Streamlining is a watchword for many businesses, especially when they are looking to improve efficiency or reduce costs. This is why automation is becoming increasingly prevalent, as it can help to overhaul the way more time-consuming processes work.
Accounts payable automation is a tool that businesses looking to grow and maximize their potential going forward cannot afford to ignore. So, read on for our straightforward guide to what AP automation is and how it works.
What Is accounts payable automation?
At its core, accounts payable automation refers to the use of software to digitize and automate the process of handling invoices. In a manual AP process, employees will spend time manually entering invoice data, matching invoices with purchase orders, securing approvals, and making payments. AP automation eliminates the need for manual input for many of these tasks by automating the key steps of the process, from capturing invoice data to making payments.
With the support of AP automation, businesses can process invoices faster and with greater accuracy, reducing the risk of errors, and gaining better control over their cash flow. Leading AP automation platforms also integrate seamlessly with existing enterprise resource planning (ERP) or accounting systems, removing the need for data to be manually transferred between systems.
How does AP automation work?
Just like manual accounts payable processes, AP automation involves several key steps. Each of these steps removes manual work from the shoulders of staff and helps to streamline the overall process.
Here is how the AP automation system works, from the arrival of an invoice to its successful payment:
- Invoice capture
The AP automation process begins by capturing invoice data electronically whenever an invoice enters the system. Using technologies like optical character recognition (OCR), AP automation software can scan invoices and extract key information, such as vendor name, invoice number, and payment terms.
This eliminates the need for manual data entry, reducing the risk of inputting errors and saving valuable time for the accounts payable team.
- Matching and verification
Once the invoice data is captured, the next step for the AP automation system is matching the invoice with corresponding documents, such as purchase orders (POs) or receiving reports. The system will automatically check for consistency between the invoice and these documents at this stage.
If any discrepancies are detected—such as incorrect quantities, pricing, or unauthorized purchases—the system will flag the invoice for review. This helps to prevent overpayments, duplicate payments, and fraud.
- Approval workflow
In a manual accounts payable process, securing invoice approvals can be particularly time-consuming, especially if approvals need to go through multiple departments or individuals. AP automation software simplifies this process by creating predefined approval workflows.
This ensures that there are no delays in invoices being sent to the relevant stakeholders, helping to keep the entire invoicing process moving along at a steady pace.
- Payment processing
Once an invoice is approved, the final step is to process the payment. Payments can be scheduled automatically through the system based on the invoice due date, ensuring that vendors are paid on time.
The software can also help businesses take advantage of early payment discounts and avoid late payment penalties with its faster turnaround times, creating significant cost savings over time.
- Record keeping and reporting
One of the major benefits of AP automation – outside of its streamlining of processes – is the ability to generate accurate, real-time reports.
With all invoices, payments, and approvals kept within the centralized system, it also becomes far simpler to provide comprehensive audit trails.
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Accounts payable automation has the potential to radically change the way that your business handles its invoicing process. It does not matter whether you are a smaller business looking to scale up or a larger organization looking for efficiencies, AP automation is a straightforward solution that can optimize an otherwise time and labor-intensive area.
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