What Is AP Automation and Why Does It Matter?

Accounts payable automation, also known as AP automation, is a method of streamlining components of or the entire invoice to payment process. Businesses use AP automation to significantly reduce the time, energy, and risk associated with processing and approving invoices, making payments to vendors, and handling data and reporting associated with those processes.

While not every company uses AP automation, most either use components of a solution or plan to, with 43% of businesses reporting that their top priority in 2024 was to implement automation. Outside forces like global economic upheaval and increasing expenses, combined with inside forces like tight budgets and smaller workforces, are driving businesses of all sizes to adopt AP automation.

The common thread running between all solutions and the organizations that use them is the bedrock importance of increased efficiency, lowered costs, and reduced fraud risk. Here, we’ll explain the common features of these solutions, the benefits of digitizing these back office processes, and what defines best-in-class solutions.

Understanding AP Automation

Depending on the provider you’re talking to, AP automation can be narrowly defined as pertaining to just the process of managing invoices. It can also span from invoice processing all the way through payment. For the purposes of this article, we’ll be speaking to the latter, where AP automation begins with invoice receipt and ends with successful vendor payments.

Invoice Automation

Traditionally, invoices were mailed to businesses, where accounts payable teams opened them, reviewed them, keyed the data into a system of record, and scrutinized each invoice for errors or potential fraud. From there, invoices were then routed for approval(s) and earmarked for payment, either by hand or via email.

Understandably, that process can take significant time—up to three weeks in fully manual workplaces-and carries the potential for data entry errors. Automation solves for those issues on multiple fronts.

Automated invoice receipt and capture allows data from scanned, emailed, or portal-submitted invoices to be ingested automatically. Through technology like Optical Character Recognition (OCR), line items and information that otherwise would need to be tediously entered by hand can be pulled from the invoice. That data is entered into Enterprise Resource Planning (ERP) software with a high degree of accuracy and very little-to-no human intervention.

Two-and-three-way matching, which compares the invoice to either the purchase order, the receiving report, or both, is then used to ensure the invoice is both legitimate and accurate. Machine learning, if available through the solution you’re utilizing, can learn from past invoices and any errors it finds and become more accurate over time.

Once the information is in the system, invoice automation software allows for rules-based approval workflows to be set up. This gives the relevant accounts payable team members the ability to look an invoice over before it is ultimately approved and paid. This efficient approval process can be accompanied by the ability to comment on invoices for approval, increasing collaboration and visibility for all parties without needing to review said invoice in person.

The thrust of invoice automation, then, is reducing or entirely eliminating the manual, labor-intensive process of data entry and hand-routing invoices for approval. Ardent Partners found that organizations that are really good at this can save as much as $10 in processing costs per invoice and up to 14 days in processing time.

Payments Automation

In a similar vein to invoice automation, payments automation seeks to eliminate tedious paper-based, manual steps and risk from the AP process. This replaces the traditional means of business payments, which is writing or printing checks and sending them via mail. These checks are expensive from a hard costs perspective because you need to pay a printer or purchase checks and use staff time and ink, envelopes, stamps, and so forth. Additionally, paper checks are increasingly slow and fraud prone.

Payments automation makes use of digital payment types like ACH, virtual card, and in some cases wire payments to reduce the use of checks. Both ACH and card payments can be executed in a matter of minutes rather than days, and when made through secure methods such as business-to-business (B2B) payment networks, are much more fraud-resistant than checks.

Vendors receiving these payments can typically access the funds more quickly and can, if payers allow for it, receive enhanced remittance data to make reconciliation and cash application faster and easier.

These efficiencies are accomplished through AP automation technologies, which include intelligent payment optimization that chooses the best payment type based on supplier preferences and cost efficiencies. Payments typically can be easily batched for approval. That’s especially true if you’re using a payment network and then executed by a provider without multiple manual steps that require human intervention.

