What Is Account Payable (AP) Workflow Automation?

Traditional accounts payable processes are increasingly vulnerable to fraud, with organizations facing huge losses. Manual workflows, characterized by paper invoices and human approvals, are not only slow but also prone to errors, making them susceptible to fraudulent activities. 

According to an Association of Certified Fraud Examiners (ACFE) survey, billing fraud has significantly affected 29% of small businesses and 18% of large organizations. Therefore, it is crucial to implement automated AP workflows to mitigate the risks and improve efficiency.

Encouragingly, 64% of businesses noted increased efficiency in handling invoices after implementing AP automation. Additionally, Gartner projects a substantial investment in AP automation software, reaching $1.75 billion by 2026. This indicates a significant shift toward automated solutions to address fraud risks and improve accuracy in financial operations.

In this article, you will explore how AP workflow automation works and the best practices for implementing these changes effectively.

What Is Accounts Payable (AP) Workflow Automation?

Accounts payable workflow automation refers to using technology to streamline the various processes involved in managing your company's financial obligations to vendors. With AP automation, you can eliminate the tedious data entry, manual approvals, and other time-consuming activities that are common in a traditional AP process.

For instance, in a manufacturing setup, timely procurement of raw materials is crucial. AP automation ensures that invoices from suppliers are swiftly processed. When an invoice for raw materials is received, the system automatically extracts data, matches it with the purchase order and delivery receipt, and routes it for approval. This reduces the risk of production delays due to late payments. Selecting the right payment processors is crucial to ensure timely and accurate financial transactions.

Challenges in Traditional AP Processes

Here are some of the key challenges you might face in traditional AP processes:

Manual Data Entry

The traditional accounts payable process often relies heavily on manual data entry, where you spend countless hours inputting invoice information into the system. This tedious task is not only time-consuming but also prone to human errors, such as typos and misinterpretations. These inaccuracies can lead to discrepancies in your financial records, making it challenging to maintain data integrity.         

Time-Consuming Approval Processes

The approval workflows in accounts payables involve manually routing invoices for review and authorization. This multi-step procedure often leads to bottlenecks, causing delays in the payment cycle. The inefficiency of these manual approval processes can considerably impact your overall operational efficiency.

Errors and Discrepancies

Depending on manual processes in accounts payable can result in human errors and inconsistencies. Mistakes such as incorrect data entry, duplicate payments, and mismatched information can lead to financial losses. These errors add to your team's workload and compromise the reliability of your financial records, making it challenging to maintain accurate information.

Late Payments and Missed Discounts

The inefficiencies in traditional accounts payable workflows can result in late payments to your vendors. This damages your organization's reputation and credibility and leads to missed opportunities for early payment discounts. When invoices are not processed and paid on time, you miss out on potential cost savings, impacting the financial performance of your business.

Lack of Visibility and Control

Traditional AP processes often lack the visibility and control that modern businesses require. You may struggle to track the status of invoices, approvals, and payments in real time. This lack of transparency might make it difficult for you to monitor cash flow and detect fraudulent activities promptly. 

Benefits of AP Workflow Automation

Let's explore the advantages of accounts payable workflow automation:

Time and Cost Savings

By automating your AP workflow, you can significantly minimize the time spent on manual data entry and invoice processing. Automation speeds up the entire accounts payable cycle—from invoice receipt to approval and payment, enabling you to allocate your resources more efficiently. This reduction in labor-intensive tasks leads to lower operational costs and frees you to focus on more strategic activities.

Reduced Errors

When you rely on manual processes, there's a higher chance of human errors, such as duplicate payments or incorrectly entered invoice details. AP workflow automation minimizes these errors by validating data against purchase orders, dates, and other records. This ensures that discrepancies are flagged for review before payments are processed. 

Better Cash Flow Management

Automating your AP processes gives you real-time visibility into your outstanding invoices and payment obligations. This enhanced transparency allows you to better schedule your payments, optimize cash flow, and take advantage of early payment discounts. By having a clear picture of your cash position at all times, you can make more informed financial decisions and improve your overall liquidity management.

Stronger Supplier Relationships

A smooth and efficient AP workflow fosters better relationships with your suppliers. When invoices are processed quickly, and payments are made on time, suppliers are more likely to view your business as reliable and trustworthy. Automated systems facilitate clear communication regarding payment statuses and approvals, reducing misunderstandings.

Fraud Prevention

Automated AP systems incorporate robust security measures like encryption, authentication, and audit trails to protect against fraudulent activities. The system provides detailed records of all transactions, making it easier to detect any irregularities. This enhanced control and visibility helps prevent fraud and safeguard your financial data.

