What Is Accounts Payable Automation: Everything You Need to Know

Introduction

Managing accounts payable is crucial for maintaining financial stability. Traditional methods of handling accounts payable such as handling paper invoices, chasing down approvals, and mailing checks are not only slow but also susceptible to errors and fraud. So, how can you improve this process?

Accounts payable automation (AP automation) is the answer. By freeing you from manual processes and minimizing paper use, AP automation boosts accuracy, speeds up transactions, and strengthens supplier relationships. It also helps reduce days payable outstanding (DPO), enhancing cash flow.

Want to learn how AP automation can potentially transform your financial operations? Keep reading to discover more.

What Is Accounts Payable Automation?

Accounts Payable (AP) automation involves using technology to digitize and automate accounts payable processes, eliminating the need for manual intervention. The automated accounts payable process encompasses routine tasks, including invoice receipt, coding, routing for approval, payment, and reconciliation. 

Often termed “touchless” processing, AP automation minimizes manual data entry at every stage. Additionally, it comes equipped with dashboards and analytical tools to streamline process management and identify issues efficiently.

What Are the Challenges with Manual Accounts Payable?

Managing account payables manually creates various inefficiencies and errors. Here’s an overview of the common challenges and how automation can resolve them:

1. Human errors in data entry

   Manual data entry is prone to mistakes, causing inaccuracies like underpaid or overpaid invoices. These errors can lead to significant financial problems and wasted resources. AP automation reduces these errors by utilizing advanced data entry tools and scanning technologies.

2. Difficulties in managing and storing information

   Storing invoices and documents manually makes it hard to access historical data, leading to inefficiencies in reporting and compliance. Automated accounts payable processes, like those offered by HighRadius, provide robust document management solutions, making information easily searchable and retrievable.

3. Slow approval processing

   Manual approval delays can strain supplier relationships and lead to missed early payment discounts. Automation speeds up routing, enabling faster processing and improved cash flow management.

4. Increased fraud risk

   Manual processes are susceptible to fraud due to the lack of checks and balances. AP automation involves fraud detection capabilities that identify questionable activities, thus lowering the likelihood of fraudulent transactions.

5. Lack of real-time visibility

   Paper-based systems obscure the tracking of invoices and payments. Automated solutions offer real-time visibility into the AP process, facilitating better decision-making and transparency.

6. Poor cash management and working capital utilization

   Manual processes hinder effective cash management by extending processing times and increasing days payable outstanding (DPO). Automation optimizes payment cycles, improving cash flow and enabling early payment discounts.

7. Duplicate invoices and payments

   Duplicate entries are common in manual systems, leading to double payments and an increased workload to rectify these errors. AP automation effortlessly detects and prevents duplicates.

Benefits of Automating Accounts Payable Process

Implementing accounts payable automation provides many benefits, enhancing operational efficiency and financial management. Here are the benefits of accounts payable automation which have become reasons why businesses have chosen to automate their accounts payable processes: 

1. Touchless processing

   Touchless processing eliminates manual data entry throughout the AP workflow. While approvers may still need to authorize payments with a click, all data entry is automated, reducing errors and freeing up employee time for more strategic tasks.

2. Centralized data storage

   AP automation systems digitize and store all accounts payable data in a single, searchable system. This centralization simplifies access and auditing, ensuring that crucial information is readily available when needed.

3. Enhanced spend visibility

   AP automation tools deliver real-time insights into spending, enabling businesses to track expenses and manage budgets effectively.

4. Improved cash flow management

   By streamlining payment processes, automated accounts payable processes ensure timely payments and better cash utilization, significantly enhancing cash flow management.

5. Reduced fraud risk

   Automation includes features like duplicate payment detection and suspicious activity alerts, dramatically reducing the risk of fraud.

6. Better control over supplier payments

   AP automation allows businesses to customize payment processes, giving them better control over how and when suppliers are paid and improving supplier relationships. 

7. Time efficiency

   Eliminating manual data entry and processing saves time, allowing employees to focus on strategic, value-adding tasks such as financial analysis, supplier relationship management, and process optimization.

8. Significant cost savings

   Reducing manual processes lowers labor costs and eliminates errors, storage, and postage expenses.

