Automating AP processes can yield significant business benefits for companies, including reduced costs, increased accuracy and productivity, more control over cash flow, and improved consistency and stability in supplier relationships.
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How Does AP Automation Work?
AP automation relies on software to automate invoice processing workflows that were traditionally done manually. These are the basic capabilities of the technology and the specific steps within an AP workflow that are automated.
Step 1: Electronic Invoice Capture
The first step in the AP automation process is capturing an invoice. AP automation software will typically use one of four methods to digitally ingest an invoice: OCR, EDI, supplier portal, or electronic invoicing (eInvoicing).
The leading AP automation platforms have a supplier network to enable all of these options and connect enterprises and mid-market companies with suppliers of all sizes. Suppliers should be able to choose the option that works best for them, based on their profile, size, volume, and sophistication. Each method has its pros and cons that determine the efficacy for a given supplier.
Optical Character Recognition, or OCR, is software that scans an image of an invoice and extracts invoice information from that image. This text can then be retrieved by AP automation software for further use and processing.
While OCR is a widespread technology and can digitize the most common invoice formats (paper and PDF), it is not perfect. Even the best character recognition has an error rate of 1-2%, and this error rate is much higher for uncommon or handwritten words frequently found in invoices, such as names and addresses. Thus, any AP automation that relies solely on OCR will still generate errors that require manual intervention to rectify.
EDI replaces paper-based documents and email, making it faster, more accurate, and more reliable than many error-prone manual AP processes.
However, EDI relies on rigid message standards, so any missing or misplaced information can cause invoice processing errors. Additionally, because EDI requires custom-built systems and complex configuration work, it is typically only used by enterprises and their largest suppliers.
The supplier portal is a self-service method for sending a digital invoice. It is just as fast and accurate as EDI, and it offers better visibility on invoice progress. Suppliers can easily see the status of an invoice as submitted, approved, or paid, without the notification getting lost in their email inbox.
However, there are some limitations. For one, the supplier portal requires more manual input from the supplier, making it a less appealing option for those with high invoice volumes. However, the invoice is created directly from the PO data. This system benefits the customer because it ensures invoices are not submitted for unexpected or unapproved values, but it may inconvenience the supplier.
eInvoicing is the most flexible form of digital invoicing, whereby the supplier and customer can use their preferred format, including EDI, XML, CSV, PDF, and virtual printer formats. For example, a PDF from a supplier’s QuickBooks system can be transferred at the data level to give the customer a true electronic invoicing experience, without using OCR to convert the PDF.
This method is a necessary component of any best-in-class AP automation solution. It allows organizations to get the same accuracy, speed, and reliability as EDI but with better flexibility. It even works for smaller suppliers that might not have the infrastructure to support EDI. eInvoicing through a supplier network enables customers to collaborate with suppliers of all sizes, any way the supplier wants to connect.
Step 2: PO Invoice Matching or Non-PO Invoice Approval and Coding
After capturing an invoice, AP automation will then verify whether or not there is a PO associated with that invoice. If there is, most AP automation software will perform either a two-way match to ensure the PO and invoice match, or a three-way match to check the PO, invoice, and delivery receipt.
However, many invoices are sent without a corresponding PO. In this case, AP staff would need to route the invoice for approval from whomever purchased the goods and services, and then manually assign the General Ledger (GL) code for that invoice. Some AP automation software can use machine learning to recognize approval requirements, so coding and approval become more automated over time.
Step 3: Exceptions, Rejections, and Approval Routing
This part of the AP automation process involves invoice validation technology, which can determine if an invoice should be accepted, rejected, or considered an exception.
If a PO invoice does not match the PO, AP automation software can return the invoice to the supplier with a request to correct any errors. Conversely, if the invoice matches the PO, AP automation software will schedule the invoice for payment.
In certain cases, an invoice exception may occur. This happens if there are potential issues or extenuating circumstances surrounding an invoice that requires manual intervention. For example, PO invoices with data entry mistakes or digitization errors from OCR would generate an exception.
Additionally, any non-PO invoices could be considered exceptions because they always need to be routed, approved, and coded.
Invoice exceptions should be a rare occurrence. However, AP professionals report that 22.5% of all invoices are flagged for an exception requiring AP staff to intervene in order to get them approved. To reduce invoice exceptions, some AP automation solutions leverage machine learning to understand an organization’s requirements and resolve invoice issues without human intervention.
Step 4: Payments and Reconciliations
Once an invoice has been validated and approved, AP automation software will trigger an automatic payment. Once the payment clears, the AP automation software shares transaction data with other integrated accounting systems and stores it for analytics reporting.
