The Ultimate Guide to Accounts Payable Process Automation

Is your accounts payable department drowning in paperwork and manual invoice reconciliation tasks?

Traditional accounts payable (AP) processes aren’t just inconvenient and time-consuming, but also rife with possible human errors. All of this not only slows your organization down in terms of business operations, but it also hinders growth as a company.

The good news is that many companies are now turning to automation to solve their account payable woes. By streamlining the entire process, you’ll improve employee workflows by reducing repetitive tasks, keeping suppliers happy, and allowing your business to truly flourish.

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What is accounts payable process automation?

Accounts payable process automation is a method of integrating accounts payable automation software into traditional AP processes, eliminating human error and streamlining it for greater accuracy and convenience.

There are a host of reasons organizations are increasingly automating their AP processes including greater productivity of staff, cost and time savings, convenience and eliminating errors.

With AP processes streamlined, your organization is better equipped to get paid on time by creditors, while making the entire payable process more systematic and manageable for maximum efficiency.

How do accounts payable (AP) automation work?

Accounts payable automation software generally converts invoices received from your suppliers into a digital format which is then processed through robotic process automation involving optical character recognition (OCR), machine learning and pattern recognition – resulting in automatic payment to suppliers.

With this digital workflow in place, accuracy is improved over time and general ledger codes and approval routing can be used to improve payment efficiency by learning from past experience. The goal of this software is to eliminate the need for human or manual intervention, allowing a completely automated payment process to suppliers.

Traditional payable process vs. accounts payable automation

accounts payable process

The traditional AP process typically requires long and tedious correspondence with the vendor and the business owner or end-user. With automation, the time and cost it takes to process a single invoice is significantly reduced. We compare both processes below

Traditional payable processAccounts payable automation
Relies on humans and manual entry (typically into a spreadsheet)Uses software to create a digital workflow of supplier invoices
Information and invoices are scattered leading to a lack of visibilityA comprehensive view of all payment statuses through a single interface
Prone to errors due to human elementEliminates the need for manual intervention
Requires employees to follow up on each invoiceAutomatic follow-ups and notifications to suppliers

How AP automation can help your small business? (What problems does AP automation solve)

The benefits of AP automation include the following:

Reduced errors

Traditional AP processes are always going to be prone to human errors. When managed through a manual Excel spreadsheet, which may have multiple editors within a Finance department, there’s plenty of room for mistakes to happen.

By streamlining the process to remove as many manual elements in the AP process as possible, errors can be reduced leading to smoother and more efficient payments.

Faster invoice approvals and payments

With fewer errors to get in the way, the entire AP process is shortened and streamlined. Errors can be detected before an invoice is sent to approvers and can be corrected more quickly.

Quicker approvals then lead to faster payment times with payment information recorded and sent out automatically to suppliers.

Control and visibility

By automating the accounts payable process, vendors and suppliers can track invoice and payment status themselves – lending a sense of transparency to the payment process and giving them more peace of mind.

Meanwhile, your finance department has greater visibility with a comprehensive view of all outgoing payments, cash flow and payment data, providing a systematic overview of finances and payment statuses.

Improved productivity and cost savings

With your AP process streamlined with automation, this frees up your employees’ time to focus on less repetitive tasks and contribute to your business in other more meaningful ways. In terms of costs, you save more in the long run by reducing the need to hire more staff to manage accounts payable processes manually.

Improves relationships with vendors and suppliers

With faster processing of payments and more transparent updates of transactions provided, your organization can foster better relationships with suppliers and vendors – ensuring a long-term and lasting partnership.

Leverage early payment discounts

By speeding up the payment process to suppliers, your organization can leverage early payment discounts, saving substantial costs in the long run.

How to choose an AP Automation Solution

When deciding on which software to adopt to simplify your AP process, there are a few key considerations to keep in mind. Here are a few elements of a quality AP automation solution:

Automated invoice processing

This one goes without saying but the goal of a quality AP automation solution is to automate invoice processing in order to reduce as much manual processing required as possible. However, there is a difference between traditional automation and robotic automation which is worth noting when choosing an AP automation solution.

With traditional automation, invoices are processed with the help of digital tools which eliminate a huge proportion of manual intervention. However, humans do need to manage these tools and bridge the gaps between automated strings of tasks.

Meanwhile, robotic process automation eliminates all human intervention and provides end-to-end processing of invoices. Tools are “managed” by software robots requiring no human intervention. With this software, machine learning is often deployed to learn from past experience to improve processes in the future.

