If your AP team is still relying on manual processing, you already know the daily frustration of missing invoices, data entry errors, and the length of time it takes to complete. It can also be a very expensive way of doing business.
While most companies acknowledge that paying employees for manual processing drives up the cost per invoice, many don’t realize just how much money is wasted through manual data capture. Labor accounts for over 60% of processing costs with manual entry.
Employee wages, data entry errors, and loss of potential savings all drive up the costs, but AP automation can easily solve all these issues and create opportunities for cost savings and spend optimization. Companies can achieve more without resorting to increasing headcount or outsourcing their AP processing.
Today we’re diving into the ways your organization can improve its payment processes through automation. By the end of this article, you’ll know:
- How AP automation technology works
- Why automation is so crucial to growth-minded companies
- Best practices for automating your AP workflows
- Simple steps to select the right automation platform for your needs
What is Accounts Payable Automation (AP Automation)?
Accounts Payable automation, or AP automation, uses technology to create a touchless system for invoice management and electronic payments. An automated AP platform eliminates the need for manual tasks like data entry, physical document management, payment processing, reconciliation, and coding that take hours to perform. Many AP automation systems also integrate with other business systems to reduce data redundancy and improve data accuracy.
How does invoice automation work?
Automated accounts payable platforms bring all your invoices – mailed-in paper invoices, email PDF attachments, or electronic invoicing – into a single database system. The platform uses Optical Character Recognition (OCR) software and batch scanners to convert every invoice into a machine-readable format.
Once digital data capture is complete, artificial intelligence moves each one through an invoice approval process. The automated system can check line items, correctly code supplier invoices, and reconcile payments against purchase orders and contracts. With integrated payments, the system can also issue payments so suppliers get paid on time, automatically.
Top 5 benefits of paperless AP automation
The benefits of using accounts payable accounting software start with cost savings. It can also increase productivity, improve spend visibility, and surface valuable business data. Companies at every stage can reap these benefits. For growth-focused companies, automating these systems early paves the way for AP and finance teams to scale their process effectively.
Let’s take a look at the other most common benefits of paperless AP automation:
Lower processing costs
While companies sometimes raise cost objections to investing in AP automation software — it seems “too expensive” to buy and implement a software solution — in reality, automation is a cost-savings opportunity.
Even better, by reducing processing time and streamlining approval workflows through e-invoicing, businesses can take advantage of early payment discounts their suppliers might offer. Depending on your supplier partners, this could be just as large of savings.
Faster invoice processing
Manual processes only move as fast as your accounts payable department does. For instance, an AP clerk might process five invoices an hour, barring issues or research. Automated invoice platforms can process hundreds of payments per day with no human interaction required. For small companies, automation can save many hours of productivity per month. For enterprise companies that process thousands of payments monthly, the savings are exponential.
It’s a universal truth that errors cost money. But the cost of discrepancies often goes overlooked in the ROI calculation for investing in software. Even a 5-10% margin of error can generate thousands in late fees. Errors also cost your AP staff valuable time spent making corrections. By moving to accounts payable automation software, data accuracy remains high and on-time payments occur on autopilot.
No more duplicate payments
Double-paying invoices is just as costly as paying them late. It generates hours of research and remediation time. It can also create inaccurate cash flow reporting and capital efficiency issues. Automation eliminates the common problem of duplicate payments by making each invoice a reliable source of truth.
Better data analysis and management
Many benefits of automation focus on cutting costs but automation adds valuable context to your data as well, and that can be just as important. By digitizing your invoice data, finance teams have real-time visibility into the procurement and payment process. They can conduct comprehensive spend analysis, improve the audit trail for compliance, and make data-driven budget decisions.
AP Automation best practices
When you’re ready to move to a platform, there are several ways to make onboarding easier and more efficient. Some of these include:
Establish an automation team
Migrating to automation is a big project that deserves the attention of dedicated stakeholders. You can ensure success by establishing an implementation team upfront. Champions from your accounting, IT, and legal departments will have a real impact on the success of your project, so establish these roles early. You should also name a point of contact for questions and issues post-implementation.
Get your data in order
Moving to an automated system is much easier when your data is accurate and up to date. Prioritize getting new invoices into your system as quickly as possible in order to have the most complete data available at cut-over. Any upfront work can help simplify the process as you migrate to the new system.
Notify your suppliers
Cutting over to an automated system may involve some downtime delays. Let your suppliers know of the upcoming systems change, and set their expectations for upcoming payments. Keeping them in the loop with basic notifications can make the process smoother for all, and keep supplier relationships strong.
Make training a priority
Moving to an automated account payable process is a hurdle for a busy department. When planning your project timeline, account for extra time and resources to help your AP staff adopt the new system with confidence. Make sure all users have access to a point person for questions and concerns in order to minimize the “growing pains” as everyone learns the new system.
How to select an accounts payable automation solution
There are many options for streamlining your manual accounting practices with an AP automation solution. It’s important to conduct a competitive analysis and choose a system with the best functionality for your business. Look for a system with full integration capabilities and a cloud-hosted solution to fully support your business as you scale and expand.
The four steps to choosing an AP automation solution are:
Step 1: Explore the scope of your project: You can quickly identify your needs by answering a few simple questions:
- What accounting system do you currently use?
- How many invoices does your AP department process per month?
- What types of invoices do you process? (Paper, email, or other electronic delivery)
- How many employees currently processing invoices?
- How many hours do they spend processing invoices per month or quarter?
- What type of accounting method does your company use?
Based on your answers, you can develop a shortlist of possible software solutions to fit your needs.
Step 2: Define your current AP process: Once you answer the above questions, consider your current AP processing workflow for processing invoices. Outline each step used to capture data and pay invoices. Identify any friction points in the current process. Your chosen solution should help you resolve any issues that cause delays or require workarounds.
Step 3: Think about your business system architecture: A robust AP automation platform should work with the other tools in your tech stack for seamless data sharing. This eliminates redundant, manual data entry and prevents discrepancies between data in multiple systems. When evaluating your needs, ask yourself:
- What other systems do we currently use? (ERP system, expensing, reporting)
- What systems will we need to integrate on day one?
- Does the solution we’re evaluating have an API or integrations that connect our AP workflows to other systems?
- WIll this solution require any third-party integrations (for example, Zapier)?
Step 4: Explore your options: Once you have a thorough understanding of your needs, conduct due diligence with at least three software options (in software buying, this is called the “three bids and a buy” method). You can get an idea of the functionality of each through white papers, webinars, and demos. Another option is to read case studies (like the one below) that closely match your own business case.
How Order helped WeWork take its procurement to the next level
The procurement program at WeWork takes high-volume invoice processing to a whole new level. The company processes over a million supply and service invoices annually for its 800+ worldwide co-working locations.
WeWork’s meteoric growth and distributed business model had created drastic procurement inefficiencies and waste spending. Order helped them bring their by-location spending and invoice processing workflows under control.
Order helped WeWork drastically reduce its per-invoice processing costs, consolidate its vendor network, and improve pricing and leverage. They can now scale easily with fully integrated systems, a streamlined reconciliation process with an automatic three-way match, and total spend visibility for the Finance team.
If you’re ready to behind leave the frustration and expense of manual accounts payable processing, schedule a demo to see how Order can help.