9. Improved accuracy

   Automation improves accuracy by eliminating manual data entry, reducing errors, and ensuring reliable financial data. This knowledge that your data is accurate and reliable instills a sense of security and confidence in your financial operations, allowing you to make more informed decisions and plan for the future with greater certainty.

10. Increased productivity

    Automation boosts productivity of AP analysts to close high volumes of payments, ultimately reducing DPO, and allowing them to focus on strategic initiatives.

11. Enhanced collaboration

    Automated systems enhance collaboration by providing access to AP data and transactions across multiple locations, fostering better teamwork and decision-making.

12. Capitalization on early payment discounts

    Automation helps businesses take advantage of early payment discounts, improving cash flow and financial efficiency.

13. Compliance assurance

    Automated tracking and reporting simplify compliance with financial regulations, ensuring businesses are always audit-ready.

By understanding what AP automation is and leveraging its numerous benefits, businesses can transform their accounts payable operations, achieving greater efficiency, reduced costs, and improved financial health.

How Does Accounts Payable Automation Work?

Accounts payable automation integrates with existing financial systems to automate the end-to-end AP process. Here’s a step-by-step breakdown of how account payable automation works:

1. Invoice receipt

   Invoices are received electronically or digitized using OCR (Optical Character Recognition) technology.

2. Data extraction

   Relevant data is automatically extracted from the invoices and entered into the AP system.

3. Coding and approval

   Invoices are coded according to company policies and routed to the appropriate approvers.

4. Payment processing

   Once approved, payments are scheduled and processed electronically.

5. Reconciliation

   Payment data is automatically matched with invoices and purchase orders to ensure accuracy and completeness.

Top Accounts Payable Tasks to Automate

Implementing an end-to-end AP automation solution can streamline various tasks within the accounts payable process. HighRadius’ AI-powered Accounts Payable Automation benefits businesses by automating their AP tasks, enhancing efficiency and accuracy, as mentioned below:

1. Streamlined data entry

   HighRadius’ AP software deploys OCR technology, a key component of AP automation that captures invoice details from various formats, such as PDF, Image, Tiff, ANSII X12 EDI, and cXML, minimizing manual input and ensuring accurate data entry.

2. Automated GL coding and cost allocation

   Machine learning algorithms are employed to accurately assign GL codes and cost centers based on historical data, reducing the risk of errors and ensuring efficient cost allocation. 

3. Effective invoice matching

   HighRadius’ AP automation software conducts multi-levelinvoice matching and stores vendor documents for easy verification. This ensures that they are accurately matched with purchase orders and goods receipt notes, reducing the risk of overpayment or underpayment.

4. Simplified approval routing

   Automating the approval process according to company policies, ensuring smooth approval or rejection of invoices.

5. Timely follow-ups

   Set automated reminders to ensure prompt approvals and follow-ups and prevent payment delays.

6. Tax compliance and reporting

   Automating tax calculations, documentation, and report generation to ensure compliance and reduce penalties.

7. Insightful analytics and reporting

   Providing detailed insights into AP processes, identifying inefficiencies, and highlighting improvement opportunities.

ROI of Accounts Payable Automation

Implementing accounts payable automation software delivers a substantial return on investment (ROI). Let’s explore the financial and non-financial benefits organizations can expect from adopting AP automation solutions.

Financial gains of Accounts Payable automation

Financial ROI refers to the direct monetary benefits that AP automation brings to a company, significantly impacting the bottom line. Here are the financial gains of AP automation listed below:

• Slashes invoice processing costs: Automation reduces the expense of processing invoices by minimizing manual labor and streamlining workflows.
• Minimizes costly human errors: AP automation eliminates manual data entry, reducing errors and ensuring accurate payments.
• Cut down supplier inquiries: Automation offers real-time updates, decreasing the need for supplier follow-up calls and emails.
• Boosts on-time payments: Automated systems ensure prompt invoice processing, leading to more consistent on-time payments.
• Captures more early payment discounts: Automation helps identify and take advantage of early payment discounts, saving costs and improving cash flow.

