Every business has bills to pay. But manually processing and paying a large number of supplier invoices can be time-consuming, labor-intensive and error-prone, all of which drive up operating costs. Automating accounts payable (AP) workflows simplifies routine invoice-processing tasks, reduces costs and improves accuracy, while giving businesses greater control over the procure-to-pay cycle.
What Is an AP Automation Workflow?
AP workflow automation increases operating efficiency, helps manage cash flow and frees staff to focus on higher value work by eliminating manual entry, review, approval and payment of vendor bills. With an AP automation workflow, many of the steps in the AP process are completed with the aid of software, instead of being performed manually by accounting staff. Those steps start with the arrival of each vendor bill and end with payment and reconciliation. They include processing invoices received electronically, entering bill details into the accounting system, matching the invoice against the related purchase order and receiving documents, approving the invoice, paying it by check, credit card, ACH transfer or other method, and reconciling completed transactions with a bank and credit card statements.
- An accounts payable automation workflow simplifies routine AP tasks such as invoice processing, matching, approval, payment and reconciliation.
- Automating the AP workflow eliminates labor-intensive manual steps, saving time, reducing labor costs and minimizing the risk of data entry errors.
- AP automation provides better visibility into and control over the AP process.
- Other benefits include fraud prevention, improved documentation and stronger vendor relationships.
AP Automation Workflow Explained
Accounts payable automation creates a digital workflow that handles routine steps in the AP process, helping companies boost productivity, reduce cost and increase accuracy.
What is a workflow?
A workflow is simply a set of steps a company uses to complete a task. Most businesses have step-by-step methods for performing routine functions; sometimes those methods are documented in manuals, other times they consist of unwritten rules that are verbally shared among employees. Workflows can range from simple to extremely complex.
Automating the AP workflow eliminates tedious, error-prone tasks like data entry by converting invoices into electronic data and entering the data into the accounting system. It ensures that bill details are correct, that purchased goods or services have been delivered, and that payment is made in a timely manner. In addition to improve data accuracy, the system may track the progress of each invoice, so managers have complete visibility into payment status and better control over the AP process.
What Is the AP Workflow?
The AP automation workflow handles multiple AP steps, from receiving invoices to approving and paying them. When an invoice is received, software automatically extracts the data using optical character recognition (OCR), categorizes the invoice and creates appropriately coded general ledger entries. The software also performs three-way matching — checking the validity of the invoice against purchase orders and receipts for the goods/services provided. Any exceptions or apparent errors can be flagged for manual review. The software routes invoices for approval, or it can be customized to pay approved invoices that meet certain conditions, such as invoice amounts below a preset threshold.
Benefits of Automating Your AP Workflow
Some of the most common benefits of automating your AP workflow include:
- Higher productivity. AP automation reduces manual accounting chores, helping to greatly increase AP productivity. One WorkMarket survey found that more than 60% of businesses are already automating some accounting tasks or are planning to do so — and they listed productivity increases as one of the top reasons for applying automation.
- Greater accuracy. AP automation minimizes the risk of errors throughout the AP process by limiting manual data entry, which can cause problems such as mistyping invoice data or incorrect coding. It also cross-checks invoice accuracy by automatically matching invoices against purchase orders and receiving documents.
- Lower costs. AP automation reduces costs by improving productivity, and it also helps companies pay invoices on time — which means a lower risk of late-payment penalties.
- Increased visibility. Managers can monitor the progress of any invoice as it moves through the AP pipeline. They can also track efficiency and productivity metrics for the AP team.
- Preventing fraud and duplicate payments. A well-implemented AP automation workflow can help companies detect fraud and avoid erroneous payments by validating vendor information and flagging unusual or anomalous payment requests for review.
- Supplier discounts. By ensuring that all invoices get paid quickly, AP automation can help companies win early payment discounts from their suppliers.
- Better records. All information is managed and stored centrally; businesses don’t need to hunt through stacks of old documents to track down information about old invoices and payments. In the case of an audit, software makes sure that the required information is available when needed.
What Does an Automated Workflow Look Like?
AP automation can help companies eliminate the chaos of cluttered desks, stacks of paper, missing invoices and overflowing filing cabinets. Information is digitized at the start of the automated workflow, and it remains in digital form throughout the entire AP process. There’s no need to manually enter data or transfer paper copies of invoices among different departments for review and approval. Instead, the software automatically moves each invoice through a series of processing steps, routing items to the appropriate parties for review as necessary. With all information stored centrally in digital form, department heads, procurement professionals and AP staff can monitor the workflow and track the progress of each invoice via real-time dashboards. Storing a digital image of each vendor bill in the accounting system eliminates the need to retain paper copies of invoices, so there’s no need for filing cabinets stuffed with old documentation.
What AP Processes Can Your Business Automate?
