What Is AP Automation? A Detailed Beginner’s Guide

Colby Ezell / Vendor Payments / July 19, 2022

If you own one of the 90 percent of U.S. businesses still using checks to pay your vendors, it’s time to launch into the 21st century. Change can be scary, especially if you’re worried about uprooting accounting practices that have been in place for years. But what’s even more frightening is looking at how much time you’re wasting each month with busy admin work when those tasks could be fully automated.

The good news is that you can implement Accounts Payable (AP) Automation without overhauling your entire accounting department.

The best way to ease your fears of AP automation solutions is by learning the basics of what it is, how it works, and how it will benefit you. You don’t need to be an accountant to understand, either. We’re breaking down the basics to calm your nerves and get you on board with a more straightforward way to manage payments.

What Is AP Automation?

Accounts Payable automation, or AP automation for short, is when you use technology to automate and streamline the Accounts Payable process. This allows you to minimize costs, avoid human error, and improve vendor relations.

By automating Accounts Payable, your business can process vendor invoices without having to manually process each one individually. Having an entirely digital workflow has countless advantages for businesses today. There are many software options for AP invoice automation, each with different solutions and benefits. Many programs also include valuable tools to analyze payment data.

Why Is AP Automation Important?

You may think your current payment solutions are working just fine, but businesses of all sizes should see the importance of simplifying and optimizing B2B payments. Whether you’re a small mom-and-pop shop or a large-scale international corporation, payables automation is crucial for all companies looking to reduce costs, streamline processes, automatically capture discounts, and minimize the risk of fraud.

Reduce Costs

There may be an initial cost when implementing AP invoice automation, but you will begin to see a return on your investment in multiple ways. For starters, your cost per invoice will drop dramatically. In addition, companies can save on printing supplies, mailing costs, and labor, adding up to drastic savings.

Streamline Payments

With Accounts Payable invoice automation, the entire process from receiving the invoice to payment can be completely touchless. The data on invoices will be extracted automatically, invoices matched to purchase orders and checked for accuracy, and approvals finalized with the click of a button. That means vendors will always be paid on time, and you can reconcile payments immediately.

Automatically Capture Discounts

Suppliers often offer discounts for specific payment terms. Usually, early payments will receive a greater discount. This is sometimes referred to as dynamic discounting. With automated software speeding up the invoicing process and keeping an eye out for favorable terms, a business can save money by maximizing potential discounts. This benefits your supplier as well as you.

Mitigate Risk and Prevent Fraud

Unfortunately, Accounts Payable is one area of businesses that can be more vulnerable to fraudulent practices. By automating Accounts Payable, you can limit your risk and prevent fraud. With full visibility of your AP workflow, suspicious activity can be monitored instantly and effortlessly. This means catching duplicate payments, false billing, and unapproved vendors and putting a stop to some of the most common fraudulent transactions.

What Are the Benefits of AP Automation?

The importance of AP automation should be evident by now, but you will see even more hidden benefits after replacing manual processes with high-tech software. AP automation isn’t just good for your bottom line. It’s good for your team, suppliers, and even the planet.

  • Saves time: As the input process is fully automated, your employees will save valuable time rather than manually inputting endless data. As your business scales, you won’t be forced to hire more and more employees to keep up. This also gives current employees the time to focus on other things and improve productivity.
  • Minimizes errors: Even the most skilled humans make mistakes. With manual entry, you run the risk of duplicate payments, transposed numbers, and other human errors. Automated Accounts Payable minimizes the risk for these errors and catches discrepancies.
  • Improves vendor relations: By streamlining the Accounts Payable processes and taking advantage of dynamic discounts, vendors receive payments in a more timely fashion. This frees up their cash flow and results in positive relationships.
  • Digitizes records: AP invoice automation eliminates the need for hard copy records, storage, or postage. Having everything stored digitally makes it easier and more cost-effective to preserve data for auditing or analysis.
  • Provides easy access: With cloud-based systems, any member of the team can access the financial information they need from anywhere in the world.
  • Offers simple analytics: With robust data capabilities, AP software makes it easy to search by date, vendor, invoice number, payment amount, type, or status. Data can be easily exported to create reports for financial analysis.

How Does Automated Accounts Payable Work?