Non-financial gains of Accounts Payable automation

Non-financial ROI includes the qualitative benefits that AP automation provides, which, while not directly measurable in monetary terms, contribute significantly to the overall efficiency and effectiveness of the organization. Here are the non-financial gains of AP automation listed below:

• Enhanced control and compliance: Automation standardizes workflows, ensuring compliance with policies and reducing errors and fraud.
• Streamlined operations: Simplified workflows eliminate bottlenecks, making the AP process faster and more efficient.
• Simplified audits: Automated systems centralize records, making it easy to retrieve documents and streamline audit preparations.
• Better supplier relationships: Timely and accurate payments strengthen supplier relationships, leading to better terms and potential financial benefits.

Impact of Accounts Payable Automation Across Roles

AP Managers

AP automation significantly enhances the efficiency of Accounts Payable Managers by eliminating manual tasks and streamlining the approval process. 

• Managers gain real-time monitoring capabilities, allowing them to effortlessly track invoices, approvals, and payments
• This enhanced oversight ensures that AP managers can identify bottlenecks, optimize workflows, and improve the overall efficiency of the AP department

CFOs

Chief Financial Officers (CFOs) benefit immensely from AP automation through improved financial visibility and cost management. 

• Automated systems provide real-time data and analytics, allowing CFOs to make informed decisions quickly
• The ability to track spending patterns, forecast future expenses, and manage cash flow more effectively leads to better financial planning and strategic decision-making

Accountants

AP automation benefits accountants by reducing errors and streamlining the invoicing process. 

• Automated data capture and validation minimize manual entry errors
• This creates accurate financial records and increased productivity for accountants

Procurement Team

With AP automation, procurement teams experience improved supplier management and contract compliance. Automated systems ensure that invoices match purchase orders and contracts, reducing discrepancies and disputes. 

Auditors

Auditors benefit from AP automation through improved audit trails and compliance management. 

• Automated systems provide detailed records of all transactions, approvals, and changes, making it easier for auditors to verify the accuracy and completeness of financial records
• This transparency enhances compliance with regulatory requirements and reduces the risk of fraud

Suppliers

Suppliers benefit from faster payments and improved relationships with companies using AP automation, ensuring timely payments and reducing disputes, leading to stronger partnerships and better terms for both parties.

How to Automate Accounts Payable?

1. Evaluate current processes

   Begin by thoroughly assessing your current AP workflows. Identify pain points and areas where automation can significantly enhance efficiency. Look for bottlenecks, repetitive tasks, and opportunities for error reduction.

2. Set clear objectives

   Define your goals for AP automation. These goals include streamlining processes, reducing operational costs, enhancing efficiency, and improving data accuracy. Clear objectives will guide your selection of an appropriate automation solution.

3. Research AP automation solutions

   Investigate various AP automation solutions on the market. Look for platforms that align with your goals and business requirements. Evaluate features, integration capabilities, and user reviews to make an informed decision.

4. Develop an implementation plan

   Create a detailed roadmap for implementing the chosen AP automation solution. Define roles and responsibilities, set realistic timelines, and ensure all stakeholders are on board. 

5. Ensure seamless integration

   Ensure the AP automation solution effortlessly integrates with your existing accounting or ERP software. This integration is vital to maintaining data consistency and avoiding disruptions in your financial workflows.

6. Conduct thorough testing and training

   Conduct comprehensive testing before fully deploying the new system to ensure it functions correctly. Train all relevant employees to use the system effectively, ensuring they understand its features and benefits.

5 Strategies for Improving Accounts Payable Automation

Automating accounts payable revolutionizes how businesses manage their financial workflows. Explore these innovative strategies to modernize your AP operations and achieve financial excellence.

1. Switch to digital invoicing

   Digital invoicing, or e-invoicing, transforms traditional invoicing by replacing paper with digital formats, offering numerous advantages.

2. Streamlining invoice management

   Automated invoice processing leverages advanced technology to simplify the entire workflow, from receipt to payment, minimizing manual intervention and errors. Machine learning (ML) algorithms automate matching invoices to purchase orders and shipment receipts, reducing manual efforts and enhancing accuracy.

3. Revolutionize approval workflows

   Transform traditional approval processes with digital workflows, ensuring invoices are reviewed and authorized efficiently.

4. Empower vendors with self-service portals

   Vendor self-service portals provide a centralized platform for vendors to manage their invoices, track payments, and update information, reducing the administrative burden on the AP team.