Such networks are increasingly the method preferred for payments automation. They use multiple layers of security to keep fraud out, authenticate vendor data to avoid impersonation, and provide dashboards and reports to make audits and information sharing simple. They make payments automation a lot simpler and far more secure.

You can read our articles about B2B payments networks and payments automation for more in-depth information on these solutions.

Is AP automation Worth It?

Yes.

Here’s a statistic that sums it up nicely: Best-in-class organizations see AP automation solutions reduce their invoice and payment processing costs by up to 80%. Depending on the scale of your business and how antiquated your process was before implementing automation, that could lead to thousands or even tens of thousands of dollars in annual savings.

Pair those cost savings with time savings and you’re off and running. Between trimming two full weeks off invoice approval times, per Ardent Partners, and taking multiple steps out of traditional check-based payment processes, there’s little wonder so many AP teams consider implementing a solution their top priority in 2024. The time saved is largely realized by no longer doing data entry and manually performing every step of the process. These time savings also allow finance team members to work on more strategic, business-building initiatives.

The benefits extend to employee retention, hiring, and morale as well. A recent Bottomline/Blue Whale Research survey found that 60% of AP new hires said having an accounts payable automation solution already implemented was vitally important when they were choosing a company to work for. That’s due to the perception—and frankly, reality—that companies with these solutions are friendlier workplaces that ask employees to do less tedious work and are more invested in employee success.

Invariably, AP automation benefits include cost savings, time savings, the ability to re-focus employees, and greater efficiency over manual processes. The natural follow-up question regards what to look for in a solution and partner to maximize those gains.

What to Look for in an AP Automation Solution

Now that we've proven that any AP automation is better than no automation, there is still a significant difference between baseline automation and a very good, outsourced platform.

Rank these according to your individual business needs, but here’s what to look for in an AP automation solution:

• Fraud prevention. Processing invoices effectively should be considered table stakes. You want to know if a solution will flag potentially fraudulent invoices well before you process and pay them. On the payment automation side, you want comprehensive payment monitoring and layered authentication, including at the vendor enrollment level.
  
  This ensures bad actors don’t intercept payments or compromise your accounts. Effective fraud prevention means end-to-end protection; from the moment an invoice arrives to the moment a payment leaves your account.
   
• Outstanding efficiency gains. Achieving best-in-class efficiency means making your process as lean as possible. That means better OCR and matching for invoices to cut human intervention to near zero, better automated approval routing for invoices and payments alike, and the elimination of manual tasks.
  That should include the authentication and enrollment of vendors into the network and/or payment methods you’re using, which frees up time your team might otherwise spend handling records and calling accounts receivable teams.
   
• Discounts and rebates. Processing invoices more quickly and issuing payments more efficiently is an excellent way to realize discounts for early payment. If holding on to cash is a strategic priority, slimming down processing and approval allows for better payment timing, allowing you to at least avoid penalties for past due payments. Electronic payment types like virtual card and Premium ACH also can generate significant revenue in the form of rebates, which can offset AP expenses.
   
• Improved visibility and reporting. Working out of spreadsheets is the enemy of efficiency, and it’s not particularly friendly to at-a-glance reporting, either. Good AP automation solutions centralize your data for easy audit compliance and provide highly visual, custom reports and dashboards that make it easy to roll up reporting to the executive level.
   
• Learning and improvement. This is a little more nebulous, but it still matters a great deal. The best solutions should use a combination of human expertise, machine learning, and (if applicable) artificial intelligence to get better at identifying invoice errors, potentially fraudulent vendor enrollments, and other potential vectors for fraud and error. Ask providers to tell you how the solution you’re investing in works both in the short-term and the long-term to ensure better outcomes.

Making the change to an AP automation is a virtual necessity for accounts payables teams to survive and thrive today. Be sure to use your judgement, research, and conversations with potential AP automation partners to ensure you’re getting more than the baseline benefits that are offered by making the switch. If you already have AP automation and you’re not thrilled with your current state, it may still be valuable to examine what else might be available.

Learn more about AP Automation with Bottomline