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How does AP automation work and why is it useful?

Accounts payable (AP) automation works by digitising and automating the various tasks involved in the back-end financial process of paying invoices. It's useful to businesses because eliminating manual processes and integrating AP software with your accounting software or ERP system can result in cost savings and strategic benefits.

This guide explains how AP automation works, the numerous benefits, and what you should consider when choosing AP automation software for your business. 

What is AP automation? 

AP automation uses technology to automate routine accounting tasks, including receiving invoices, payment approval and reconciliation.  

Why automate accounts payable? 

There are several reasons why businesses choose to automate their accounts payable. AP automation provides an integrated and systematic way to manage the entire invoice lifecycle, so accounts payable is faster, more accurate and more efficient – and this comes with a range of cost-saving benefits. 

For example, you can handle high volumes of invoices seamlessly without having to worry about the cost of hiring more people. What's more, your suppliers get paid on time, which helps you maintain positive relationships and take advantage of early payment discounts. 

How does AP automation work? 

AP automation uses software to convert your suppliers' invoices into a standard digital format. It then pushes each invoice through a digital invoice validation and approval workflow before paying vendors. 

Here are the steps involved in AP automation:

1. Invoice capture

Invoice capture is the initial phase and is about digitising your incoming invoices. AP automation software can extract PDF invoices from a dedicated accounts payable inbox, recognise text fields and load this information into company systems. This means an employee does not need to do this data entry work. 

2. Matching and verification

Next, the AP automation software matches and verifies each invoice to its corresponding purchase order and delivery receipt. If there are any discrepancies, you'll receive a notification to resolve them before the invoice can move to the next stage. If the data held in your company systems matches that on the invoice, the invoice is automatically approved for payment with no manual intervention required. 

3. Invoice approval 

Using a set of predetermined rules you've created, AP automation software sends non-purchase order invoices to the relevant person or team for approval – who receives an invoice might be triggered by the invoice amount, vendor or other criteria. You can also set automatic reminders if invoice approval doesn't happen within a specific timeframe. 

4. Payment gets sent

AP automation software facilitates the process, including scheduling payments to optimise cash flow, setting up preferred payment methods, syncing the information to your ERP system or accounting software for payment, and sending remittance advice (if required). 

5. Reconciliation and reporting

Reconciliation and reporting are the last steps. After payment, invoices are securely and digitally archived, and payments are automatically reconciled with bank statements to verify that amounts and payees match. Good AP automation tools also generate detailed reporting that you can use to analyse spending patterns and identify potential cost-saving opportunities.

What accounts payable tasks can you automate? 

With AP automation software, you can streamline and automate almost all accounts payable tasks. These solutions can also integrate with your existing financial software so information flows seamlessly between systems and teams.

Here's a breakdown of those tasks:

Data entry

Manual data entry is laborious and can often lead to input errors. AP automation software uses Artificial Intelligence (AI) or Optical Character Recognition (OCR) technology to scan source documents and digitise them – eliminating the manual transfer of invoice data. 

Data validation 

Data validation involves checking and verifying the information on an invoice. AP automation software may check that the invoice has not already been processed, that the supplier is known to your company and set up in your system, and that their Australian or New Zealand business number is legitimate. These checks prevent the duplicate payment of invoices and safeguard against invoice fraud.  

Invoice processing 

Part of invoice processing is comparing invoices to purchase orders and delivery receipts to ensure they match before approval. AP automation software does this automatically using 2-way and 3-way matching, depending on the type of purchase. 

  • 2-way matching is for purchases that don't need a delivery report.

  • 3-way matching is for inventory orders shipped from a vendor to a customer after purchase.

Invoice approval workflows

With AP automation, the software routes the invoice data to the appropriate manager for their prompt approval. You can also set automatic email reminders for the manager to action their tasks. Invoice approval workflows provide visibility of where the invoice is and where any hold ups are happening, speeding up the process by ensuring accountability.  

Payment processing

Automated payment processing lets you schedule and make payments the moment an invoice is approved. This means you don't need staff to set up electronic payments or manually record transactions in your accounting system – payments are made on time, helping you avoid late fees.

Record keeping 

Accurate record keeping is the foundation of all accounting processes. AP automation software records and stores your invoices digitally, making them easy to access for audit and compliance purposes. Automation tools can also reconcile bank statements with invoice payments and flag any discrepancies – so your books stay accurate and up-to-date. 

Insights and analytics

Deep insights and analytics into your accounts payable can help you track your AP processes, identify workflow hurdles, spot any unusual spending patterns, and find opportunities to optimise the process even further and generate savings for your company. AP automation software usually comes with various reporting tools and dashboards – so you can see what's happening in real time and home in on problematic areas. 