5. Automate your payment scheduling

   Automated payment scheduling uses software to ensure timely payments, optimizing financial management and cash flow.

How to Select the Right Accounts Payable Automation Software

When selecting AP automation software, it’s essential that the tool aligns with your organization’s specific needs. Consider factors like an intuitive user interface, robust data security, advanced automation features, and dynamic integration capabilities to maximize the efficiency and effectiveness of your AP processes.

Here’s a structured approach to help you find the right AP automation software.

1. Intuitive user interface

   A well-designed user interface (UI) is critical for adopting AP automation tools successfully. A clean, intuitive dashboard helps staff quickly locate essential accounting functions and manage tasks efficiently.

2. Unmatched data security

   Protecting sensitive financial data is paramount in AP automation. Ensure your chosen software provides advanced security measures such as two-factor authentication, encryption, and secure communication protocols.

3. AI-powered automation features

   AI-powered automation will enable teams to handle more tasks in less time. From billing and invoicing to procurement, AI automation would streamline your AP operations efficiently. 

4. Versatile payment options

   Providing multiple payment options is essential for customer satisfaction and operational efficiency. Integrated payment gateways allow businesses to offer a variety of secure payment methods.

5. Dynamic integration capabilities

   Integrating your AP automation software with other business systems enhances its functionality and flexibility. Ensure the software can connect seamlessly with your existing ERP, accounting, and other essential tools.

6. Flexible accounting methods

   Your AP solution should support cash-based and accrual accounting methods to accommodate business needs.

7. Billing based on projects

   AP software should support project-based billing and timesheet management for businesses that bill clients based on time or projects. 

8. Thorough reporting and analysis

   Having strong capabilities in reporting and analytics is essential for gaining a deep understanding of financial performance and for making well-informed decisions.

9. Role-based access control

   Ensure that your AP software allows you to assign role-based permissions, providing employees access to necessary functions while protecting sensitive data.

10. Automated bank reconciliation

    Automate bank reconciliation to match and categorize transactions quickly, reducing manual effort and errors.

11. Tax compliance and management

    Your AP solution should include comprehensive tax management features to ensure compliance and ease tax-related processes.

12. Mobile and cloud accessibility

    Mobile and cloud-based features provide flexibility, allowing you to manage AP processes from anywhere.

13. Exceptional customer support

    Choose an AP solution offering comprehensive customer support to assist you through onboarding and beyond.

14. Transparent pricing

    Understand the cost implications of your AP software, considering factors like free trials, maintenance fees, and pricing structures.

How Can Highradius Help?

Incorporating AP automation software into your financial processes can revolutionize your business operations by enhancing efficiency, reducing errors, and providing comprehensive oversight. Businesses can optimize costs and improve compliance by leveraging advanced features such as AI-driven invoice processing, automated validations, and seamless ERP integration. 

HighRadius offers a state-of-the-art AP Automation solution that streamlines invoice handling, ensures accuracy through auto-validation and three-way matching, and provides robust exception handling. With HighRadius’ account payable automation software, businesses can seamlessly integrate AP automation, resulting in substantial savings and swift implementation. 

Here are the critical steps involved in how HighRadius’ account payable automation works:

Invoice data capture

HighRadius’ AP Automation software integrates with various channels, such as

• AP Email Inbox (a dedicated email account for receiving invoices)
• EDI networks (electronic data interchange systems for exchanging business documents)
• SFTP (secure file transfer protocol for secure data transfer)
• Supplier Portal (a platform for suppliers to submit invoices)

To receive supplier invoices in diverse formats (PDF, Image, Tiff, ANSII X12 EDI, cXML). The system captures the details at header and line levels, classifying invoices as PO or non-PO and auto-coding non-PO invoices to appropriate GL code combinations.

Related scenario: A supplier emails an invoice in PDF format for laptop purchases. HighRadius downloads the email attachments and parses them, extracting details such as the invoice number, date, amount, and item descriptions for AP processing.

Validation, matching & policy controls

After capturing the data, our AP Automation software validates invoice data, matches it with Purchase Orders (PO) and Goods Receipt Notes (GRN), checks business rules, and identifies exceptions.

