Almost every organization needs to tackle accounts payable (AP) in some way. The need for AP automation may vary depending on the size of your organization and the scale of your payables operations. But in general, companies always look for ways to make AP processes more efficient.
In this article, we will discuss everything related to accounts payables and how you can automate the processes related to them. We also shortlisted some of our favorite solutions that are available on the market to help you get your AP automation projects started. In short, these are the items we will cover more in detail:
- What is AP automation?
- What does the AP process look like? And where can you automate it?
- The importance of AP automation
- The benefits of and reasons for automating AP
- Top 8 best AP automation software
- How much does AP automation cost?
- How to select the right AP software
What is AP automation?
Accounts payable automation (AP automation) is a form of process automation whereby invoices and bills are centrally and digitally managed, assigned, and reconciled with payables. Typically, AP software enables automation by providing a fully digitalized and centralized interface enabled by workflow automation and system and bank integrations that can collect all the relevant data on invoices and payments.
What does the AP process look like? And where can you automate it?
Accounts payable processes usually include several common steps that can each be automated. These are some of the most common stages of the AP process and how they are automated:
Capturing invoices and bills
The first part of the AP process is capturing invoices and bills. Typically, you receive invoices and statements by mail, e-mail, or e-invoices within individual bank accounts. You need to collect all invoices and bills in various places manually and somehow keep track of them simultaneously, usually in offline places or several spreadsheets. Then they are paid for in each corresponding bank account manually, and the relevant spreadsheets or archived files are updated accordingly. For larger organizations, accounts payable are most often collected in accounting software or ERP systems, but these systems typically still lack proper integrations with other systems or connectivity to banks in certain file formats. Without a connection between ERP systems or accounting systems and banks, invoices still require to be paid manually one by one.
With several banks, systems, and suppliers, capturing invoices and bills can become a challenging process that is highly time-consuming. Therefore, AP automation solutions exist to connect all necessary bank accounts and other systems to collect payable items and capture them in one interface automatically, where they can then be reviewed and verified.
Reviewing and verification
Once all relevant payables are collected, they must be reviewed and verified for safety and accuracy. You want to ascertain that you are paying the right stakeholders and the correct sums as specified on each invoice or bill. Also, finding and verifying invoicing sources can require communication with various stakeholders internally and externally, which is especially time-consuming when payment items are spread over different systems, channels, and departments. Therefore, there is a strong need for larger organizations to centralize the process of reviewing and verifying bills and invoices in one system.
With AP automation, you can improve the process, and invoices and bills can be matched accurately with payment data through general ledger coding, for example. In other words, it is a way of reconciling the payments with received open payment items or statements, which can be highly accurate and efficient when using the right designated software. Of course, no solution is perfect, and some payables may remain unmatched, but a good AP tool will also enable you to examine any invoices left unmatched manually.
Once invoices have been reviewed and verified, they are ready to be approved and paid. With four- or six-eye principles, several people often check larger invoices before they're approved, and other invoices or bills can, with the help of automation, be approved in batches when using an AP automation solution. Critical at this stage is also to start filtering out duplicate, fraudulent, or erroneous payments. You can do this with manual checks on each invoice or by leveraging a solution that automatically filters them out. For example, if a payment does not match the bank account number on the invoice, solutions can automatically notify you of this inconsistency, which would help you quickly identify cases requiring closer examination of counterparties only when strictly necessary.
The next step is to execute all payments to suppliers or vendors. When automated and centralized, you can do this in batches from the AP system rather than by logging into different bank accounts. Some automation solutions also offer the possibility to screen payments against sanctions lists to prevent payments from reaching any sanctioned parties or they can spot duplicates and inconsistencies with vendor master data.
Posting invoices to the ledger
In most cases, invoices need to be posted to the general ledger which involves aggregating financial transactions into certain ledger accounts, cost centers, projects, etc. Though this is often part of the overall purchase invoice flow, it’s sometimes also outsourced to other departments or vendors. With some AP automation solutions, you can automate general ledger posting of invoices as well.
Archiving paid invoices
The archiving of paid invoices is recommended for regulatory and compliance reasons. By archiving paid invoices, you can effortlessly search for them when required, for example, in the case of audits or other examinations. Paid invoices can automatically be stored and accessed in a digital archive with most AP automation tools. An audit trail functionality can further show you more detailed information on each paid invoice, such as who executed the payment and at what point.
The importance of AP automation
Most companies leverage AP automation to minimize manual data entry and maximize data analysis. By spending less time on work that can be automated, there is more time for reporting and analyzing.
