February 4, 2021

Accounts Payable Workflow: The Power of AP Automation

by The Ottimate Editorial Team

Automating your accounts payable workflow, or AP workflow, is the use of software to capture, process, and pay invoices that an organization has received from vendors without requiring manual intervention. 

The work of processing AP for a business is often straightforward, repetitive, and utterly critical. It demands careful data input and accounting on each invoice — which, for businesses that have many suppliers, often number in the hundreds every month.

Because of the need for accuracy and the high repeatability of the function’s tasks, many businesses are turning important areas of their AP workflows over to computers. This is the AP automation revolution.

AP automation is more efficient than manual AP processing, but that’s not all of it: it also ensures more accurate data, helps businesses manage cash flow smarter, and even empowers finance teams to discover insights they would not have had access to with a paper-based invoice workflow.

With more and more businesses offloading everything from invoice processing to bill payment to machines, AP automation is one of the most important and ubiquitous transformations taking place in back offices today. Here’s a quick guide to AP automation.

What Is AP Automation?

Accounts payable automation is the use of technology to assist in processing, accounting, and settling the liabilities an organization has incurred outstanding to its suppliers. AP automation software is the technology that helps businesses achieve this automated efficiency.

In a given accounts payable workflow, any number or all of these tasks might be automated:

  • Purchase Order generation from the customer side
  • Invoice generation and transmission to customer
  • Invoice processing
  • Entry into accounting system
  • Payment
  • Analytics

Sophisticated workflows generally automate more aspects of AP processing and may involve a number of pieces of technology working together. 

A typical automated accounts payable workflow begins with capturing and digitizing invoice data. Best-in-class AP automation systems use Artificial Intelligence to capture invoice data down to the line item. 

Then the AP automation platform sets up the invoice to be approved and paid by making sure it’s coded to the right General Ledger account, routing it to the appropriate person to be approved, and then connecting to the VendorPay function so the invoice can be scheduled for payment. Best-in-class AP automation platforms usually allow the user or administrator to set up custom approval workflow logic that leverages invoice line item data so that approvals can be sought on complex invoices that involve line items for different departments or locations. 

By providing insights throughout the process, the AP automation platform allows the user to set up price history tracking and price comparisons across multiple locations so that they are not overcharged for an item, or charged different prices for different locations that are close together. 

An AP automation platform typically has a VendorPay function as well where the bookkeeper can set up payments via ACH, virtual cards, or schedule check runs online. This step is a significant source of cost savings as the bookkeeper does not have to be in the office physically to manually write and mail checks. Since payments are made digitally, no postage costs or delays are incurred. 

Finally, the AP automation platform integrates with financial, accounting, and inventory management software to transfer invoice, transaction, approval, and GL-mapping data seamlessly. This helps the accountant to reconcile the chart of accounts faster without errors and helps the inventory manager to update their inventory records easily without manual data entry.

Ottimate graphic that states "Streamline your invoice processing with an automated accounts payable workflow."

What Is Zero-Touch AP?

Zero-touch AP refers to a touch-less accounts payable automation workflow that minimizes or completely removes the need to manually key in invoice or transaction data into the AP platform. By leveraging artificial intelligence, invoice data that is digitized accurately down to the line item is automatically matched, routed, and set up for ready-for-pay approval status. In the accounts payable world, this is the end-goal of all automation workflows. 

The benefits are significant — zero-touch AP saves a lot of time and manual labor, dramatically increases the number of invoices that can be processed daily, and unlocks opportunities for the AP organization to realize benefits like early payment discounts, virtual card rebates, and better oversight over cash flow, spend levels, and track price fluctuations. By being able to receive, process, and schedule invoice payments easily, the amount of working capital needed to be reserved is reduced due to better cash flow projections and forecasting. 

Is Invoice Automation Different From AP Automation?

Invoice automation is generally the most substantial portion of AP automation. This step of the AP workflow involves receiving an invoice or invoices from a vendor, transcribing its contents, automating its processing and routing based on those contents, and making its data available for further stages of accounts payable, such as bill pay, analysis, or vendor follow-up.

One important distinction between the two is that invoice automation, as contrasted with the non-invoice aspects of accounts payable, is the stage of the process in which human attention offers the lowest value-add.

