What is AP automation?

AP automation simplifies and eliminates manual steps in the vendor bill payment process using software, workflow planning, and change management. 

Using technologies like RPA and AI, accounts payable software solutions process invoices faster and at scale – including electronic invoice data capture, invoice and supplier verification, matching, account coding, approval workflows, and payments – and analyze business spending. 

Why is AP automation important?

Businesses use AP automation to boost operational efficiency, focus team efforts away from low-value manual tasks, improve accuracy, reduce fraud risk and duplicate payments, eliminate fees and vendor relationship damage caused by late payments, and reduce processing costs. 

AP automation is popular among CFOs and finance teams for these reasons. It reduces costs and allows earlier-stage companies and small businesses to get by without having to dedicate headcount to an entire accounts payable department. 

For example, some vendors may use e-invoicing to charge customers, but others still use a paper-based billing process. Processing these payments as a part of the procurement process can require significant hours, mindshare, and money, depending on volume. 

Like introducing automation to other finance processes like accounting, AP automation starts with finance teams outlining a workflow outline and segmenting automation-driven efficiency opportunities by impact level, the effort required, and relative priority.

Not doing so can create headaches. For example, you want to ensure any AP software you introduce works well with your ERP, the single source of truth for many organizations.

As your team executes quick-win scenarios, a key benefit is that you simultaneously learn and gain knowledge to tackle other processes like order-to-cash automation. 

What are the challenges with manual AP processes?

Manual AP processes can create many challenges and headaches for finance organizations, including: 

1. Manual AP is time-consuming for finance teams

Whether a business has a one-person finance team or is a larger organization with an entire accounts payable department, paper-based, manual AP tasks require significant hours and attention. 

Consider the tasks involved in a typical AP workflow: 

• Requesting missing or lost invoices from suppliers 
• Collecting W-9 or W-8 tax forms from suppliers to prepare 1099s
• Performing manual data entry of invoices and payments into the accounting or ERP (enterprise resource planning) system to create a digital format
• Three-way matching between invoices, purchase orders, and order receipts
• Manually coding invoices 
• Matching paper documents like supporting POs and receiving reports with invoices
• Routing documents to approvers 
• Providing payment status to vendors 
• Printing and distributing paper checks by mail at the post office
• Filing paper check copies and invoices and boxing them later for storage
• Establishing a clear audit trail
• Manually searching for differences and reconciling accounts payable to the general ledger.

2. Manual AP is susceptible to human errors

With manual data entry in accounts payable, human error happens. 

Errors may occur in supplier data accuracy, inaccurate account coding, paying the wrong invoice amount, duplicate invoices, or fraudulent invoices. 

Accounting may need more time to reconcile accounts payable on a timely basis, or this task will delay the accounting close. 

3. Manual AP may put a strain on headcount resourcing and morale

The accounts payable organization may need additional staffing as the volume of invoices increases with business growth. Bottlenecks in accounts payable and invoice processing workflows slow down the AP team. 

Problems with inaccurate vendor invoices, follow-ups with invoice approvers, and handling repeated customer calls about payment status are frustrating. When the accounts payable workload is too high, this can result in poor employee morale.

4. Manual AP may cause delays and vendor relationship strain

With a time lag in recording supplier invoices into the accounting system, the accounts payable balance isn’t up to date in recording current liabilities. Invoices won’t be processed in time to take early payment discounts, costing the company extra money. 

At month-end, the accounting department will need to manually accrue more AP invoices to make financial statements more accurate. The finance team won’t have a good handle on cash requirements for paying bills. 

AP automation vs. AR automation

Although accounts payable and accounts receivable are both balance sheet accounts to accumulate invoices with credit terms, the primary difference in accounts payable vs. receivable is that accounts payable relates to vendor invoices requiring payment when due. 

In contrast, accounts receivable refers to customer invoices for which cash will later be received.

What are the benefits of AP automation?

AP automation provides benefits in efficiency, financial accuracy, time savings, financial transparency, and fraud prevention. Here’s a look at the benefits:

1. Better efficiency

Automation adds significant efficiency to accounts payable and invoice processing by streamlining workflows with AP best practices, and eliminating paper-based manual processes. 

2. Financial accuracy and peace of mind

With AP automation, invoice payments, account coding, and financial statements are more accurate because human errors are reduced through exception flagging, automatic coding, and timely accounts payable data synced between integrated accounting systems for easier reconciliation. 