The way AP automation works is pretty simple. It starts by scanning invoices for vital information and digitizing it into the AP software for review. The software will then compare the invoice with the purchase orders already on file, searching for any discrepancies that should be flagged. At this time, the invoices can be coded automatically based on a set of rules that have been established.

Once the invoices have been processed, they will be sent to the designated manager for approval. The software will alert the proper approver that the invoice is ready for review. Approval can be done within the cloud software, which is even more efficient with batch approvals. The payments are then made and recorded.

Why Do Companies Invest in AP Automation?

The manual process of Accounts Payable takes up a lot of valuable time and resources from employees. On top of that, there is so much room for human error using traditional accounting methods. With automated Accounts Payable, companies reduce the time spent on monotonous tasks and prevent discrepancies in accounting.

While saving time and money might be the main reasons companies first look into AP automation, the additional benefits are also crucial driving factors. More and more vendors are also looking to move to fully electronic payments and automated systems, so keeping up with industry standards is vital. Businesses using AP automation can accept more types of payments.

How to Automate Accounts Payable

We’ve just barely scratched the surface of all the benefits that Accounts Payable automation can bring to your business. So now that you’re on board, the next step is to figure out exactly how to bring AP automation to your company. For most companies, this means integrating AP software into the systems that are already in place.

For example, P3’s Vendor Payment Automation tool is easy to use with your daily systems. The simple interface enables all vendor payments to be 100 percent automated. In addition, the software has robust data capabilities for storage and analysis and even offers to onboard new vendors.

Choosing an AP Automation Solution

P3’s Automation Solution is just one of countless options for business owners. It can be a daunting task trying to narrow down which one is right for you. Before making any decisions, consider these factors while shopping around for the best Accounts Payable invoice automation.

  • Your specific needs: Each business has different requirements. Should your software focus on Accounts Payable or receivable? Will you be able to customize the software to fit your unique needs? Which processes do you want to automate?
  • Integration possibilities: Be sure to look into how the software will be able to blend in with your current systems. Will you have to make major changes to your existing workflow processes? Will the software be able to grow as your business does?
  • Pricing: There is a vast range in price for AP automation software, and it doesn’t always equate to getting what you pay for. There are some excellent solutions out there at little to no cost to you. Will the cost of the software bring a return on investment?
  • Trust and experience: Accounts Payable is a significant part of your business, and if automation doesn’t go well, it will cause you major problems. Does the software you’re considering have a good track record? Can you trust it to handle your business’ cash flow?

AP Automation Best Practices

Just because the AP software you’ve chosen will be automating Accounts Payable, it doesn’t mean there is no human involvement at all. In fact, the software can only be as successful as those in charge of running it. And while these programs will do a lot of the heavy lifting for you, there are some crucial steps you and your team need to take to ensure the automation process is successful.

Follow these best practices to keep your accounting department running smoothly after implementing AP automation software.

  • Choose software carefully: Follow the tips above to ensure that the automation software you choose is the right option for your specific needs.
  • Work as a team: Make sure the entire accounting team is committed to a successful automation plan. Appoint an AP automation manager who can help keep the whole team up to date and respond to issues that may arise.
  • Educate your team: Make sure you go through a complete onboarding process with the new software so that you and the AP team fully understand all the components and tools available to you.
  • Communicate changes: It’s vital for the success of automation that all employees understand what changes are being made to their responsibilities or workload. In addition, don’t forget to include vendors and update them with any relevant information they need to know as well.
  • Track success: Record a starting point of key performance indicators with current practices and compare those to future numbers after automation is implemented. Check in with your team as well to see their opinion of the changes and what else can be done moving forward.

Accounts Payable Automation Is the Future

It’s not a matter of if your company will move to AP automation. It’s a matter of when. Digital is the future, and you don’t want to fall behind industry standards. Switching over may seem like a giant undertaking, but with P3 Cost Analysts guiding your way, the move will be seamless and stress-free.

Our vendor payment solutions are simple by design, so you won’t get overwhelmed with a complicated interface. Some key components of our software include payments batch approval, easy integration, robust data capabilities, and full-service vendor enablement.

Contact one of our experts today to see how P3 can help streamline your AP processes.

Send this to a friend