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What Is AP Automation, and What Are The Best Practices For It?

Posted on 22/09/2023

AP Automation, and The Best Practices For It:

AP automation, also known as accounts payable automation, is the practice of handling accounts payable operations digitally rather than manually. It has transformed the way businesses handle and pay bills.

Holistic accounts payable automation provides automated business payment processing from start to finish. This begins with software that captures invoice data in a digital format, typically by a scanning or capture method such as optical character recognition (OCR). The AP system then categorizes, matches, and validates data before forwarding it to the accounting system or ERP for processing.

AP automation can offer a corporation considerable cost savings in addition to the projected savings from reducing human activities. Companies may optimize their vendor portfolio, eliminate duplicate or erroneous payments, lower their fraud risk, and benefit from early payment reductions.

In this guide, we’ll break down what AP Automation is, the advantages of automation, and share the best practices to make it work like a charm for your business. Let’s dive in.

Table of Contents

  1. Understanding Accounts Payable Automation
  2. Key Components of AP Automation
  3. Benefits of AP automation
  4. Best Practices for Successful AP Automation
  5. The Future of AP Automation
  6. The ROI of AP Automation
  7. Accounts Payable Automation with Velan

Understanding Accounts Payable Automation

What is AP Automation?

Accounts Payable (AP) automation involves the use of technology to streamline and automate the processes associated with managing supplier invoices, purchase orders, and payments. This automation replaces manual tasks such as data entry, routing invoices for approval, and reconciling payments. AP Automation solutions aim to reduce errors, enhance efficiency, and provide better visibility into financial operations.

What are the challenges with manual accounts payable?

Accounts payable (AP) plays a crucial role in any organization’s finance department. It’s like the engine room, where bills are organized, invoices are kept track of, and payments to vendors are managed. While old-fashioned methods have their strengths, they also come with difficulties that can make things a bit complicated in our fast-moving business world.

Time-consuming manual data entry 

Traditional AP methods rely on people manually typing in information from paper invoices into accounting systems. This isn’t just slow; it’s tiring, especially when there are lots of invoices to handle. Spending long hours on data entry can delay payments, sometimes causing late fees or upsetting suppliers.

Human errors and financial mistakes

Manual processes are prone to human mistakes. These can be as simple as typos, wrong calculations, or accidentally entering the same invoice twice. Correcting these errors means more manual work, and it can harm trust with vendors. Over time, these mistakes can add up, potentially resulting in significant financial losses, unhappy vendors, displeased clients, and problems during audits.

Delays and inefficiencies

Without automation, the entire AP process, from receiving invoices to approval and payment, can be sluggish. It doesn’t help when papers go missing or when someone is away and approval is pending. Delays can lead to missed payment deadlines, resulting in late fees or penalties. They can also mean missing out on early payment discounts.

Difficulty in Tracking and Managing Invoices

Paper-based AP procedures can create a lack of clarity when it comes to managing invoices. Is it approved? Is it still waiting in someone’s drawer? Has it been paid? This can cause communication problems within the organization and with vendors. It can also result in misplaced or lost invoices. A lack of an efficient tracking system can make reconciliations at the end of the month or year a time-consuming chore.

While traditional AP processes have worked for many years, the manual aspect of AP isn’t keeping up with the faster pace of modern businesses. AP automation streamlines operations, reduces errors and enhances transparency, ultimately leading to significant time and cost savings.

Key Components of AP Automation

Invoice Processing

AP Automation begins with the digitization of invoices. Scanning, optical character recognition (OCR), and data extraction tools convert paper invoices into digital formats. This step eliminates manual data entry, reducing errors and processing time.

Document Management

Digital document management systems store and organize invoices, purchase orders, and related documents. Cloud-based storage ensures accessibility from anywhere, enhancing collaboration and security.

Workflow Automation

Workflow automation tools route invoices and payment approvals to the appropriate personnel automatically. This eliminates delays caused by manual routing and speeds up the approval process.

Reporting and Analytics

Robust reporting and analytics tools provide insights into key performance indicators (KPIs) such as invoice cycle times, approval bottlenecks, and payment trends. This data supports data-driven decision-making.

Benefits of AP Automation

Accounts Payable (AP) automation offers numerous benefits to businesses of all sizes. Here are some of the primary benefits:

Improved Efficiency

  • AP automation streamlines and accelerates the entire invoice and payment process. It eliminates time-consuming manual data entry, reducing the chances of errors and delays.

Cost Savings

  • By automating repetitive tasks, businesses can significantly reduce labor costs associated with AP processes. There are also savings in paper, postage, and storage expenses.

Enhanced Accuracy

  • Automation reduces the risk of human error that often occurs during manual data entry. This leads to more accurate financial records and fewer discrepancies.

Faster Processing

  • Invoices and payments can be processed and approved more quickly, leading to shorter payment cycles. Suppliers appreciate faster payments, which can improve relationships and potentially lead to discounts.

Better Cash Flow Management

  • With real-time visibility into payables, businesses can make more informed decisions about cash flow management. This enables them to optimize working capital and make timely payments.