Accounts Payable Workflow Use Cases

Let's dive into some accounts payable workflow use cases demonstrating how automation can optimize the process.

Invoice Processing

Automated workflows streamline invoice processing by eliminating manual data entry and reducing errors. They automatically capture and validate invoice data, cross-check it against purchase orders, and route it for approvals based on predefined rules. This speeds up the payment cycle, improves accuracy, and enhances transparency.

Purchase Order Matching

Purchase order matching involves comparing three key documents: the purchase order, the invoice, and the receipts. This ensures that the quantity, price, and terms align across all documents before processing payment, reducing errors and fraudulent transactions.

Automation makes this process seamless by automatically retrieving the relevant purchase order and goods receipt data and comparing it to the invoice. Any mismatches are highlighted for investigation, preventing overpayments and duplicate payments.

Approval Workflows

Approval workflows are essential for maintaining checks and balances in your accounts payable process. You will often need multiple approvals for different stages of invoice processing, from initial receipt to final payment. 

These workflows can involve various stakeholders, depending on the amount and nature of the transaction. Automation can streamline this process by routing invoices to the appropriate approvers based on predefined rules, sending reminders, and providing visibility into the status of approvals.

Payment Scheduling

Once invoices have been processed, matched, and approved, you must settle payments to vendors based on the agreed-upon terms. This includes setting up payment dates and methods as well as ensuring timely disbursement of funds to avoid late payment penalties.

An automated accounts payable workflow enables you to schedule payments according to due dates, take advantage of early payment discounts, and avoid incurring late fees. This lets you optimize your cash flow and maintain strong relationships with your suppliers.

Vendor Management

Effective vendor management involves maintaining good relationships with your suppliers while ensuring that you receive quality goods and services. You can use automation to maintain a centralized database of vendors, including their contact information, payment terms, and tax forms.

When a new vendor is added, you can automatically send them a welcome email with relevant information on submitting invoices and the necessary tax forms. Automation also helps you track vendor performance, such as on-time delivery and invoice accuracy, and identify opportunities for cost savings through vendor negotiations.

Expense Report Processing

Timely and accurate processing of expense reports is essential for employee satisfaction and financial transparency. This can involve verifying the accuracy of expense claims, matching receipts, routing reports for approval, and issuing reimbursements to employees.

Automating these expense report processing can improve compliance, reduce the risk of fraud, and provide better visibility into your company's spending.

How Does AP Workflow Automation Work?

Let's understand the steps involved in accounts payable workflow automation in detail:

Invoice Capture and Data Extraction

The first step in AP automation is capturing invoices and extracting the relevant data. Modern invoice capture solutions use AI-powered OCR, machine learning algorithms, and intelligent data extraction to classify documents and retrieve required data automatically.

All crucial information, such as vendor details, invoice numbers, dates, and item details, can be seamlessly extracted. This ensures accurate data capture and accelerates the invoice processing timeline.

Invoice Matching

Once the data is captured, the next step is invoice matching. This involves comparing the extracted invoice data against purchase orders (POs) and other financial records. Automated systems classify and validate invoices, verifying that they match with the corresponding POs.

If discrepancies arise, the system flags them for review, allowing you to resolve issues quickly. This automated matching process minimizes errors and streamlines the workflow, guaranteeing that invoices are processed efficiently and accurately.

Approval Routing

After matching, invoices need to be routed for approval. Automated workflows facilitate this process by sending invoices to the appropriate stakeholders based on predefined rules, such as invoice amounts or department codes. You can customize these workflows to ensure that they align with your organization's approval hierarchy and policies.

For instance, if an invoice exceeds a certain dollar amount, it may be routed to a senior manager for approval, while smaller invoices could be directed to departmental heads. This confirms that the right person reviews each invoice in accordance with your internal policies.

Integration with Financial Systems

AP automation solutions enable you to integrate with existing financial systems, such as ERP or accounting software. This integration allows all financial transactions and records to be properly documented and synchronized.

As a result, maintaining compliance with accounting standards and regulations becomes more straightforward. 

Automated Payment Execution

The final step in the AP workflow automation is executing payments. Once invoices are approved, the system can automatically initiate payment processes, whether through electronic funds transfer (EFT) or other payment methods. 

This automation reduces the risk of late payments and associated penalties, ensuring your vendors are paid on time. You can also set up alerts and reminders for upcoming payments, enhancing your cash flow management.

How to Implement Accounts Payable Workflow Automation?

Let's explore the process of implementing efficient AP workflow automation.

Assessing Current Processes and Pain Points

To begin automating your accounts payable process, you must first assess your existing processes. This involves mapping out every step of the workflow, from invoice receipt to payment processing. Look for bottlenecks, repetitive tasks, and areas where errors frequently occur. 

