizes the need for manual data entry, document processing, and paper-based operations. Automating these chores frees up your team's time to work on more important targets. Furthermore, accounts payable automation reduces the costs associated with human processes, such as printing, mailing, and preserving physical documents.
  • Supports compliance: Businesses must adhere to regulatory requirements, such as tax laws and financial reporting standards. AP automation ensures precise data collection, automatic tax calculations, and better record-keeping. Additionally, automated systems simplify auditing by making retrieving records and transaction history easy.
  • Improves vendor relationships: Accounts payable automation can improve vendor relationships by allowing more effective communication and real-time visibility into invoice progress and payment timelines. Improved communication and transparency can lead to stronger vendor relationships and, in turn, better terms and pricing negotiation.

How To Automate Accounts Payable Process?

Now that you know the benefits of AP automation, let’s understand how to automate the accounts payable process:

  • Typically, the accounting team manually enters data, but this process is fraught with errors. Accounts payable automation software uses OCR technology that digitizes documents and eliminates the need for human data entry. Plus, the data is saved on the cloud for convenient access. 
  • Automating the accounts payable process helps confirm tax and industry regulatory compliance. It also increases the likelihood of detecting fraud and lowers erroneous transactions. 
  • Automation enables the automatic cross-checking of every invoice, its status, and approval status. It can match invoices to purchase orders automatically to ensure payments are issued to the correct vendor. To ensure timely approval, AP automation can also send follow-up notifications to supervisors.
  • Managing a general ledger is one of the most demanding responsibilities in the AP department and is prone to numerous human errors. OCR technology in automated software applies pre-set codes that match existing categories and identification metrics. This automates the laborious duties required in invoice coding and classification, making them more exact and accurate.  

What Are The Challenges of AP Automation?

Here are some of the most common AP automation challenges:

  • Convincing your vendors and suppliers to join the platform is challenging. It requires effective communication and regular demo sessions.
  • Data is processed and stored electronically when firms implement AP automation systems. This increases the risk of data breaches and disclosure of sensitive information such as bank accounts and personal information.
  • Suppliers may use a combination of manual invoice processing and e-invoicing and separate invoice processing software for different businesses. This can lead to data inconsistency, making automation extraction and processing difficult.

What Are The Key Features Of A Good AP Automation Software?

Here are some key accounts payable automation trends and features to look out for:

  • Invoice processing automation software captures invoice data in paper, PDF, or email format. This reduces errors and speeds up invoice processing by eliminating manual data entry.
  • It ensures consistency and seamless data synchronisation between the AP software and the Enterprise Resource Planning (ERP) system. It enhances overall financial management by allowing for real-time visibility.  
  • AP automation software centralises vendor information, allowing enterprises to keep vendor records correct and current. It provides a platform for effective vendor communication, facilitating queries, dispute settlement, and payment inquiries. This improves relationships with vendors. 

Security Measures To Protect Sensitive Financial Data in AP Automation

Here are some security measures that you can employ to protect your business’s sensitive financial data in AP automation:

  • Training workers on AP cyber fraud is important to detect and report suspicious activities quickly. Also, authorising important staff to review transactions assists in identifying irregularities and minimising potential risks.
  • A real-time security check and balance system gives visibility to spot irregularities immediately. Plus, multi-level clearances and increased transparency provide layers of protection that make it impossible for fraud to go unnoticed. 
  • To ensure maximum security, establish internal controls on who has access to invoices and other documents, approve invoices, sign checks, and so on. This streamlines your operations and reduces the danger of inadvertent leaks and other errors.

What Are The Best Practices Of AP Automation?

Before you decide on which AP automation platform to choose for your business, here are some accounts payable automation best practices that you should look out for:

  • Integrating AP software with an ERP improves visibility into financial operations. ERP systems help firms to track spending by linking data across an organisation's accounting ledger, creating timely records of all transactions, automating reconciliations, and simplifying reporting.
  • A good AP automation platform should include an easy-to-use approval process that efficiently routes papers for review and protects confidential information. 
  • Automation software is also often capable of analysing precise spending data. This allows AP teams to better understand cash flows, allowing them to discover possible fraud areas and inefficiency that could lead to cost savings.

Frequently Asked Questions

How does AP automation work?

Accounts payable automation converts paper invoices to a standard digital format and then directs the invoices through a virtual workflow that concludes in payment to suppliers.

How much does AP automation cost?

AP automation costs depend on the platform and other factors, such as integrations with other software, the number of users, and compliance requirements.

What are some accounts payable automation examples?

Automating invoices, communication with suppliers, record-keeping, and invoice approvals are examples of accounts payable automation.

Why choose AP automation?

Accounts payable automation streamlines operations, allowing things to move more quickly and improving turnaround time.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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