Blog Credit: Scott Beaver, September 25, 2020 (What Is AP Automation and How Does it Work? | NetSuite)
As most finance teams know all too well, a manual accounts payable process can be tedious and error-prone. Working through piles of paper invoices, individually contacting relevant approvers and mailing checks is not only slow, it opens the company up to fraud and makes audits painful.
Accounts payable automation (AP automation) technology aims to provide a more efficient, expeditious and accurate way to handle this back-end financial process. By eliminating manual processes and stacks of paper, AP automation can improve your relationships with suppliers and partners while saving time and money, reduce days sales outstanding (DSO), thus improving cash flow.
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Video: What Is AP Automation?
What Is Accounts Payable Automation (AP Automation)?
AP automation technology automates routine steps such as receiving invoices, coding, routing for approval, payment and reconciliation. You may come across the term “touchless” processing, which generally means that AP automation eliminates the need to manually input data at any stage, although approvers may still need to sign off on payments with a mouse click.
AP automation software typically also provides dashboards and analytic tools that that help you manage the AP process and diagnose problems. Because all accounts payable data is digitized and stored within a single system, it’s easier to search for and audit the information.
How Does Accounts Payable Automation Work?
AP automation software converts your suppliers’ invoices into a standard digital format and then pushes them through a digital workflow that culminates with paying suppliers.
At the start of this process, AP automation uses optical character recognition (OCR) to extract information from invoices. Some products use machine learning to recognize patterns over time and improve accuracy; for example, they may suggest specific general ledger codes or approval routing based on past experience. By customizing rules for your business, such as acceptable variances or approval hierarchies, you may be able to eliminate the need for manual intervention for most invoices.
Why Automate Accounts Payable?
There are many reasons to automate AP. Some involve a tangible and rapid return on investment. By reducing the need for manual effort, AP automation can drive down your processing costs. It can also help you scale AP more easily as your business grows by reducing the need to hire more people.
AP automation also provides tools that can help you manage payments and cash flow more tightly. By making the payment process faster and smoother, AP automation can also increase your ability to capture supplier payment discounts.
Other benefits include less fraud, fewer errors and smoother audits.
Top Accounts Payable Tasks to Automate
The AP tasks likely to benefit the most from automation are those where you can cut processing time or increase accuracy, both of which save money. Compared with manual processing, AP automation can greatly improve the following steps:
- Data entry. Automating data capture of all source documents is faster and less prone to error than entering data manually.
- Invoice matching. Invoices can be automatically matched to supporting documents, like purchase orders and receiving documents (three-way matching). This automatic matching is faster and more accurate than manual matching, especially for businesses that otherwise might have to match documents stored at different locations.
- Coding invoices. You can establish rules that automatically set the correct general ledger code for each invoice, eliminating the time and inconsistencies inherent in manual coding.
- Approval routing. Electronic routing to all the necessary approvers is faster than manually sending documents to each of them, and it also provides better tracking throughout the workflow.
How to Automate Accounts Payable?
Companies generally apply AP automation software by implementing AP software, either in a software-as-a-service model, where the application is hosted in the cloud, or on premises, for companies that that prefer to host and manage their own systems.
Once a system is in place, finance staff as well as approvers need to be trained, and it’s worth spending time to configure rules so you can automate as many steps as possible. And while the AP process is pretty standard, companies may have some unique requirements that you will want to make sure the solution can accommodate those workflows. This will provide the most return on investment.
What are the Benefits of AP Automation?
AP automation can also provide benefits not just for the financial group but across the entire organization:
- There’s less need to store paper and pay postage and delivery costs.
- Fewer manual errors reduce the need for multiple departments to spend time investigating problems and handling supplier complaints.
- Audits and compliance efforts are easier. Built-in security and accountability features can flag suspicious activity, helping to detect fraud.
- Paying promptly and predictably may enhance your reputation and help you in future negotiations with suppliers.
- Staff can be redeployed for higher value tasks, such as analyzing payments data, instead of spending their time on manual data entry.
How to Select AP Software?
Selecting the right AP automation software for your business should include the following four steps:
- Planning. Put together a cross-functional team that can define your company’s goals for AP automation.
- Requirements gathering. Your AP department documents how your current accounts payable processing works and creates a list of requirements for an AP automation solution. At the end of this stage, you create a request for proposal (RFP) and send it to select vendors that meet the criteria.
- Vendor evaluation. You evaluate the proposals from vendors that answer your RFP, examining aspects of their proposed solutions, such as features, costs and implementation approach.
- Vendor selection. You delve deeper to find out exactly how well the most promising vendors meet your requirements; this may involve developing detailed discovery documents and requesting demos. Then, select your supplier.
Accounts Payable Automation With NetSuite
NetSuite’s Accounts Payable Solution helps businesses save time, improve control and increase productivity by automating invoice processing and payment. For example, the software can minimize the time and effort required to process invoices by eliminating manual entry and automatically calculating discounts. It automatically handles exception processing when there are mismatches between invoices and purchase orders. NetSuite also provides real-time insights into the entire accounts payable process to reduce the potential for lost bills or fraudulent invoice payments.