Selecting the Right Solution

Once you understand your current processes, the next step is to select an appropriate AP automation solution. Evaluate various features, such as integration capabilities with your existing systems, user-friendliness, and scalability. You should consider scheduling demos and requesting trial versions to get hands-on experience with the potential solutions.

Data Preparation

Before implementing an automation solution, you must prepare your data. This involves data cleaning and organizing your invoice and vendor data to ensure accuracy and consistency. Identify and rectify duplicate entries or outdated information that could hinder the automation process. Standardizing data formats may also be necessary to facilitate seamless integration with the new system.

System Setup and Configuration

Once your data is ready, you can proceed with setting up and configuring the AP automation system. This step involves customizing the software to match your specific workflows and business rules. You must define approval workflows, set up user roles and permissions, and configure the integration with other business systems.         

Data Migration and Automation

After configuring the system, you should migrate your prepared data into the new AP automation platform. Ensure the data migration process is thorough; verify that all relevant data, including historical invoices and vendor information, is accurately imported. Once the data is migrated, you can start automating your AP workflows.

You can leverage data migration tools like Airbyte to minimize downtime. Platforms like Airbyte offer robust solutions to handle data migration efficiently, reducing the risks of errors and data loss.

Streamline Your Data Migration using Airbyte

Airbyte is a powerful data integration solution that enables you to seamlessly migrate data from various sources to your desired destinations. It offers over 350+ pre-built connectors that support diverse data sources like databases, cloud storage, SaaS applications, and more. This extensive catalog allows you to connect to your existing data sources and migrate data to your target destination with minimal effort. 

Here are the key features of Airbyte:

• ‍Customizable Connectors: If your firm has unique processes or uses custom tools, Airbyte empowers you with greater flexibility through its Connector Development Kit (CDK). With the CDK, you can quickly build custom connectors within 30 minutes.
• ‍Change Data Capture (CDC): Airbyte's change data capture (CDC) capabilities allow you to automatically synchronize and update information across systems. For instance, when client data is updated in your databases, it is automatically synced to destination systems like NetSuite. This ensures that all relevant information is up-to-date and accessible for payment processing and decision-making.
• ‍Retrieval-Based LLM Applications: It allows you to build retrieval-based conversational interfaces on top of your synced data using frameworks like LangChain or LlamaIndex. This enables you to easily access invoice status, upcoming payments, and other relevant information through user friendly queries.
• ‍Ease of Use: Airbyte offers various development options for creating and managing data pipelines, making it accessible to everyone. These options include a graphical user interface (UI), an API, a Terraform Provider, and PyAirbyte. With these diverse choices, you can choose the one that best aligns with your requirements.
• ‍Vector Store Integration: Airbyte allows you to load unstructured data, such as text documents, images, and audio files, directly into popular vector store destinations like Pinecone, Weaviate, and Milvus. This feature streamlines the process of preparing your data for AI and machine learning applications.
• ‍Data Security: AP workflows often involve handling sensitive financial information, invoices, and other documents subject to various data protection regulations. Airbyte prioritizes data security by adhering to industry standards such as CCPA, GDPR, SOC2 certifications, and HIPAA. 

Change Management

Implementing AP automation represents a significant change for your organization, so effective change management is crucial. Engage your stakeholders throughout the process, communicate the benefits clearly, and provide comprehensive training to ensure a smooth transition.

Few Best AP Workflow Automation Tools

Let's explore some of the best AP workflow automation tools for optimizing daily accounts payable processes.

Centime

Centime is an all-in-one cash management solution that streamlines and enhances the entire accounts payable process, from invoice receipt to payment. It can automatically capture invoice data, categorize and code invoices, and instantly post approved documents to the accounting system. This reduces manual workflows and improves efficiency.

Key Features of Centime

• ‍Cash Flow Forecasting Software: Centime's cash flow forecasting software provides real-time visibility into your current and future cash assets and liabilities. By leveraging machine learning and historical data, it automatically generates rolling 13-week forecasts, offering immediate insights into cash flow.
• ‍Working Capital Credit Solutions: Centime Credit offers flexible credit solutions to help you control your working capital needs and scale your business quickly. You can access the funds you need without the hassle of traditional lending processes.
• ‍Fraud Mitigation: Centime is committed to protecting your businesses with bank-level security, including PCI SAQ A and SOC certifications, ensuring the safety of your data.

NetSuite

NetSuite's accounts payable (AP) solution automates the review, approval, and payment of supplier invoices, offering you greater control over the entire procure-to-pay cycle. You can maintain detailed vendor record-keeping, generate and oversee purchase requests, and boost data accuracy by automatically matching invoices to the appropriate vendor and purchase order.

