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What is AP automation?

November 9, 2023
9:00 am

Accounts payable automation can reduce your manual tasks and streamline your processes, but how does it all work? Take a look at the meaning and workflow of AP automation.

AP explained

Before we get to talking about the benefits of accounts payable automation, let’s start by looking at what ‘accounts payable’ means.

Accounts payable (more commonly known as AP and also as Procure-to-Pay) is the money a business owes to its suppliers for products or services received. It’s essentially a short-term debt, due to the fact they’re likely to have made this purchase on credit.

Like all business transactions, accounts payable generates a substantial amount of paperwork, such as invoices, purchase orders, goods received and - in countries where they are required - pro-forma invoices. Fittingly, accounts payable is also the name given to the department that handles all these documents.

Why AP automation makes good sense

Not only can manually processing AP documentation be time-consuming, it can be costly too – equating to between €3 and €15 per invoice. To reduce this cost overall, businesses must automate and reduce costs at every stage.

Consider the impact of transitioning from traditional paper invoices to the efficiency of electronic invoicing (e-invoicing)—a move that can result in cost reductions of up to 30%. Furthermore, the seamless automation of matching purchase orders (POs) with invoices has the potential to yield remarkable savings of up to 80%. When confronted with such compelling opportunities for cost efficiency, the imperative for a fully integrated AP automation solution becomes evident."

Automation can also reduce human errors. Data is no longer entered incorrectly, and duplications cease to exist as AP automation tools flag when there are discrepancies in the system.

Fixing such issues causes more work and delays payments to suppliers, which in turn can affect AP cash flow and negatively impact the cost per invoice metric. Automating AP can avoid this problem in the first place, while making savings and improving cash flow management.

How AP automation works

Essentially, AP automation streamlines the processing of your business's invoices. By guiding invoices through a digital workflow, suppliers no longer experience held-up payments, but timely and accurate payments.

How this all works can be broken down into three stages:

1. Invoice receipt

Invoices may be received electronically (a process known as e-invoicing) or as a paper copy. E-invoicing may be via a business-to-business (B2B) or Electronic Data Interchange (EDI) connection. Alternatively, invoices may be sent in PDF format or through a supplier portal.

Where paper invoices are received, these must be manually scanned or processed using Optical Character Recognition (OCR) software. OCR software converts the information into structured data in a suitable electronic format.

2. Matching and workflow

Once an invoice’s data has been captured or received electronically, it must be matched to the relevant PO and goods receipt – something AP automation software does automatically. Once matched, invoices are then approved and passed to the company’s Electronic Resource Planning (ERP) or accounting system for payment.

3. Auditing and archiving

Many countries require businesses to archive invoices for a number of years after processing (for example, up to 7 in the UK) – something AP automation can do, safely and securely. Plus, unlike manually processing invoices, automation also produces a full digital audit trail of all documentation.

Benefits for every business

Suitable for businesses of any size, the ultimate benefit of automation is how it can streamline the entire AP process, while eliminating the potential for human error and lowering the cost per invoice.

Furthermore, the ability to generate detailed reports can provide valuable insights and enable businesses to identify trends. Plus, being able to process and pay invoices quickly can lead to better relationships with suppliers.

At the same time, switching to AP automation can benefit employees by reducing the amount of time they spend on monotonous, repetitive tasks; leaving them free to focus on work that adds greater value and makes more of an impact within their organisation.

Want to know more?

Taking all this into consideration, it’s clear that automating AP with a solution such as Unifiedpost Group’s Collect accounts payable services can be hugely beneficial for businesses.

An innovative inbound solution for Procure-to-Pay processes, Collect ensures inbound supply chain documents or data can easily be received and processed automatically - resulting in time and cost savings and improving staff morale and supplier relationships.

Take a look at our solution and get in touch for your own product demo.

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