What are the Benefits of AP Automation?
Organizations can gain significant business benefits from automating accounts payable processes. Some of the top benefits include:
Automated AP processes increase accuracy by eliminating human errors, such as overpayments, mismatched invoices and POs, or duplicate payments. In fact, AP automation tools can reduce duplicate payments to less than 1%, helping organizations significantly improve payment predictability and accuracy.
Eliminating manual data entry and streamlining tasks results in greater employee productivity. Organizations that use AP automation software can process an invoice in 3.3 days on average, while others take approximately 11.9 days.
So, instead of employees wasting the day on manual, low-value, and repetitive tasks such as keying invoice data, filling in missing invoice fields, pushing paper, fixing typos, or chasing down information from suppliers, AP automation frees up their time to focus on higher-value tasks such as supplier negotiation and improving early discount rates. In fact, two-thirds of AP leaders believe the best way to impact AP performance is through ‘smarter systems’ that drive more efficiencies.
Improved Relationships with Suppliers
AP automation removes friction from supplier interactions. With AP automation software, suppliers have the flexibility to be paid how they want to be paid, gain improved payment visibility, and have the freedom to submit invoices in a variety of formats.
AP automation also eliminates much of the human error in payment processing, ensuring timely and accurate payments. As a result, relationships with suppliers become smoother, more stable, and more profitable for both parties.
Early Payment Discounts
Suppliers often offer discounts for buyers who pay invoices early. However, it’s impossible to take advantage of early payment discounts if the invoice processing process is slow, prone to errors, or if the AP department doesn’t have full visibility into the payment schedule.
AP automation helps organizations complete invoice approvals efficiently and accurately, helping them take advantage of early payment discounts and improving their bottom lines.
AP automation provides greater visibility for AP professionals, suppliers, and business leaders.
AP teams can easily understand the status of each invoice, suppliers can see the status of their payments, and business leaders gain access to real-time reporting and key metrics. Gaining certainty over the timing of supplier payments helps organizations more accurately forecast cash flow and take advantage of early payment discounts wherever possible.
Finally, improved transparency into AP processes helps organizations identify and address problem areas such as non-compliance with business rules or company spending policies.
Manual data entry, document printing and mailing, and reconciliation processes take up valuable time and resources. In organizations that don’t leverage AP automation capabilities, it costs an average of $10.95 to process a single invoice.
Automated invoice processing can lower that cost by reducing late payment fees, capturing early payment discounts, catching errors and duplicate payments, and reducing the overall time spent processing an invoice. Because of this improved efficiency and productivity, organizations that leverage AP automation can lower the cost of processing an invoice to just $2.25.
Increased Employee Satisfaction
AP automation helps to create happier, more productive employees. Employees appreciate the elimination of tedious, manual tasks and the associated stress and risk that comes with the potential of making an error. Furthermore, it frees up time to allow them to focus on more strategic, high-value work, improving their sense of personal growth and contribution to the organization.
Seventy-one percent of organizations were victims of payment fraud attacks in 2021, with AP departments being particularly susceptible.
Decentralized AP teams, lax process controls, and manual entry and processing of invoice data all increase the risk of fraud. With limited visibility and AP professionals under constant time pressure to manually process invoices, fraudulent invoices can easily travel through an organization without detection.
AP automation software helps organizations improve supplier connections, verify invoice information, and more effectively enforce controls such as approval rules and payment authorization limits. With fewer weaknesses for scammers to exploit, your AP team can rest easy knowing that they have the tools they need to spot and prevent payment fraud.
Increased Audit Readiness
AP automation can help organizations simplify financial audits by categorizing invoices and documents in an organized fashion, eliminating the need to comb through a mountain of paperwork.
Automated workflows also guarantee that all required authorizations and records are present before payment execution, thus decreasing the risk of fraud or non-compliance. Furthermore, some AP automation solutions create an audit trail of every step in the approval process, which aids in verifying the validity of each of your organization’s transactions.
Decreased Paper Usage and Sustainability
With AP automation, organizations can transform AP workflows to align more closely with their sustainability goals. Digitizing invoices and payments eliminates the need to print, file, and mail physical documents. Furthermore, the efficiencies gained from streamlined approvals and invoice processing help organizations cut down on energy usage and waste.
