What Is AP Automation and How Does it Work?

An accounts payable (AP) system might seem pretty simple. You get an invoice and you pay it, right? Unfortunately, it’s not that simple. An AP system involves a few more steps than that. You need to process the invoice, take all of the data from it, get authorization, and then process the payment. There are several steps, and as your business grows and gets more complicated, there will be more and more invoices to deal with. 

The more invoices you have to process, the more it is necessary for a more efficient solution. You could hire someone, but if you run a small business, hiring someone might not be financially viable. However, purchasing an AP automation solution might be just what you need. 

What is AP Automation?

AP automation is a workflow solution that makes it simple to process invoices and payments for vendors and other partners. It provides a streamlined process for any employees involved, and reduces errors while making sure that payments are processed efficiently. 

Any invoices that come to your business can be digitized immediately, and placed into the AP automation software. There is no longer a need for a team member or yourself to handle the invoices, get authorization, and process the payment. It is all done automatically, and once the software is set up and ready to go, you will barely have to lift a finger. It can do all of this without interrupting or disrupting any other workflow, and without significant training, either. Many businesses choose AP automation since it is a simple process that can take hours to complete correctly, which can cost a lot of money and time. 

How Does it Work?

AP Automation allows you to process your invoices without needing yourself or a staff member to lift a finger. Your invoices can be passed through a scanner or a screen capture program to record the data that it contains. It does this using character recognition tools. That data is then fed to your general ledger, and passed on to the payment processing aspect of the software. 

At that point, the appropriate people are notified that there is pending payment, and approval can be given with the click of a mouse or a tap on a smartphone. Once approval is granted, the payment is sent to the vendor using whatever method is chosen. Essentially, your entire workflow for AP processing can be handled by software that will eliminate errors and ensure that you don’t miss any payment deadlines. 

What Are the Benefits?

There is a lot to like about using automated invoice processing. For one, with so much human intervention, there is a lot of room for error. Someone could misenter data into your enterprise resource planning (ERP) systems, for example. You could end up with inaccurate data, or send out the wrong payment amount, leaving you open to late fees and frustrated vendors. Plus, having the right data is crucial for budgeting and understanding where you are spending your money. 

Using AP automation solutions will give you the power to have updated information in real-time. As soon as an invoice is processed, your ERP will have the information and you can then run reports that will include it. There’s no need to wait until someone gets around to inputting something, so you can have an up-to-the-minute view of your spending situation at all times. 

Nobody wants to be late with payments. Not only does it annoy vendors, but it can cost you money. Some vendors may charge late fees, for example. They may also have discounts based on when you pay. It’s not enough to simply pay on time for many of these discounts. You must reach their early-bird date to qualify. With AP automation you are almost certain to pay well within those deadlines and take advantage of early payment specials. 

There are also environmental benefits. With the cooperation of your vendors, paper invoices can be a thing of the past. Everything will be digital, so there is no need to print off invoices to have them processed. This also eliminates the possibility that paper can be misfiled or misplaced. 

When you run a small to medium-sized business, it’s always a good idea to find ways to be more efficient with your time and your budget. Finding workflows that can be automated is the perfect way to do that. There is no need to spend hours during every week processing invoices and getting approvals when it can all be done immediately, and easily. As it stands at the moment, your AP workflow might be the perfect candidate to be automated, since the technology exists and since there is so much possible human intervention. Using an AP automation solution will free up everyone’s time. That way, you and your staff can focus on other things, like growing your business.