Automation can provide benefits at almost every step of the AP workflow. Here are some of the most commonly automated processes.
Many companies receive the bulk of their invoices electronically. Bills can be imported into the system via drag and drop, avoiding the need for manual data entry.
Using scan and capture technologies like optical character recognition (OCR), AP software extracts key information from the invoice, such as items and quantity ordered, unit pricing and totals, PO number and vendor details.
The software performs a two-way or three-way match to check that the invoice matches the original purchase order and, in the case of goods and materials, associated receiving documents. If there’s a mismatch in any of these documents, the software flags the invoice for further review.
Routing and approval:
The AP automation software routes the invoice to the appropriate manager or department for review and approval.
In some cases, companies may choose to approve low risk, low value invoices automatically based on preset thresholds. For example, invoices under $500 might be paid automatically, while invoices above that amount would require approval. Recurring invoices like utility bills might be paid automatically as long as the total falls within a specified range.
Early payment discounts:
Some suppliers offer discounts for companies that pay before the due date. Companies may, therefore, expedite payments to those suppliers in order to take advantage of the savings.
Payment authorization and execution:
If reviewer approval is necessary, the AP software tags an authorized member of the AP team to quickly review and approve the payment.
The AP system can automatically inform vendors when payments are made and by what method so they know when funds should be available. For instance, it may tell suppliers that payment will be made via ACH to their bank account within 48 hours. Some systems have intuitive portals that vendors can access to view the status of payments.
Record-keeping and reconciliation:
Automated AP systems track invoices throughout the entire AP process, meaning that you will always have an accurate record in the event of a payment dispute or an audit. They facilitate reconciliation to verify that the internal documentation of payment matches external bank records.
Accounts Payable Automation Workflow Examples
Companies in almost any industry can benefit from an automated AP workflow. Here are two examples.
- BlueSnap, which powers the checkout process for ecommerce merchants worldwide, sought to streamline its AP processes amid rapid business growth. With a mobile workforce spread across the country, the company found that its manual AP processes were becoming difficult to execute in a timely way. By implementing NetSuite financial software, together with MineralTree AP automation, the company saved more than 10 hours per payment, allowing staff to spend more time on strategic, value-added activities. Instead of manually sorting paper checks and shipping them cross-country for processing, everyone can now easily access payment data and process payments online.
- Nobel Learning Communities, a growing network of more than 180 private pre-K and K-12 schools, sought to automate the data entry of invoices and credit memos to reduce costs and provide authorized users with secure access to needed information. After selecting NetSuite ERP to manage its complex business model, the company used OCR software to capture data and automatically create vendor transactions from scanned and emailed invoices. Nobel streamlined manual processes, reducing costs and saving 20 hours a week, and eliminated the need for expensive paper storage and retrieval.
Automate Your AP Workflow With NetSuite
NetSuite accounts payable software automates invoice review, approval and payment, giving businesses greater control over the entire procure-to-pay cycle while freeing the accounting team from repetitive invoice processing tasks. NetSuite eliminates error-prone manual data entry, increasing productivity by capturing vendor invoices, approvals, payments and reconciliations. The software automatically matches invoices to vendor records and purchase orders so accounts payable staff can focus on exceptions, instead of manually reviewing invoices. Customizable dashboards provide real-time access to key performance indicators and accounts payable information, such as AP aging, invoices awaiting approval and payments in progress. With NetSuite centralized AP, authorized users across the business can instantly retrieve bills, item receipts and vendor contracts from a single online source.
Automating the AP workflow plays a crucial role in increasing operating efficiency. It helps businesses reduce costs, process invoices faster and minimize errors, while providing greater control and visibility into the overall AP process.
AP Automation Workflow FAQs
How do you automate an AP process?
Automating an AP process is performed with software that simplifies invoice capture, extracts relevant details, matches these details to purchasing and receiving documents, and automatically routes invoices for approval and payment.
What is an automation workflow?
An automation workflow is a set of steps that is carried out automatically by software to complete a task. It replaces a set of manual steps. For accounts payable, an automation workflow can include scanning, uploading and verifying invoices, routing for approval and automatic payment of low risk, low value invoices.
What is AP automation?
AP automation involves creating a digital workflow for the steps involved in receiving, approving, paying and recording invoices.
How does AI play into AP automation?
AP automation software uses artificial Intelligence to automatically process and categorize invoices according to your business’s needs.
What does Full Cycle AP mean?
Full Cycle AP is a term for the entire process that begins when a product or service is obtained and ends when the invoice is paid. For example, the full cycle for an order of office supplies begins when the order is placed and ends when the completed payment is reconciled with the bank or credit card statement.
What is general ledger (GL) coding?
General ledger codes are numbers assigned to general ledger accounts and used to categorize transactions. For example, all electrical utility bills might be assigned the same GL code. GL codes make it easier to classify and analyze revenue and spending.