Receiving and ingesting invoices into a workflow mostly consists of rote data entry and organization. In a fully manual workflow, invoice processing generally involves a lot of torn envelopes, racing fingers typing in data, and all of it happening again and again as the team cross-checks their entries for errors.

Software can do almost all of this. 

Computers are now able to transcribe invoice contents — even when handwritten or crossed out — and automate other processes based on the output. For example, software can read every line item of an invoice and tag each one with the proper GL code. Software can enforce price thresholds on individual items, check for duplicates, and even automate payment if the AP team chooses.

Invoice automation saves human work and ensures greater data accuracy. Even though human team members might need to intervene with some aspects of the AP process, like settling price discrepancies with vendors on the phone, people do not need to be the ones keying in every detail of every invoice. As an increasing number of businesses are realizing, that’s machine work.

What Are the Benefits of Automating Your Accounts Payable Workflows?

Time can be shifted to valuable work

The simplest benefit of automating accounts payable is spending less time doing a time-consuming — but important — task.

According to Ottimate user data, automation reduces the time employees spend on accounts payable by around 80%. In other words, employees can reclaim four-fifths of their work week with the help of AP automation software. 

That means teams can move AP staff from data entry to more valuable accounting work. It means small business owners can physically manage to run their operations without having to outsource the job. And it means bookkeeping firms can service more clients with a higher quality of service.

Your data is more accurate

Not only are computers faster at data entry, they’re also far better at it than humans.

When you’re talking about hundreds of invoices every month — each with multiple line items which themselves contain multiple data points — that represents thousands of pieces of data that need to be entered correctly. Ensuring accuracy requires multiple rounds of checks. Even then, errors happen.

Sophisticated AP automation eliminates the need for data entry. Systems of invoice transmission like electronic data interchange (EDI) don’t actually require the process of transcribing an invoice. Instead, invoice data itself is transmitted from the vendor’s computer system to the AP processing system. Even if corrections need to be made later by the AP team, the data is guaranteed to be accurate.

Accounting systems work better together

AP automation ties together accounting systems in ways that manual processing can’t.

With integrations connecting different pieces of software, data flows freely, accurately, and securely between them. This allows you to incorporate more diverse and specialized solutions into your tech stack.

If an inventory management system would help you run your business more intelligently, for example, AP automation is a must. 

With a manual workflow, you would have to wait for each invoice to be logged and processed before you had any idea what new items you had in your inventory — and that time delay would reduce the benefit of having an accurate inventory report in the first place.

With AP automation, each invoice processes in a fraction of the time. The data then flows automatically into the inventory system, giving you a much more real-time view of what you actually have on hand.

Your accounts payable workflows will operate smarter

It’s not just having more time for valuable work that will help you gain a better picture of your spending. It’s the technology itself, too.

AP automation powers analytics that are not available with manual processing. Software can find patterns in your spending that a human eye would never notice — and it can present those findings in a way that helps you better understand your costs.

Imagine you’re ready to cut checks at the end of a long invoice processing workflow. You notice your costs are higher than the last time you did this. Why is that?

With a manual workflow, good luck finding the answer. You’d have to go through each line item of each invoice and compare them to their counterparts in the previous period. Unless the increase is severe, this is almost certainly not worth your time.

Luckily for you, comparing data points is exactly the kind of thing software is good at. An automated accounts payable workflow system like Ottimate will have flagged the increase before you’ve even noticed it. Built-in analytics tools like Hot Lists can dig into your spending and make clear which items changed from the last period. You’ll be able to follow up however you want, and your whole business will run smarter.

Ottimate's Hot List, a feature that flags price increases before you even notice.

Automated accounts payable workflows turn bill payment costs into revenue

Paying bills in a manual AP workflow is expensive. Almost universally, the process of sending payment to vendors involves cutting checks, dropping them in the mail, and hoping the vendor’s accounts receivable team applies the payment correctly. For the privilege, you’ll pay in checking costs, postage, and the time you lost doing it.

AP automation opens up a new world of bill payment. One that not only sends payments faster and more accurately and securely, but one that actually eliminates the costs associated with sending payment.

Virtual card programs in AP solutions like Ottimate typically include cashback programs. These programs offer a more convenient method of bill payment for both you and your supplier, and they also send a portion of your spend back to you.

How Can I Get Started With Automating My Accounts Payable Workflow?

This one’s easy! Spend less time on AP while getting more intelligence out of your spend with Ottimate. Book a demo today!

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