How To Select the Right AP Automation Software
Before an organization can reap the rewards of AP automation, they must first select the solution that works best for them. Here are some major considerations that organizations should explore when evaluating AP automation solutions:
Invoice Capture Method
When exploring different AP automation solutions, one of the first considerations should be which method the solution uses to capture invoices. OCR, EDI, and eInvoicing each have advantages and disadvantages, each with ramifications for cost, flexibility, and efficiency.
While OCR-based AP automation can scan and capture data from a wide range of physical and digital invoices, its inherent error rate prevents these solutions from fully automating the AP workflow.
No matter how good the OCR software is, there will always be scanning and recognition errors that require AP teams to investigate and resolve. One organization in particular reported that 45% of their OCR invoices were of average readability, and 55% were considered to be poor readability, resulting in a lot of manual validation to ensure invoices could be processed. Furthermore, OCR-based AP automation may struggle to link invoice data to the correct fields, requiring further manual validation from AP staff.
EDI solves many of the accuracy issues inherent in OCR-based platforms, but only if they are correctly configured — for the host organization and for every single connected supplier. This complex configuration process requires a heavy up-front investment of time and labor, making EDI an impractical solution for organizations with smaller suppliers, or more transient supplier relationships.
The supplier portal has the speed and accuracy of EDI. But unlike EDI, it doesn’t scale for customers working with big suppliers that have high invoice volumes.
The supplier portal offers great convenience for the customer — but at the expense of their suppliers. It requires more manual processing and less flexibility for suppliers. These factors can create bottlenecks that strain their operations and relationship with the customer.
eInvoicing strikes a balance between flexibility and accuracy. It enables the transfer of one electronic format from a supplier to another format for the customer, while ensuring EDI-level accuracy for every transaction.
The best part is, when using eInvoicing through a supplier network, the customer doesn’t need to set up a direct connection with all their different suppliers. The platform provider does that for them to enable the customer to work with suppliers of all sizes and technological maturity.
Typically, AP automation can either be purchased as a monthly subscription or an annual plan. Features may also be broken up by pricing tiers, with higher tiers granting access to more features.
Finally, it’s important to pay attention to support and technical upgrades, which may not be included in subscription costs. Regardless of the pricing structure you choose, look for low startup costs and predictable recurring costs.
User Implementation and Onboarding Process
The level of support and the quality of an AP automation vendor’s onboarding process can make or break its adoption among your team. Without effective support and onboarding, your team may not capitalize on all the benefits provided by AP automation, such as fraud prevention and capturing early discounts.
When considering AP automation solutions, evaluate the level of support provided, the duration of response times, and the thoroughness of a vendor’s onboarding process and training materials.
The more suppliers an organization has, the more important it is to have a simple supplier onboarding process. Without a straightforward process, suppliers are less likely to put in the effort to connect with your AP automation system, which defeats the purpose of implementing one.
Some AP automation platforms charge suppliers a fee for a connection, which curbs supplier adoption, causes friction in your relationships with them, and results in pass-through costs for your business. Avoid these AP automation solutions.
Integration with Existing Systems
It is important to consider how easily a potential AP automation solution integrates with your existing ERP system. AP automation providers typically offer three types of integrations: pre-built connectors, APIs, and manual integrations.
Pre-built ERP connectors, where available, are the simplest option. A pre-built connector may not require technical assistance to set up, but it may have limited functionality or customization for your AP team’s needs.
API integrations are the most powerful method to streamline your AP operations. APIs offer more customization options than pre-built connectors, and can be configured to match existing processes or rules. However, they typically require the help of an IT team to set up, making their initial cost investment higher than other options.
Finally, manual data integrations present the most time-consuming option. While manual integrations don’t require technical knowledge, AP teams must be trained to transfer data files between systems on a regular basis. Worse still, this adds even more tedious work to overburdened AP teams, and opens the door to more mistakes and human error.
Flexibility in Options
Organizations process invoices in a variety of different ways. The AP automation solution that you choose should be able to support your suppliers’ existing processes, but remain flexible and easy to update if those processes change in the future.
For example, while some suppliers may be accustomed to submitting invoices directly into electronic systems, others may only want to send a PDF in an email. AP automation software should be able to seamlessly process whichever way a supplier prefers to submit their invoices.
A clunky user interface leads to confusion, frustration, and potentially more mistakes in the invoice processing workflow. Most AP automation vendors should be able to provide a demonstration of their solution, which will help you assess how user-friendly and intuitive the software will be — not just for your team, but your suppliers as well.
To keep your organization safe from scammers, it is essential to examine the fraud protections provided by a given AP automation solution.