Related scenario: A company orders 20 laptops at $500 each but receives only 19 due to damage—the supplier invoices for 20 laptops at $520 each. HighRadius identifies price and quantity discrepancies and flags them for review.

Exception resolution & approval workflows

Invoice exceptions are categorized and assigned to relevant stakeholders. Users access exceptions through a worklist, collaborate, and resolve issues. Approval workflows are configured for PO and non-PO invoices, with or without exceptions.

Related scenario: The buyer addresses price variances while the receiver handles quantity discrepancies, ensuring efficient resolution through collaboration.

AI-powered AP inbox

Our AP Automation software organizes the AP Inbox by categorizing emails and creating action items. It infers supplier intent from email content and suggests responses.

Related scenario: An AP team receives numerous emails daily. HighRadius labels these emails (e.g., W9, New Invoice, Payment Follow-Up) and drafts suitable responses.

ERP Integration

Our AP Automation software offers two-way integration to import master data, POs, and GRNs from ERP systems and export validated, matched, and approved invoices. Data exchange occurs via APIs or SFTP in real-time or scheduled batches.

Related scenario: The HighRadius Netsuite Connector imports POs and GRNs every 15 minutes for three-way matching and posts approved invoices to Netsuite via API.

Reporting & analytics

Out-of-the-box (OOB) reports and dashboards provide visibility into AP aging, process efficiency, invoices under exception, and spending trends.

Related scenario: AP managers can monitor invoices, track exceptions by reason code, and generate accrual reports for month-end activities.

With centralized monitoring, automated approval workflows, and 360° visibility through customized reports, HighRadius is the ideal partner for achieving your AP automation goals and driving financial success.

FAQs

1) Why is accounts payable automation important for businesses?

Accounts payable automation is crucial for businesses as it enhances overall operational efficiency. AP Automation software eliminates manual errors, ensures timely payments, and improves vendor relationships, leading to better financial management and cost savings.

Furthermore, AP automation enhances compliance with regulatory requirements by providing accurate and auditable records. Automated checks and validations also reduce the risk of fraud and duplicate payments, contributing to more secure financial operations and improved cash flow management.

2) Can AP automation improve the invoice approval process?

AP automation can significantly improve invoice approval by automating and streamlining workflows. Automated approval workflows reduce bottlenecks and ensure invoices are routed to the appropriate stakeholders quickly, facilitating faster decision-making and payment cycles.

Additionally, automated systems provide visibility into the approval process, allowing for real-time tracking and accountability. This reduces delays, improves compliance, and ensures that all approvals are appropriately documented, enhancing the overall efficiency and reliability of the accounts payable function.

3) How does AP automation handle multi-currency and international payments?

AP automation handles multi-currency and international payments by integrating currency conversion tools and compliance checks into the processing system. This ensures that invoices are accurately processed and paid in the correct currency, adhering to local regulations and tax requirements.

Moreover, automated platforms manage exchange rate fluctuations and provide visibility into currency exposures, helping businesses mitigate risks associated with international transactions. 

4) Can AP automation prevent duplicate payments?

AP automation can prevent duplicate payments by incorporating automated checks and validations within the invoice processing workflow. The system flags potential duplicates by comparing invoice details against existing records, ensuring each invoice is processed only once.

5) Is cloud-based AP automation secure?

Cloud-based AP automation ensures security by employing advanced encryption and security protocols to protect sensitive financial data. These systems often include multi-factor authentication, access controls, and regular security audits to safeguard against unauthorized access and data breaches.

Furthermore, cloud-based solutions benefit from continuous updates and improvements from service providers, ensuring they remain compliant with the latest security standards. This enhances the reliability and security of financial operations, providing businesses with peace of mind regarding their data security.

6) How does accounts payable automation impact cash flow management?

Accounts payable automation positively impacts cash flow management by optimizing payment cycles and improving financial planning. Automated systems ensure timely payments, preventing late fees and taking advantage of early payment discounts, which enhances cash flow.

Additionally, AP automation provides real-time visibility into outstanding payables and upcoming liabilities, allowing businesses to manage their cash reserves more effectively. By improving the accuracy and efficiency of the accounts payable process, companies can maintain better control over their finances and achieve more stable cash flow management