7 Powerful Benefits of Accounts Payable Automation

What is accounts payable automation?

Accounts payable automation is the process of dealing with all invoice, approval and payment matters digitally, as opposed to manually. Typically, it will be through a single platform that simplifies day-to-day transactions and cuts down on human error.

Data can be received in a number of electronic or paper formats, but is standardized and stored for easy access. The centralized system enables invoices to be matched to purchase orders and goods receipts for efficient payments.

Audit trails track all actions, so financial institutions can look over archived invoices and check everything is in order. Staff can also review transactions any time and from anywhere, accessing the software from multiple devices.

Learn more: 3 Obstacles to Overcome When Implementing AP Automation

The challenges of a manual AP workflow 

Traditionally, accounts payable tasks are carried out manually by a dedicated department. The workflow they follow is made up of a number of steps and is reliant on each one being carried out in order to move on to the next.

1. Entering invoices into the system

Manually inputting invoices into the system means collecting them from a selection of places and in various formats. Emailed invoices will go to a dedicated inbox and paper versions must be scanned by hand.

2. Invoice approval and matching

All invoices must be approved before payment to ensure they’re complete and accurate. They should also be matched to the appropriate purchase order to tie together the two parts of the transaction. Manual approval usually involves a signature by an employee.

3. Payment authorization

In many manual AP workflows, it’s then necessary to authorize payments separately, making sure different types of invoice are processed in the correct manner. Invoices must be prepared, aggregated and printed, as well as being connected with all the right associated documentation. This is then given to the controller or CFO for authorization.

4. Payment execution

Payment can be carried out via a number of methods, including electronically, through a virtual card or by check. The 2022 State of AP Report showed that 33% of organizations are still conducting at least half of their payments by check.

5. Managing suppliers

Throughout the AP process, it’s important to keep on top of supplier management to ensure a streamlined workflow. That means they should be properly onboarded; have their payment preferences logged and adhered to; and receive rapid responses to any inquiries they make.

While the benefits of accounts payable automation are well-documented, here are some of the challenges presented by manual workflows:

• Duplicate invoices can be generated
• Prone to delays
• Vulnerable to errors
• Time consuming to rectify discrepancies
• Struggle to keep up with the demands of modern businesses
• Can undermine trust between parties
• Difficult to integrate with other software
• Rigid way of working

7 benefits of accounts payable automation

To see if moving towards automated software could be just what your company needs, let's take a look at seven of the key benefits.

1. Reduction of errors

We've all heard the famous statistic that says 88% of all spreadsheets contain errors, which just goes to show how easily mistakes can creep in when data is inserted manually. They can lead to serious consequences though, such as when 16,000 COVID test results were lost from British records because someone at Public Health England used the wrong version of the spreadsheet program.

Within financial departments, payments could be duplicated, transactions missed and incorrect figures logged - and these types of problems can quickly create negative perceptions of even the most diligent organizations. Using automated software for accounts payable minimizes the risk of human error and makes mistakes less likely.

2. AP integrates with other systems

One of the main benefits of AP automation is its ability to integrate with other software you may already be using. Chief among them is enterprise resource planning (ERP) programmes that are vital to the everyday running of many organizations. From procurement and supply chain operations to project and risk management, ERP has become ubiquitous in modern business.

According to recent research from IFP, nearly two-thirds of finance professionals frequently use the accounts payable module within their ERP system.

As data from an automated AP system is moved into the ERP software without the need for manual intervention it immediately improves the efficiency of the process. It can be summarised in the concept of smart workflows, which are more streamlined, more flexible and less reliant on human resources to function correctly.

Learn more: How to Make ERP Work for Your Business

3. More time for employees

When manual reports and data entry need to be carried out, employees are forced to spend more of their time reviewing information than analyzing it. This means they could miss out on valuable insights that could change the way the company works for the better.

Conversely, when accounts payable software is used, staff have access to real-time data, can keep figures at their fingertips for audits and are able to generate reports for analysis. Furthermore, they'll have the time to look at the information and carry out extra tasks such as descriptive analytics.

This may lead to compliance issues being spotted more quickly, more accurate budgets and better financial forecasts. Essentially, your finance teams will be able to flourish and do the job they originally wanted to do.

4. Greater efficiency and better relationships

With manual accounting systems, there is a tendency for sluggishness. Invoices may sit on desks for days, paperwork can get misplaced and - worst-case scenario - financial information could be tampered with. This doesn't make for great relationships with clients and vendors, particularly if payment deadlines are being missed.

In contrast, automation can reduce delays using facilities such as programmable reminders, meaning customers receive invoices when they should, while creditors and suppliers get paid on time. Indeed, according to the Aberdeen Group, accounts payable automation may reduce days payable outstanding by as much as 18%.

That's a big improvement and could significantly enhance the way your contacts view their relationship with your business.

5. Lower costs

Leading on from the benefits already mentioned is the reduced cost associated with accounts payable automation. Figures from Levvel Research suggest the average cost of processing an invoice manually is up to $15, which can quickly add up if you're going through this procedure several times a week.

However, with automation, savings of between 60% and 80% could be achieved, taking the average cost per invoice down to as little as $5.

There are savings to be made in other areas, too. For example, the Institute of Finance Management estimates most businesses capture fewer than 21% of all early payment discounts, while 12% of companies don't manage any. With accounts automated, invoices can be paid as soon as they're received and early-bird concessions activated, creating potentially valuable improvements to the budget.

Learn more: 7 KPIs You Should Measure to Improve Your Accounts Payable Process

6. Increased visibility in your AP workflow

Accounts payable workflow automation is an effective way to make your processes more transparent. It’s almost impossible to view the entire AP workflow on a single page when filing has been carried out manually. Authorized parties can easily search electronic systems to view the process end-to-end and select the relevant data.

Improved transparency means more control and an increased level of compliance. Gone are the risks of incomplete transactions and overlooked expenses, while any anomalies can easily be identified and rectified straight away. Greater visibility also allows you to select the best time to pay vendors and whether scaling operations is a possibility.

7. Reduced risk of fraud

No finance department likes to think it will happen to them, but fraud is unfortunately a modern reality. Indeed, according to the AFP Payments Fraud and Control Survey, 74% of organizations were targeted by payment scams in 2020. With manual systems, a member of staff might receive a fraudulent invoice and fail to recognize that it didn't come from a legitimate partner, leading to the bill being paid and the money lost.

However, with AP automation, invoice approval can be restricted to limited employees and payments released only after flagged bills have been checked, thereby making losses less likely.

More than a third of companies were starting to automate their accounts payable in 2020, up from less than a quarter in 2019, and the benefits listed above clearly indicate why. Choosing suitable AP automation software could streamline and optimize your own finance department, ensuring the whole company is better prepared for all eventualities - and, in turn, for growth.

Further reading:

• 4 Red Flags When Choosing Corporate Finance Software
• Tips to Streamline Your End-to-End AP Invoice Process
• Overcome Budget Challenges: How CFOs Can Master Budgetary Control
• Budget Forecasting: 4 Techniques You Could Be Using