AP automation solutions should provide complete visibility into your AP team’s invoice processing from start to finish. You should see which suppliers submitted invoices, and any team members who have been involved in the approval and payment process.
Having a single source of truth for all AP activity helps organizations keep tight controls over authorized suppliers and payment limits. Furthermore, AP automation can audit an invoice in real-time, checking for duplicate invoices or payments and ensuring the listed supplier and payment are authorized.
Fraud doesn’t just come from external actors — it can also happen internally. AP automation solutions can help organizations implement access controls and segregate AP duties, so that no one employee has sole control of the payment process. This can also mitigate the risk of impersonators having complete access to the invoicing process.
Experience of Provider
A provider with a long track record and deep expertise serving a variety of clients can help you identify hurdles and achieve a fast ROI with AP automation. Consider the longevity of client relationships, the flexibility of their supplier network, what types of clients they have serviced in the past, and testimonials or case studies that prove the reliability and relationship of the company.
Additionally, look for providers that specialize in AP. Certain platforms such as “suite providers” are mostly focused on spend management and procurement, at best offering only light-weight AP solutions.
Consider how your organization may grow in the future and ensure those plans line up with the AP automation solution you may choose. Does the solution have the ability to scale along with your company as you get more suppliers and higher volumes of invoices?
Even if you have a small or medium-sized business, choose a provider that has experience with large enterprise customers. That way, they can help you build a solid foundation that minimizes growing pains and maintains quality as your organization scales.
Many AP automation solutions are not only able to store AP data, but also use that data to generate reports. When exploring AP automation solutions, consider the types of reports that can be generated, what formats are available, and how they can meet your organization’s needs.
An AP automation solution’s analytics and reporting features can add value to various departments throughout the organization. For example, AP departments may use reports to pull information on late invoices or may use them as reminders for payment deadlines. The C-suite may use reporting to see larger trends over time, such as how supplier payments align with cash flow. Or, organizations as a whole may use vendor analysis reports to make assessments on how often they do business with a certain vendor, how they like to pay bills, or how often they offer early payment discounts.
AP Automation by Role: How Can it Work For You?
The decision to automate AP carries implications beyond just AP teams. Here’s how AP automation can benefit any role that has an interest in the financial health of the company.
Accounts payable clerks are the roles who most feel the day-to-day effects of tedious, time-consuming invoice processing tasks. Knowing firsthand the frustration of a manual invoice management process, they would be the role that would most immediately benefit from implementing AP automation.
AP automation software can relieve overburdened AP clerks by helping them process invoices efficiently, accurately, and on time. This allows them to take advantage of early payment discounts, avoid late payment penalties, and free them up to contribute to your organization with higher-value tasks.
AP Managers and Controllers
AP automation can provide AP managers and controllers with complete visibility. This enables managers and controllers to make data-driven decisions leading to cost savings and improved efficiency. It also frees up their time to respond to requests more quickly, such as providing reports of in-progress invoices or forecasts of cash flow in the coming weeks. With AP automation software, managers and controllers can focus on more strategic tasks, provide greater value to the executive suite, and better support the financial health of the organization.
The IT team will play an integral role in implementing any new AP automation solution. During the decision-making process, IT leaders will want to evaluate the implementation process, security, end-user training, resources, and support. They will also want to assess how the AP automation solution handles data security and prevents fraud. Furthermore, they will need to determine if they have sufficient resources to assist with the implementation, how it integrates into current architecture, and how long the process will take.
Many AP automation vendors provide APIs, prebuilt connectors, and file integrations to connect with most ERPs. This takes the burden off the IT team to provide integration resources, updates, and upgrades.
Depending on the company, the AP and finance teams may be managed within one unit or kept as independent entities. Regardless, the finance department will be impacted when a business opts to streamline its AP operations through automation.
Many AP automation tools are designed for end-to-end automation. Since finance departments would be involved in those larger workflows, ensuring these teams are involved from the start helps smooth their transition to new processes. Furthermore, positions in these departments will ultimately enjoy similar benefits from AP automation software as their AP counterparts.
C-level executives tend to be most concerned with cost, total value, and ROI when considering any new solution. They may also wonder how much their business will really save with AP automation, or even see it as a potentially hazardous move to move away from their existing system.
Once AP automation is in place, however, CEOs will witness cost reductions due to improved employee and process efficiency. CFOs will have better visibility into spend and be able to better plan, discover new opportunities for growth, and control spend more efficiently. And finally, the C-suite as a whole will benefit from the elevated visibility across all parts of the organization’s spending and have direct access to real-time data to assist with strategic decision-making.
