In-Depth Guide to Accounts Payable (AP) Automation in 2024

Accounts payable (AP) automation is an incredible opportunity for companies to drive efficiencies, cost savings, and strategic advantages in their procure-to-pay processes. With intelligent technologies like artificial intelligence (AI), machine learning, and robotic process automation (RPA) maturing rapidly, AP automation enables dramatic performance improvements that organizations cannot afford to ignore.

In this comprehensive guide, we will explore what AP automation entails, benefits it offers, steps to automate, technologies leveraged, criteria for selecting solutions, and real-world examples of successful implementations.

What is AP Automation?

Accounts payable refers to the recording and payment of short-term liabilities that a company takes on through purchasing goods or services on credit terms. The AP process consists of key steps like:

  • Invoice receipt
  • Data extraction
  • Validation
  • Accounting entry creation
  • Payment execution
  • Period-end reconciliation

Handling high invoice volumes while maintaining compliance and cash flow control is highly complex. AP automation aims to optimize this procure-to-pay process through digital technologies.

AP automation utilizes technologies like AI, RPA, and OCR to digitize, streamline, and automate the manual, repetitive steps involved in AP operations. This delivers tangible results like:

  • Reduced operational costs
  • Faster processing times
  • Fewer errors
  • Improved compliance
  • Higher productivity

According to Ardent Partners, manual AP processing costs around $12 per invoice compared to only $2-3 per invoice with automation. Cycles times can be slashed from 17 days to just 4 days with AP automation. [1]

Critical Benefits of AP Automation

Transitioning from predominantly manual AP workflows to integrated digital systems powered by intelligent technologies yields considerable benefits that drive value across the organization:

1. Reduced Costs

AP automation dramatically cuts costs by eliminating manual document handling, data entry, validations, and other labor-intensive tasks. The chart below illustrates potential cost savings:

For a company processing 100,000 invoices annually, AP automation could yield over $1 million in direct cost reduction.

2. Accelerated Processing

Automating data capture and validation accelerates invoice processing cycles.

Average AP cycle times:

  • Manual: 17 days
  • Automated: 4 days

Faster approval and settlement enhances supplier relationships and enables early payment discounts.

3. Error Reduction

Automation minimizes human errors that lead to duplicate payments, missed discounts, and compliance issues.

One study found:

  • 3.1% average duplicate payment rate for manual AP
  • 0.04% for automated AP

Such improvements create cost savings and strengthen supplier trust. [2]

4. Enhanced Compliance

Automated controls during data extraction and payment processes boosts compliance with regulatory requirements.

5. Improved Productivity

Automation frees up employee time previously spent on repetitive tasks to focus on value-added activities like:

  • Supplier relationship management
  • Spend analysis
  • Process improvements

This drives employee satisfaction and retention.

Key AP Process Steps to Automate

Modern AP automation solutions apply technologies like artificial intelligence, machine learning, robotic process automation, and OCR to digitize and optimize the full procure-to-pay cycle:

1. Manage Supplier Master Data

Centralized, cleansed supplier data ensures incoming invoices can be seamlessly matched and processed without manual lookups or validation.

2. Receive Invoices Digitally

Invoices are ingested directly through EDI, supplier portals, email, etc. rather than relying on print mail. This enables real-time processing.

3. Extract Invoice Data

OCR and AI "read" invoices in any format like PDF or scanned images to extract all structured data with up to 80% straight-through processing rates on first pass. [3]

4. Validate Invoice Details

Extracted data is cross-checked against POs, contracts, calculations, vendor records, and other information to auto-validate each invoice.

5. Create Accounting Entries

Once validated, invoices automatically flow into the ERP to create the appropriate accounting debits and credits.

6. Remit Payments

Systems automatically trigger payments to suppliers through the desired channel like ACH, wire, card, etc. in compliance with company policies.

7. Period-End Reconciliation

Any residual exceptions are routed for manual review and resolution before closing the books.

Key Technologies Enabling Modern AP Automation

Advanced AP automation leverages a stack of disruptive technologies to replicate and enhance human capabilities:

  • Data management – Centralized master data hubs for suppliers, invoices, payments etc.
  • Document ingestion – Scan, extract data from emails, EDI, portals
  • OCR & text mining – Convert document text and handwriting into machine-readable data
  • Machine learning & AI – "Read" varied invoice layouts and auto-classify AP data
  • RPA bots – Automate repetitive manual steps like payment entry or status checks
  • Blockchain – Establish trusted B2B networks and transparency
  • Predictive analytics – Optimize workflows and uncover AP insights

I‘ve witnessed quantum leaps in the accuracy of invoice data extraction over the past decade as OCR and AI technologies have rapidly matured. This has dramatically expanded the degree of automation achievable across the AP process.

How Do You Select the Right AP Automation Solution?

With a wide variety of solutions on the market, conducting diligent evaluations is critical before selecting an AP automation platform. Some key criteria to assess include:

  • Degree of automation – Best-of-breed solutions process over 80% of invoices without human intervention. [3]

  • Integration capabilities – Seek platforms with pre-built connectors to major ERPs like SAP, Oracle, Infor to accelerate rollout.

  • Configurability – The system should readily adapt to your workflows and requirements vs. forcing change.

  • Processing volumes – Ensure the solution can smoothly scale to your invoice and payment volumes.

  • Information security – Robust security protections, access controls, compliance certs, and backups are a must.

  • User experience – Intuitive interfaces improve employee adoption and productivity.

  • Vendor profile – Consider vendor experience, stability, client base, support model, and roadmap.

  • Total cost of ownership – Factor both SaaS subscription and internal implementation/support costs.

Real-World Examples of AP Automation Success

To appreciate the potential impact, let‘s examine a few examples of companies achieving transformative benefits from AP automation:

  • Global bank – Automated 80% of 15 million invoices annually, saving 45K work hours and $480K/year [4]

  • Fortune 500 media company – Cut invoice processing costs by 50%, improved early-payment discounts [5]

  • Major US airline – Reduced invoice costs by 62%, improved match rates to 98% [6]

  • Leading meal kit provider – Slashed invoice costs by 20%, reduced late fees and improved vendor relations [7]

The common thread is dramatically lower costs, increased efficiency, and stronger supplier relationships.

Key Takeaways and Next Steps

Transitioning from manual AP processes to automated, intelligent workflows powered by AI, RPA, OCR, and other technologies can transform procure-to-pay. Companies realize massive cost reductions, accelerated processes, fewer errors, tighter compliance, and strategic gains.

Automating 80%+ of AP tasks is achievable by selecting the right solution after thorough evaluations. This guide provided a comprehensive overview of AP automation along with real-world examples. The next step is to scrutinize your current AP workflows, pain points, volumes, and requirements before researching solutions that best align to your needs. Dramatic AP improvements are within reach by harnessing the power of digital technologies.

Sources

  1. Ardent Partners, ePayables 2018 Report
  2. Levvel Research, 2018
  3. Market research
  4. SAP Case Study
  5. Tipalti Case Study
  6. AvidXchange Case Study
  7. MineralTree Case Study
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