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Cloud-Based Accounts Payable Automation | Cloud vs On-Premise AP Automation

By Annapoorna

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Updated on: Jul 10th, 2023

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6 min read

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Cloud-based software are becoming popular amongst businesses, especially post the Covid-19 pandemic. There are cloud solutions across invoicing, accounting, project management, human resource, customer relationship management, accounts receivable and accounts payable. A cloud-based accounts payable software can automate invoice processing and vendor management, while providing the added advantage of being remotely accessible. 

In this article, we explain the benefits of choosing a cloud-based AP automation solution.

Meaning of cloud-based AP automation

Cloud-based AP automation involves setting up an AP infrastructure over the cloud and streamlining the AP process by automating manual processes. Processes that are automated include:

  • Vendor onboarding and compliance checks
  • Invoice reading and capture through OCR
  • Accounting of invoices and payments
  • Invoice lifecycle management
  • Tracking of approvals and payments

Automation of AP processes helps in reducing processing times and avoiding late payments, and the availability of AP data on the cloud means it can be accessed from anywhere. AP automation also ensures lower invoice processing costs, faster data processing, and increased data security.  

On-premise vs cloud-based AP automation

There are obvious improvements that cloud-based AP automation brings over on-premise AP processes. The differences have been listed below:

BasisOn-premise APCloud-based AP automation
Set-upHard and expensive to set up hardware and security infrastructure, and costs have to be incurred regularly to maintain the systems.It is affordable to set up and operate. The pay-per-use concept allows flexibility, and the service provider takes care of updating and maintaining systems and servers.
Invoice capturingRequires manual entry of all invoice data into the accounting system. This is time-consuming and prone to errors.Most of the data is automatically read using optical reading technology and processed by the systems. The only manual processes include a layer of manual review by humans.
ApprovalsOfficers of various departments need to sort out their respective invoices. Diligence is required to track approved invoices and follow-up on unapproved ones.The approval process is streamlined where department heads can ensure quick and efficient approvals. Approval locations are centralised by the automatic routing of invoices to respective departments. The AP team can set thresholds of amounts that need two-stage approvals.
Payment proceduresRequire officers to be physically present to authorise hundreds of payments at once. This also leaves a high chance of forged signatures and fraud.Officers can authorise payments remotely. Approvals are kept on record for future audits.
Security and data backupBusinesses have to implement their own security control, which requires a high level of expertise and maintenance. Information is also stored in internal servers and physical locations, making it susceptible to data loss.Cloud-based AP service providers offer high levels of security which cybersecurity experts maintain. It also allows the AP team to decide the access controls of its users. The risk of data loss is greatly reduced since data is backed-up and stored on the cloud.

Benefits of cloud-based AP automation

Cloud-based AP solutions offer users various benefits that include-

  • Productive AP processes: Automation of basic AP processes such as invoice capturing, accounting, routing, approvals etc., ensures that the AP and finance teams of an organisation can focus on critical tasks under the AP process instead. Real-time alerts ensure there are no delays in the payment of dues.
  • Centralised data repository: Cloud-based AP automation ensures that all information is available at a single place at any given point in time. This central data repository enables higher efficiency and quicker workflows and approvals. It also helps handle the networking needs of large organisations better. 
  • Cost-efficient: Cloud-based AP automation saves costs associated with on-premise AP systems. This includes setup and maintenance expenses since cloud-based solutions can be used on a pay-per-use basis. The cost of physical documentation and storage of the same is mitigated. Since time is money, increased processing speeds due to automation help boost business performance.
  • Early-payment discounts: AP automation solutions facilitate better tracking of payment due dates and cycle times. These insights enable businesses to negotiate better payment terms and take advantage of early-payment discounts.
  • Scalability: It is easier and faster to expand the system architecture than on-premise systems. One doesn’t need to incur enormous capital expenditure to buy hardware. While scaling an on-premise system can take weeks, cloud-based AP automation services can be set up quickly since the service providers already have the additional architecture in place.
  • Analytics and reporting: Cloud-based solutions use business analytics to give useful insights and reports on how accounts payables are processed. These can be useful for management to make decisions on policies. 

Factors for choosing a cloud-based accounts payable solution

Once the business decides to switch, it must find the right solution that accommodates its needs. One must carefully understand all the benefits and risks before investing. The aim must be to integrate and continue with the selected solution for as long as possible. A few areas to consider while choosing the cloud-based AP solution provider are:

  • Tenure of the vendor’s business in the market in providing compliance automation solutions.
  • Whether the solution can help achieve the objectives of automating AP processes and general business goals.
  • Whether the solution can handle the volume of invoices.
  • Whether the vendor is ready to offer tailor-made solutions for the business.
  • Cost and time of setup and implementation.
  • Whether it can integrate with other systems in the business.
  • Scope for future scalability of the solution
  • Whether the solution can connect with other compliance solutions to build a connected finance ecosystem 

As seen above, cloud-based AP automation can transform AP management. The earlier a business adopts it, the better it can reap the benefits, including better cash management, reporting, and visibility. Cloud-based technology will help keep pace with the rapidly changing business environment and realize long-term advantages.

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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