Which Industries Can Benefit From AP Automation?
AP automation can benefit various industries, especially those with extensive supplier networks such as retail, manufacturing, and supply chain & distribution.
AP departments in the retail industry work with an intricate web of vendors and suppliers they rely on for inventory. Preventing fraud and preserving positive relationships with vendors are top concerns for them. Additionally, the number of invoices their AP departments wade through can be overwhelming, and mistakes are costly.
AP automation software can help to ease these concerns by dramatically decreasing the manual workload, increasing accuracy, and boosting efficiency. It empowers AP staff to deliver more consistent and on-time vendor payments with minimal manual intervention, ultimately improving the experience for both employees and suppliers..
As a result, retailers are recognizing AP automation as an essential strategy to retain their staff, protect their supply chain, and further develop their digital presence — all of which will aid in resolving many of the challenges facing the retail industry today.
AP operations in the manufacturing industry are incredibly intricate and demanding. Any supply chain disruptions can be disastrous, so close collaboration with suppliers is required to keep production lines on track. Further, there’s a daunting number of non-PO invoices that need managing — from rental agreements to electricity bills and gardening services, which only adds to the complexity of this already complicated system.
With AP automation software, the invoicing-to-payment process can run as smoothly as an efficient production line. AP automation software can assist manufacturing organizations by being adjustable for different suppliers, coping with various workflows, and helping AP professionals quickly and accurately process both PO and non-PO invoices. AP automation software not only pairs POs with packing slips, proofs of purchase, and invoices, but also consolidates all bills and invoices into one convenient platform, removing paperwork hassles and reducing the likelihood of mistakes or late payments.
Supply Chain & Distribution
Having a good handle on cash flow and costs is essential in the supply chain and distribution business. In the past, manual accounts payable systems often made that difficult. Mistakes were common, and invoices took too long to process, resulting in late payments and missed savings opportunities.
To remedy this problem, nearly half of all companies in the industry have committed to automating AP over the next three years. The ones who've gotten a jump on it have benefited from improved vendor relationships, swifter payment completion times, and more clarity when it comes to spending. AP automation also frees up time for AP staff to spend time on more meaningful and strategic tasks, such as analyzing spending patterns and cultivating stronger ties with suppliers.
What Types of Companies Can Benefit From AP Automation?
Whether you’re a small startup, a mid-sized company, or a large enterprise, AP automation can help simplify and streamline your AP processes. Here’s how.
AP automation has seen a major surge in popularity among enterprise organizations that are inundated with invoices. Thirty-one percent of businesses have now automated their processes, the majority of those being larger enterprise organizations. With the shift to more work-from-home and telecommuting employees, these large firms have sought out automation solutions to streamline their financial processes.
As a result, they’ve increased their credibility with suppliers, reduced the anxiety of employees who previously dealt with an endless stream of invoice exceptions, and provided invoicing consistencies under any conditions. With this type of success, even more enterprise organizations are expected to pursue AP automation in the future.
While AP automation had primarily been more of a focus for larger enterprise companies, solutions are now accessible to mid-sized companies. After seeing their larger competitors gain competitive advantages through AP automation, the mid-market is now poised to reap the business benefits of adopting AP automation as well.
By taking advantage of AP automation software, companies are keeping their costs down, improving efficiency and visibility into invoice and payment data, and gaining greater clarity, predictability, and control over cash flow. Mid-sized organizations are also finding that the software helps them in terms of minimizing risk factors, ensuring compliance, and overall growth without the need to hire more personnel.
Small Businesses and Startups
Despite the advantages of AP automation, only a small fraction of SMBs (5%) have fully automated their AP processes. Eighty-six percent of SMBs are still manually entering all of their accounting data. However, those that do choose to automate can expect considerable savings in time and money when it comes to processing invoices.
Further, small businesses are twice as likely as large organizations to experience billing fraud. AP automation can help small businesses identify suspicious or duplicate invoices, preventing disastrous losses to fraud. And with many vendors offering early payment discounts, automation software can help small businesses take advantage of savings and avoid late payments.
Transcepta and AP Automation
Transcepta automates the AP process, end to end. For nearly 20 years, enterprise and mid-market organizations have partnered with Transcepta to connect quickly with suppliers, reduce costs, control cash flow, and make better data-driven decisions.
With Transcepta, organizations can move beyond slow, error-prone, and unscalable processes and transition to a fast and accurate online system that is easy for everyone to use. Visit our AP Automation page to learn more about how our AP automation solution can help your organization.