Automating accounts payable can also be necessary for companies to ensure that bills and invoices are paid for on time and that payables aren't forgotten due to scattered processes, communication, and systems. For maximum efficiency, you should also be able to quickly identify all bills and invoices within one system and match them with payables automatically. By automating such processes, finance departments can save time and speed up other vital tasks, such as month-end closing.
Another important benefit of AP automation is that streamlined processes provide little to no room for errors, fraud, or other sensitive security issues thanks to automated stops while executing payments to other parties.
The benefits of and reasons for automating AP
There are many reasons why finance or accounting teams should consider implementing AP automation processes. These are some of the main reasons and benefits:
One of the main benefits of accounts payable automation is assuring that payments to vendors or suppliers are processed on time. Adopting an automation platform gives you an instant overview of all outstanding payables and their due dates. In addition, you can set up notifications to notify you of any urgent payments. Suppliers or vendors sometimes even incentivize you with discounts because of payment punctuality.
Centralizing all payment data within the same system is another notable benefit of AP automation. Most solutions allow you to connect to all your different banks, ERP systems, and other financial software or accounting tools. As a result, you gain a complete overview of accounts payable in one interface. Through centralization, systems can also keep track of all AP-related cash flows and provide you with insightful reports or analysis possibilities which helps with better planning of working capital and liquidity positions in the near future. Centralization further allows you to verify that there is enough money in the bank account to execute the necessary payments.
Efficiency – reduced manual labour
Automation of AP processes leads to increased efficiency. It streamlines payments and invoicing, approvals, executing payments, general ledger posting, and archiving paid invoices. Data will also automatically flow between systems so that no manual labour, like accessing different systems and keeping track of payables in a spreadsheet, is required.
Accuracy and discrepancy analysis
In most cases, AP automation can help you lessen the risk of human errors or duplicate and fraudulent payments by automatically matching invoice data, bills, and bank statements with transaction data. Automation additionally spots any discrepancies between payment items and transactions. But, of course, the level of automation depends on the solution you pick to help you optimize AP processes.
Audits and compliance
Some solutions can offer built-in compliance features to help your organization remain compliant by avoiding payments to sanctioned parties. This is typically done by automatically screening outgoing payments against integrated external partner sanctions lists, public sanctions lists, private blacklists, or whitelists.
Other functionalities, such as archiving executed payments, will help with audits, as every payment is carefully stored and can be examined.
With AP automation you will also create complete transparency of data. For example, you can see exactly when invoices are captured in the system, who the reviewers and approvers are, and the status of invoices such as whether it was paid for already. If, for some reason, an invoice was not paid, you can usually attach some comments too.
Top 8 best AP automation software
With several AP automation software vendors available on the market, it can take time to find the right one. Therefore, we have shortlisted some of our favorite vendors here:
Note that they are not listed in any particular order
- Oracle NetSuite
- Sage Intacct
You can find a full description of each vendor and example screenshots of their solutions in our article: Top 8 best AP automation software providers.
How much does AP automation cost?
The price of AP automation varies. A few things that vendors will likely consider while creating a price for you are:
- The sophistication of your tech stack
- What other software are you already using? How do they integrate?
- Do you require connectivity with an ERP system?
- Do you have a TMS in place? How does it integrate?
- Bank connectivity
- Which banks are you using for payments?
- How many bank accounts do you have?
- What connectivity options are there with each bank?
- Your company’s structure
- How many entities do you have?
- Where are the entities located?
- Who needs access to what?
- Payment information
- What currencies do you make payments in?
- What are the type of payments you need to make?
- Security and compliance
- Do you need to archive payments?
- What type of payment process controls need to be implemented?
- Do you need third-party sanctions screening options?
The more sophisticated your setup is, the more resources it will take to implement a solution, which is typically portrayed in how the vendor sets its pricing. Simultaneously, the need for a solution is often higher when existing setups become more complicated. For example, manual processes with several systems, entities, and banks are time-consuming and require several FTEs to manage. Hence, the business case and ROI calculations for buying a solution are usually relatively straightforward.
How to select the right AP software
Whether AP software is right for your business highly depends on your requirements. The main question you need to ask yourself is how well the solution solves your current challenges and whether it’s scalable in the future additionally (also cost-wise) as your operations continue to expand. Many of our clients also prefer to have all cash and treasury management processes in one system. As a result, they opted for a solution that not only solves the accounts payable challenges but also provides solutions for liquidity management, FX risk, or cash flow forecasting, for example. Having all data and functionalities centralized provides more transparency over what’s happening group-, bank-, and system-wide, and enables better and faster reporting possibilities.