The Point: In the realm of finance, the accounts payable process has long been associated with tedium and error-proneness. However, the advent of accounts payable automation (AP automation) technology offers a promising solution to streamline and expedite this critical back-end financial process. By eliminating manual procedures and embracing digitization, AP automation has the potential to enhance supplier relationships, save time and money, and deliver significant improvements to financial operations. In this article, we will delve into the inner workings of AP automation, its benefits, and the key tasks that can be automated for enhanced efficiency…Enjoy!
What is Accounts Payable Automation (AP Automation) and How it Works?
AP automation technology automates routine steps such as invoice receipt, coding, approval routing, payment, and reconciliation. By eliminating manual data entry, AP automation facilitates “touchless” processing, ensuring minimal human intervention. Approvals can be easily authorized with a simple click of the mouse, empowering organizations to manage the AP process efficiently and diagnose any underlying issues. The digitization and centralization of accounts payable data within a unified system simplify information retrieval and streamline audits.
AP automation software employs optical character recognition (OCR) to extract information from invoices, transforming them into standardized digital formats. Machine learning capabilities further enhance accuracy over time by recognizing patterns and suggesting general ledger codes or approval routing based on historical data. Customized rules tailored to individual businesses eliminate the need for manual intervention in processing the majority of invoices.
Why Opt for AP Automation?
- Reduced Processing Costs. By reducing reliance on manual effort, AP automation effectively drives down processing costs. This scalability ensures seamless expansion without the need for a growing workforce.
- Enhanced Payment Management. AP automation equips organizations with tools to tighten payment management and enhance cash flow control. By streamlining and expediting the payment process, organizations can capture supplier payment discounts, providing a financial advantage.
- Fraud Risk Reduction. AP automation curtails fraud risks by introducing automated controls and validations. It minimizes errors that often arise from manual processes and ensures accurate and secure transactions.
- Smoother Audits. The digitization and centralization of accounts payable data facilitate smooth and efficient audits. Organizations can easily access and analyze the necessary information, saving time and effort during the auditing process.
Key Accounts Payable Tasks Primed for Automation
- Data Entry – Automating data capture from source documents surpasses manual data entry in terms of speed and accuracy, eliminating the risk of human error.
- Invoice Matching – Automated matching of invoices with supporting documents such as purchase orders and receiving documents, known as three-way matching, ensures swift and precise results, particularly for businesses with multiple document storage locations.
- Coding Invoices – Establishing rules that automatically assign the correct general ledger code to each invoice eliminates inconsistencies and saves time associated with manual coding.
- Approval Routing – Electronic routing to all required approvers surpasses manual document dissemination, providing better tracking throughout the workflow and reducing delays.
Companies can implement AP automation software through software-as-a-service (SaaS) models hosted in the cloud or on-premises for those preferring self-management. Adequate training for finance staff and approvers is crucial for successful implementation. Configuring rules to automate as many steps as possible proves valuable. Customizing workflows to meet unique company requirements ensures maximum return on investment.
AP automation technology presents a transformative opportunity for organizations to streamline the accounts payable process, save time and money, and enhance financial operations. By automating routine tasks, organizations can reduce costs, tighten payment management, minimize fraud risks, and enable smoother audits. Embracing AP automation is a strategic decision that can provide a competitive edge in today’s fast-paced business environment, setting the stage for increased efficiency, accuracy, and profitability.
Sam Palazzolo, Managing Director @ Tip of the Spear Ventures