Key Features of NetSuite

• ‍Bill Capture: NetSuite's AP automation uses AI and machine learning to automatically capture vendor bills and convert them into digital records. This removes the need for manual data entry and reduces errors.
• ‍Accounts Payable Dashboard: It offers a configurable dashboard that displays key performance indicators (KPIs) and alerts, allowing you to track vital information like open purchase orders, invoices pending approval, due dates, and the payment process.
• ‍Reconciliations: When invoices do not match purchase orders or receipts, the system automates the exception processing to help you quickly identify and resolve any mismatches.

Airbase

Airbase is an intelligent AP automation solution that eliminates manual data entry and automates invoice and payment approvals. It offers secure global payments in over 145 currencies and supports transactions in more than 200 countries, greatly reducing the risk of fraud and enhancing global financial interactions. 

Key Features of Airbase

• ‍Backup Approvals: If an approver is unavailable, the system can automatically reroute the request to a designated backup approver, ensuring continuity in the approval process.
• ‍Automated Vendor Tax Compliance: Airbase uses AI technology to automatically fill in tax details, validate domestic and international vendor tax IDs, and identify invalid vendors before processing payments.
• ‍Mobile Capabilities: Airbase provides mobile apps for both iOS and Android, allowing you to capture receipts, submit expenses, and approve invoices on-the-go.

AP Workflow Best Practices to Avoid Headaches

Here are some of the best practices to optimize your accounts payable workflows.

Standardize Invoice Processing

Standardizing invoice processing is crucial to streamline your AP workflow. Defining guidelines and procedures for handling invoices can maintain consistency and accuracy in your financial operations, helping you avoid errors and delays in payment processing.

Utilize an automated system for capturing, validating, and entering invoice data, which minimizes manual data entry and speeds up the overall process. 

Implement a Clear Approval Hierarchy

An approval hierarchy is crucial for managing the responsibility of approving invoices and validating that payments are made only after proper authorization. This includes identifying the individuals responsible for invoice processing, approval, and payment. By clearly delineating these roles, you can assure that every step of the workflow is assigned to the appropriate person. 

You can incorporate automated workflows that route invoices to the appropriate approvers based on predefined rules. This enhances the approval process and makes sure that invoices are not stuck waiting for approval.

Leverage Early Payment Discounts

Taking advantage of early payment discounts is a simple yet effective way to optimize your AP workflow. By paying invoices early, you can negotiate better terms with vendors and potentially save your company a significant amount of money. 

To capitalize on these discounts, your AP processes must be efficient enough to process invoices and make payments in a timely manner. Automating your accounts payable workflow can significantly facilitate this process by streamlining invoice processing and enabling faster payments.

Regularly Update Vendor Information

Keeping your vendor information up-to-date is crucial for maintaining smooth AP workflows. Regularly review and update vendor contact details, payment preferences, and other relevant information to ensure accurate and timely payments.

This helps foster strong vendor relationships essential for your business success. Automating vendor management tasks, such as onboarding and profile updates, can further simplify this process and reduce the risk of errors.

Implement Controls to Prevent Duplicate Payments

Duplicate payments can significantly impact your cash flow and create unnecessary work when reconciling accounts. Leverage automated invoice matching to flag potential duplicate invoices before payments are processed. 

Additionally, establish internal controls like invoice numbering systems and cross-referencing vendor invoices with purchase orders and receiving documents. These measures will help you catch duplicates early and maintain the reliability of your financial records.

Conclusion

Automated AP workflows can significantly enhance vendor relationships, reduce payment errors, and provide better visibility into the payment process. This article has offered comprehensive insights on implementing accounts payable workflow automation and its potential benefits to your business. Furthermore, you’ve explored various use cases and the best practices for successful implementation.

FAQs

What is an AP automation tool?

An AP automation tool is software that enables you to streamline and automate the accounts payable process, from invoice capture and data extraction to approval workflows and payment processing.

What is the AP workflow process?

The AP workflow process typically includes the following steps: capturing invoice data, coding invoices to the general ledger, matching invoices to purchase orders and receipts, routing invoices for approval, and executing payments.

How much does AP workflow automation cost?

The cost of AP workflow automation can vary significantly based on factors such as the number of invoices processed, the level of functionality required, and the level of integration needed with your existing systems.

Who needs AP workflow automation set up?

Any organization that processes invoices and payments can benefit from AP workflow automation, which helps reduce manual effort, errors, and costs while improving financial visibility and control. Businesses of all sizes across various industries can leverage AP automation.