What Is AP automation?
Accounts payable (AP) automation software empowers businesses by reducing manual tasks and freeing up cash flow. You can submit invoices, manage approvals and process payments through a single platform with swift approvals and better visibility and control over important financial processes and data.
Some 55% of businesses tackle financial data manually, according to PayStream Advisors’ 2018 Payables Insight Report. That manual processing takes time, requires costly personnel and introduces room for errors—and that’s only the tip of the iceberg when it comes to the benefits.
10 Benefits of Accounts Payable (AP) Automation
Automating accounts payable processes adds value while freeing up your team to focus on improving the back office. Here are some of the key benefits of AP automation.
- Time savings: Traditionally, invoices would sit on desks or wait in email inboxes for approval. Automated routing cuts through those delays and streamlines the approval process. Specific rules can be applied to the workflow so the right person automatically receives an invoice at the right time with programmable reminders. Dashboards give users a high-level, real-time view of invoice processing, reducing the amount of time it takes to hunt down a status. Overall, AP automation translates to about 18% fewer days payable outstanding (DPO), according to the Aberdeen Group. That equates to a savings of about 5.55 days on average.
- Low-cost invoicing: Business process automation saves labour costs and cuts down on hard costs, such as office supplies and postage for interoffice mail. The average monthly cost to process 5,000 invoices manually is $64,500, according to data from APP2P Network. Processing the same number of invoices in an automated operation would cost about $8,850. That’s roughly an 85% savings.
- Improved accuracy: Opting for AP automation translates to reduced errors. AP automation software is designed to protect you from some of the most common errors. There’s no need to key in invoice headers or line-item data manually. Furthermore, invoice data is validated against enterprise resource planning (ERP) information, making it easy to catch duplicate payments.
- Enhanced insight: With comprehensive dashboards, AP automation software provides a clear window to the payment cycle. It’s easy to see where an invoice is sitting and whom to contact in case of delays. Data can be imported and exported with real-time access—perfect for reporting and analysis, especially at the end of business cycles.
- Fraud protection: An estimated 81% of companies were targets of payments fraud in 2019, notes the AFP Payments Fraud and Control Survey. AP automation software can help your business safeguard against fraud by controlling which employees have access to invoice approval and the release of payments. You can build approval workflows with multiple people and increase the chances of catching fraudulent invoices before payment is processed. With such a process management system in place, no single employee serves as the only person tasked with approving payments. This not only helps reduce the chance of fraud, but it also helps you double check for missing or incorrect data.
- Increased transparency of data: Enhanced dashboards make tracking employee productivity easier, which can also come in handy for employee reviews. Managers can tap the tool to track individual and team performance and productivity.
- Low-cost data preservation: The IRS recommends saving records for up to seven years. Storage costs for all that paperwork can add up. The average yearly cost to maintain a single standard five-drawer file cabinet is $2,603.64 according to North Dakota’s Information Technology Department. Meanwhile, an entire terabyte of data costs as low as $6.99 a month to maintain.
- Easy auditing: Comprehensive AP automation software can help you with document management, which can be beneficial for auditing. The system links all documents and messages involved with each transaction, while matching invoices with purchase orders and receipts. This searchable audit trail reduces your chances of losing important paperwork. It can also help you maintain regulatory compliance for quarterly or annual filings.
- Integration with existing systems: AP automation software can easily integrate with your company’s ERP, databases and major financial systems. There’s no need to log in and out of different applications or re-enter data to multiple systems (and increase chances of error).
- Early-payment discounts: Most vendors offer early-payment discounts. And yet, according to the Institute of Finance Management (IOFM), most businesses capture less than 21% of all early-payment discount offers, and 12% of businesses don’t collect any early-payment discounts. There are many reasons these discounts are missed. However, according to PayStream Advisors’ AP & Working Capital Report, 31% of respondents said manual routing of invoices for payment and approval stood in the way of an early-payment discount.
Choosing an AP Automation Solution
Before you begin shopping for AP automation software, it’s important to take stock of your existing accounts payable processes. This starts with surveying your team. What are their pain points? What bottlenecks do they face in their everyday AP interactions? What will they need to meet goals for the future? Use their responses to formulate a list of “must-have” AP automation software features.
Once you’ve gathered insights from your team, it’s time to assess your current tech landscape. Check in with your information technology (IT) team: Are there any specific software requirements worth noting? You’ll additionally need to consider system integrations. Chief among these is your ERP system; you want to reduce double data entry. You may also wish to integrate your expense management system or budget-planning software.
Depending on how many existing systems you have, you may find your best bet is to go with a standalone automation system. However, if your business is new, or you are looking to replace software, you’re better off with a procure-to-pay suite that includes AP automation. This software covers all procurement needs, including AP management and consists of separate modules that can be used in varying combinations.
Keep in mind: The best AP automation software solution needs to support every possible accounts payable scenario your business may encounter, which you can do with a platform like NetSuite that integrates these features. Doing your homework can help you ensure you’re making the right choice for the long haul.