Increased Security

  • AP automation systems often include robust security features like encryption and access controls, safeguarding sensitive financial information from unauthorized access.

Audit Trail

  • Automated systems maintain detailed records of all transactions, providing a clear audit trail for compliance and reporting purposes.

Improved vendor relations

  • Timely and accurate payments can lead to better relationships with suppliers, potentially resulting in more favorable terms and discounts.

Enhanced reporting and analytics

  • Automation provides access to valuable data and analytics that can inform financial strategies and identify areas for improvement in the AP process.

Scalability

  • AP automation systems are scalable, making it easier to handle increasing transaction volumes as your business grows.

Compliance and Regulatory Adherence

  • Automation can help ensure compliance with tax regulations and financial reporting requirements, reducing the risk of fines or penalties.

Environmental Benefits

  • By reducing the need for paper invoices and checks, AP automation contributes to environmental sustainability by lowering paper consumption and waste.

 

Best Practices for Successful AP Automation

Establishing clear objectives

Define clear objectives for your AP automation implementation. Identify the specific pain points you aim to address, such as reducing processing time, eliminating errors, or enhancing supplier relationships.

Choosing the Right Software

Select AP Automation software that aligns with your organization’s needs and budget. Consider things like scalability, usability, and integration possibilities.

Data Integration

Integrate AP Automation software with your existing ERP (enterprise resource planning) or accounting systems. Seamless data flow reduces manual data entry and ensures data consistency.

Standardizing Processes

Standardize and document AP processes to ensure uniformity and clarity. This simplifies training for employees and facilitates consistent automation.

Employee Training and Involvement

Invest in training programs to familiarize employees with the new system. Employee buy-in is crucial for successful implementation. Encourage staff to provide comments and suggestions for improvement.

Embracing digital approvals

Move away from paper-based approvals and embrace digital signatures and approvals. This speeds up the process and reduces the risk of lost or delayed documents.

Security Measures

Implement strong security measures to safeguard sensitive financial data. This includes frequent security assessments, access restrictions, and encryption.

Continuous monitoring and improvement

Regularly monitor the performance of your AP automation system and gather feedback from users. Determine where there is room for improvement and make the necessary improvements.

The Future of AP Automation

AI and Machine Learning in AP Automation

The future of AP automation is closely tied to artificial intelligence (AI) and machine learning. These technologies will enable systems to make data-driven decisions, further reducing manual intervention and improving accuracy.

Blockchain and AP Automation

Blockchain technology has the potential to revolutionize AP automation by enhancing security and transparency in financial transactions. It could become a critical component in ensuring the authenticity of invoices and payments.

The ROI of AP Automation

What is the ROI of AP automation?

Before deciding if you should use an accounts payable automation system, it’s important to think about the benefits it can bring. Figuring out the return on investment (ROI) for AP automation isn’t always easy because it affects many parts of a business, and the savings add up as you use it more.

To understand the ROI of AP automation, you need to consider various points, including both money-related and non-money-related advantages.

The Money-Related Benefits of AP Automation

The exact numbers depend on things like the type of business you have, how much money you bill each month, and how much you spend on the current process. Here are some financial factors to think about:

  1. Less Money Spent on Invoice Processing: You’ll spend less money getting invoices processed because automation makes it faster and reduces the chance of errors.
  2. Fewer Losses from Mistakes: Automation reduces the errors made by people, which can save money and prevent problems with suppliers.
  3. Less time dealing with supplier questions: With automation, you’ll get fewer calls or messages from suppliers asking about payment status.
  4. Better Record of Paying on Time: Automation can help you pay bills on time more often, avoiding late fees.
  5. Time Saved: People won’t need to spend as much time on manual tasks, so they can focus on more important work.
  6. More Discounts for Early Payments: You can take advantage of discounts offered for paying bills early.
  7. Lower Staff Costs: You might need fewer people working on accounts payable tasks.

The Non-Money-Related Benefits of AP Automation

Besides the financial benefits, you should also think about how AP automation can help in other ways:

  1. More Control: Automation gives you better control over your finances and processes.
  2. Smoother Workflows: It makes your processes run more smoothly.
  3. Easier Auditing: Automation makes it simpler to check and verify financial records.
  4. Improved Relationships: It can lead to better relationships with suppliers.
  5. Happier Employees: Automation can make your employees’ work easier and more enjoyable.

Thinking about all these factors and how they relate to money will help you figure out the potential ROI of AP automation for your organization.

Accounts Payable Automation with Velan

By automating invoice processing and payment, Velan’s Accounts Payable Solution saves organizations time, improves control, and boosts productivity. For example, by removing human entry and automatically computing discounts, the program can save the time and effort necessary to process bills. When there are discrepancies between bills and purchase orders, it handles exception processing automatically.

Velan also enables real-time visibility throughout the whole accounts payable process, reducing the possibility of missed invoices or fraudulent invoice payments.

Topics: Accounts Payables

Pramod

Pramod

Manager

About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

Author can be reached at [email protected]

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