3. Time saving

Efficiencies built into the accounts payable automation software save your AP and accounting departments time. Invoice processing takes less time, global payments are efficient, and the books can be closed faster to produce financial statements. 

4. Better financial transparency

AP automation platform users gain visibility into spend management, with more metrics and analysis. All users with role permissions have views of the same information. 

5. Fraud prevention

Businesses improve invoice fraud prevention when they use AP automation systems. Automatically matching invoices with approved purchase orders and receiving reports also helps reduce fraud compared to manually completing these processes.

How does accounts payable automation work?

Accounts payable automation streamlines invoice processing tasks relating to accounts payable by integrating add-on software with an ERP or accounting software.  

One key step in implementing AP automation is mapping corresponding fields and data syncing between the ERP and AP automation solution. 

What are some AP automation tools that make AP automation work?

AP automation tools for processing accounts payable and vendor invoices for payment include artificial intelligence/machine learning (AI/ML) and robotic process automation (RPA) for completing routine tasks digitally rather than with manual processing and manual data entry. 

These AP automation tools also provide business intelligence and better spend control. 

The top accounts payable tasks to automate

The following accounts payable tasks to automate with AP automation are :

• Vendor onboarding and management
• Digital data entry without manual processes or paper documents
• Verifying invoices and checking for duplicates
• 3-way or 2-way invoice matching 
• Automatically coding invoices
• Routing approvals
• Scheduling and making payments
• Tax form compliance
• Expense reporting and reimbursement
• Detecting fraud and errors
• Reconciliation of accounts payable and payments
• Intelligent analytics and metrics 
• Reporting

When your business automates AP flow, it gains more visibility and control over cash flow needs and cash forecasting. 

A sample AP automation process

The following steps comprise an example of the  AP automation process:

1. Onboard vendors to collect supplier W-9 or W-8 tax forms, contact and payment  information for their choice of payment method. 
2. Electronically capture invoice data using email, upload, or intelligent OCR (optical character recognition). 
3. Check vendor invoices for accuracy, fraud risks, and duplicates. 
4. Code invoices and record accounts payable and expenditures. 
5. Route invoices to approvers to obtain payment approvals. 
6. Schedule, make, and reconcile large-batch supplier payments for accounts payable. 
7. Provide analytics and reports. 

Get the vendors involved in onboarding to provide accurate information for automatic entry into your AP automation system. 

When you collect W-9 or W-8 tax forms upfront through your AP automation solution, you won’t need to scramble to get them when 1099 supplier and nonemployee compensation information returns are due. 

Capturing invoice data by line item with headers digitally means your company won’t waste time on manual data entry for paper invoices. 

The AP automation system has better automatic detection of fraud and errors than humans can do on their own. That means making fewer payment errors and duplicate payments, and getting rid of fraudulent invoices that shouldn’t be paid. 

AP automation can do autocoding using artificial intelligence with machine learning. The integrated AP automation software syncs with your ERP or accounting software, so you don’t need to record payable accounts in each system separately. 

This makes the reconciliation of accounts payable easier. 

Approvers can approve digital invoices from anywhere. This means no waiting for them to get back to the office from a business trip, resulting in faster invoice approvals. 

With AP automation, you can pay large batches of supplier invoices with the click of a button. 

Finally, AP automation gives your company employees the same views and metrics for better visibility and business intelligence to manage and control spend. 

How to get buy-in for AP automation at your company

To get buy-in for AP automation at your company, perform the following steps. 

Step 1 - Identify the pain points and costs of not using accounts payable automation

AP automation solves challenges and eliminates the frustrations and pain that the accounts payable staff and entire accounting/finance department experience from spending too much time on routine, bottlenecked error-prone accounts payable processes. 

Identify and list those pain points that apply to your business. 

Step 2 - Identify and summarize the benefits of AP automation

Overcome the challenges of manual data entry with paper-based documents when you digitize accounts payable invoice processing with AP automation.

Document additional AP automation benefits on this summarized list. 

Step 3 - Collaboratively prepare a list of features and results your business needs for AP automation 

To make buy-in easier and ensure that you choose the right AP automation software for your business, get as much input upfront from key stakeholders at the company and external advisors like your CPA firm. 

What features are required in an AP automation system? What is the wish list for features that would be nice to have? What results are system participants and executive management seeking from AP automation?