What are the benefits of accounts payable automation? 

The benefits of AP automation include cost savings, processing efficiencies, fewer errors and more accurate financial reporting and management. 

Compared to manual processing, the most significant advantages of AP automation are:

Improved efficiency

Improved efficiency is one of the most immediate benefits you'll notice when you automate your accounts payable. An automated system will significantly reduce your invoice cycle time – how long it takes to process an invoice. Instead of spending time on manual data entry and correcting errors, you can focus on more value-add tasks like analysing payment data and spending. 

Reduced invoice processing costs

Reduced invoice processing costs are a common financial benefit of AP automation. When manual data entry is involved, you spend more time on each task in the AP process, which increases your overall cost per invoice – especially when there are errors or process bottlenecks. Automation translates directly to tangible cost savings by reducing overhead costs – resources you can allocate to other critical business functions. 

Reduced losses due to human error

Reduced losses due to human error are another reason to invest in AP automation. Manual processes are susceptible to typos, miscalculations and input errors – all common mistakes requiring more accounting work to fix. If left unresolved, these errors can snowball, potentially leading to considerable financial losses, audit challenges and upset vendors. Automation systems reduce the likelihood of human error, so you can be confident you're dealing with reliable financial data when making business decisions. 

Streamlined invoice management

Streamlined invoice management does more than save time and improve productivity. Every business is different, and automation allows you to create and implement workflows that meet your requirements. You can adapt your processes quickly as technology evolves or the operations of your business change. 

Strong internal controls

Strong internal controls start with having one central hub for your accounts payable, like automation software. From there, you can set rules and trigger-based workflows to ensure invoices get approved fast while building a clear audit trail of all approval actions. AP automation tools also have built-in security features that alert you when a transaction looks suspicious, helping you safeguard against invoice fraud. 

Improved financial visibility and reporting

With AP automation comes improved financial visibility and reporting. It offers a consolidated view of your entire accounts payable process in real-time, so you can see at a glance where money is going from your business. This level of visibility is critical for smarter financial planning and decision-making. 

How to choose AP automation software

Choosing the right AP automation software for your business will significantly impact your business's operational efficiency and financial accuracy. 

To find the best accounts payable tool that meets your specific needs, follow these steps:

Understand your requirements

First, understand your company's requirements. While the AP process is standard, you might have some unique specifications. Asking these questions – how many invoices do you process in a month, how complex are your payment procedures, what existing systems do you need to integrate with? – will help you determine the type of AP automation software you need.

Prioritise what you want out of AP automation software

Prioritising what you want out of AP automation software will ensure you get the right features for your business. If you're a new business, you may only need basic automation functionality versus an established business with a higher volume of invoices and more complex reporting requirements. 

Evaluate software and vendors 

When evaluating AP software and vendors, you should consider some key aspects. Does the solution have all the features you need? How cost-effective is it? Can it scale as your business grows? Does the vendor offer support after implementation, and how easy is it to integrate with your existing ERP and other financial systems?

Select your AP automation software

Selecting your AP automation software comes down to finding a solution with the right mix of functionality, support and integration capabilities for your business. Every business is different, and because there's a cost aspect to automating AP processes, you want to ensure the tool you choose provides long-term value. 

AP automation FAQs

Can AP automation help prevent invoice fraud? 

AP automation can help prevent invoice fraud by introducing 'process checkpoints' within the accounts payable process. For example, you can set approval limits for specific users, vendors or departments to ensure invoices don't exceed a certain amount. With AP automation also comes increased transparency and visibility of how much you pay to what vendors – this can help you spot any unusual activity and quickly resolve discrepancies. 

Can AP automation assist with preventing duplicate payments? 

AP automation assists with preventing duplicate payments by automatically checking for them before the invoice enters the approval workflow. If the invoice already exists in the system, the software will flag the invoice as a duplicate and not process it. 

How much does AP automation save? 

The amount that AP automation can save is dependent on your business. If your accounts payable are a muddle of manual tasks and checks, automation will eliminate them and significantly reduce your invoice processing costs. You'll spend less time on data entry, fixing errors, chasing approvals, and managing disgruntled suppliers, which will save your business even more money. 

Save time and money by automating your AP

Paying your invoices on time not only keeps you in your suppliers' good books – it also helps you manage cash flow and produce more accurate reporting on the financial performance of your business. With MYOB Acumatica, you can access a full suite of accounting functions and seamlessly integrate a range of AP automation solutions

To learn more about MYOB Acumatica, contact our ERP solution specialists.

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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