Depending on your organization’s needs, you will need to decide whether robotic process automation is necessary for your particular business as the cost of RPA technology is substantially higher than traditional automation.

Simple and fast onboarding

It’s important to choose software that facilitates a smooth onboarding process for employees. Without your employee buy-in, purchasing an AP automation solution will prove fruitless and will go unused.

Ensure that employees get on board as quickly as possible by choosing a software provider which takes the onboarding process seriously and assists in the training process as much as possible for employees to smoothly transition.

Great customer support

Customer support plays such an important role in choosing the right AP automation software. Should you encounter any issues with supplier payments, it’s crucial to have the right support in place for when problems arise and need troubleshooting. When choosing a software provider, be sure to enquire about their customer support services as well as read reviews from current or previous customers online.

Easy integration to an accounting system

By integrating your AP automation solution with your existing accounting system, you simplify your AP process not just with payment and invoicing but also with your bookkeeping. Software such as Spenmo does this seamlessly by integrating payment tracking with Xero accounting software – providing a more seamless payment and reconciliation process.

Customizable

An AP automation solution is only as good as how well it provides your organization with exactly what you need for your particular business. By providing configurable and customizable options such as options for vendor payment notifications, approvals, and data imports, you can then create the AP automation workflow that works best for your business needs.

Final tips to streamline your accounts payable workflow

Choose a customizable AP automation software

A solution which delivers what your business needs is most important to ensure you get the highest ROI possible from the solution. Configurable options help to ensure that your business isn’t paying for a solution which doesn’t provide room to enhance your existing business processes.

Emphasize training and onboarding

It’s important to understand that an AP automation solution will take time to become the standard process for employees. Giving them the time and support they need to fully get on board with the system is crucial for successfully implementing any software.

Determine what your business really needs

By understanding the strengths and weaknesses of your existing AP processes, you can then hone in on them and troubleshoot them, filling in the gaps with a suitable AP automation solution. Rather than choosing software, you don’t need, understanding these gaps will ensure that you choose software that actually improves the AP process you already have in place.

Choose an AP solution that integrates with other systems

An AP automation solution that plays well with other systems and integrates seamlessly is ideal and will save even more time for employees. A payment automation software like Spenmo does exactly that by tying the payment process seamlessly with Xero accounting software.

Conclusion:

AP automation is the way forward for businesses to maximize their supplier payment processes, improve relationships with vendors and save employees the time they need to help your organization grow.

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Hourly rate of employee x time spend = Cost per invoice

If an employee receives a salary of $10 per hour and spends 50 hours in a month for one invoice:

$10 x 50 = $500

Multiply the cost per employee on the number of employees involved in manual processing:

$500 x 3 = $1,500

Based on the estimate above, an invoice payment will cost your company around $1,500 when processed manually. In calculating the labour cost, here are the variable involved:

  • Time consumed to process the invoices
  • Time consumed to review the invoices
  • Time consumed to evaluate and detect errors

Storage and shipping costs of physical invoices

Your physical invoices may incur fees when sent through courier. The shipping costs will differ depending on your supplier’s location. Physical storage is another cost if you need to manually file the physical invoices for future references.

Penalties and consequences of late payments

Your company may incur penalties and may lose discounts when payments are late. Worse, you may even lose the chance of getting another credit line because your payment methods and processes are unreliable. Some suppliers may not grant you a credit opportunity if you have not been settling your debts on time.

How does AP automation help reduce cost?

Small and medium enterprises may not have realised yet how AP automation can help them save time, money, and opportunities to manage their liquidity in several ways:

Reduce labor costs

Instead of paying the salaries of 3-5 people in the finance team, you can now pay an average of 2 people to handle the entire process. AP automation allows you to upload the invoice and the automated system will generate and record the details for you. Your finance team can easily evaluate and reconcile the details in a few hours and send them for approval immediately.

Improved accuracy

The automated data generation from scanned invoices will no longer be subject to human errors. Again, if there are inconsistencies, correction and verification are easily addressed through a single dashboard.

Faster approvals

Once the invoices are verified and entered into the system, approving officers need not review everything manually. Approving officers can sign and confirm the release of payment at the same time without them waiting for their turn to do so.

Greater productivity

Since labor costs are reduced, finance teams can now be reassigned to other accounting tasks which will improve their productivity. Employees no longer need to spend hours and days entering data, verifying them, reconciling orders, and having them approved for payment.

100% Automated Bills Payment and Reconciliation by Spenmo. Click to learn more

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