Step 4 - Evaluate AP automation software in relation to selection criteria and cost vs. company budget

After you compile the requirements and nice-to-have features list from stakeholders, evaluate AP automation solutions provided by competing software vendors. 

Obtain complete quotes, including software platform for the needed features and number of users, implementation and training costs, payment transaction fees, and other costs. 

Compare the needed features and cost of each AP automation software choice in relation to your company’s budget. 

Step 5 - Compute and compare the ROI of AP automation software 

Besides identifying a feature-rich system that matches your business needs and falls within your budget range, compute and compare the ROI of each scalable AP automation software system that your company can afford. 

Step 6 - Communicate with employees 

Communicate with all employees the selection, training, implementation, and launch procedures for the AP automation software.

How to pick AP automation software

It’s important to make the right decision when picking AP automation software. Consider the following criteria and your company’s imperatives when selecting the best AP automation software to meet your unique business needs. 

Scalability

To meet your company’s growth needs in a system, the best AP automation software provides scalability to handle a larger volume of invoices and complex multi-entity functionality. 

Suppose your company later needs to upgrade its accounting from basic accounting software to a mid-range system like NetSuite. In that case, the AP automation solution should provide an easy integration path with the new ERP. 

Low human intervention in automated processes

The AP automation system should help your company avoid manual data processing for accounts payable, with a high level of automation that doesn’t require human intervention. 

Fraud and error detection

The best AP automation system should use artificial intelligence/machine learning technology to detect errors, duplicate invoices, and fraud risks to prevent your company from making overpayments. 

Unified finance automation system

The cloud-based AP automation system should seamlessly integrate with your ERP system or accounting software and work together in a unified finance automation system platform with other complementary finance automation products provided by the software provider. 

Low-cost payment transactions 

Consider your vendor invoice volume for calculating payment transaction fees to compute your total use cost for the AP automation platform. 

For example, Rho offers no-fee global payments for transfers in USD and a small foreign currency conversion (FX) fee for global payments in other currencies.

Visibility into real-time spend management

With AP automation, your business needs a way to view its spend as it happens for proper spend control and cash management. 

Wrap-up: All about AP automation

AP automation is here and now. Although only 10% of companies are using AP automation, more companies recognize the need for being automated in accounts payable through digital transformation. AP automation has gained immense popularity among users because it yields impressive benefits. 

Get started with Rho’s One-Click AP. Your finance and accounting department manages cash, employee expenses and reimbursements, accounts payable, budgets, and accounting using the Rho multi-function finance automation system that includes One-Click AP.

Competitive data was collected as of January 10, 2024, and is subject to change or update.

Frequently asked questions about AP automation

The following FAQs and answers relate to accounts payable (AP) automation software. 

What problems does AP automation solve?

AP automation solves or reduces these problems: 

• Siloed systems that require separate data entry into each system 
• Time-consuming manual data entry tasks and follow-up
• Physical storage of paper documents
• Bottlenecks in accounts payable and invoice processing. 
• Fraud-prone paper checks 
• Invoice payment errors, duplicate invoice payments, and fraud risks
• Excessive fees for making cross-border, international wire transfers

Who should use AP automation?

Businesses of all sizes should use AP automation software once they can justify the cost savings in relation to their volume of accounts payable invoices and payments.  

The higher the company’s planned and actual growth rate and globalization of its operations, the bigger the payoff is from using AP automation software.  

AP automation is perfect for venture-backed high-growth companies and an ideal solution for multi-entity, global mid-size and enterprise companies. With its scalability, AP automation software can prevent the need for hiring additional accounts payable and accounting staff. 

What are the best AP tasks to automate?

The best AP tasks to automate are:

• Digital vendor invoice data capture 
• Invoice accuracy exceptions flagging
• 3-way or 2-way matching with PO and receiving report
• Approvals routing with access to electronic invoices and supporting documents
• Global payments in local currencies
• Syncing data between the AP automation and ERP system for financial reporting and reconciliation

If I have AP automation, do I still need accountants and bookkeepers?

Yes. Your company’s accountants and bookkeepers are still needed to perform higher-level tasks requiring judgment instead of routine, repetitive tasks that AP automation handles. With the extra time provided by AP automation, they can shift to more strategic work. 

Can AP automation handle multi-currency and international payments?

AP automation handles multi-currency and international payments when the integrated ERP or accounting software and AP automation software provide that functionality.