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AP Automation 101: What You Need to Know

By June 26, 2017January 20th, 2020No Comments

Over the last decade, forward-thinking companies have adopted AP automation to automate the paper and manual elements of processing invoices and making payments. In a study from Ardent Partners, 51% of today’s AP organizations are prioritizing the link between procure-to-pay processes and associated automated systems. I’m sure you’ve heard the term AP automation, but you might be asking yourself, what does that really mean and why should I care? In this blog, we are going to define AP automation, discuss why you should care, and how AvidXchange automates the payables processes for companies throughout the U.S.

What is AP automation?

AP automation solutions integrate with accounting systems and enable the accounts payable department to streamline workflows and reduce manual tasks and processing costs. Automation adds significant value to accounts payable, including real-time visibility into performance and financial status, increased accuracy, and better compliance with tax laws and industry regulations. Simply put, if a company is still receiving paper invoices or paper checks, they are not capitalizing on today’s best practices. They are also missing out on the unlimited potential for savings after relieving their AP team of time-consuming tasks such as opening the mail, data entry, and filing mountains of paper. These manual tasks can lead to lost invoices, human error during data entry, and duplicate invoices. AP automation solutions help companies streamline their AP workflows, removing manual tasks and paper in the process. Sophisticated software integrates with your company’s accounting system to track invoices electronically and enable companies to pay suppliers electronically while maintaining all their banking relationships.

Why you should care about AP automation.

There are countless reasons why you should care about AP automation, but let’s talk about the top one. Like we discussed earlier in this blog, you save enormous amounts of time and money after automating. Companies reduce their AP processing costs by 60% or more, but why is that? Think about it…every time you, or another staff member, touches an invoice or payment, the cost increases. Let’s walk through a simple scenario.

An invoice is received in the mail, so the AP Specialist opens the mail, scans the invoice, enters it into the accounting system, files the invoices, codes the invoice, applies distributions to the invoice, and routes it to the Controller. Now, the Controller picks up the invoice, checks the coding and distributions, but realizes the invoice is over $5,000 dollars and needs to be reviewed by the CFO before a check can be mailed to the supplier. Suppose the CFO is out on vacation, so that invoice sits on her desk until she gets back. It takes her a few days to get to it when she gets back, so by the time she has time to review the invoice, it’s already overdue. Now, a late payment is required, so she approves it, and sends it back to the AP Specialist to print the check, address the envelope, update the accounting system, and route back to the CFO for a signature. Finally, a week later, the CFO signs the check and it’s mailed to the supplier. This is a common scenario and costs businesses a lot of unnecessary time and money—but there is a better way.

How does AvidXchange AP automation work?

Let’s look at what the scenario would have looked like if the company had an AP automation solution in place (specifically AvidXchange). Rather than the AP Specialist opening the mail and scanning the invoice, she logs into the online application and views her queue of open invoices. The queue shows all open invoices that require action. Now, she drills into the invoices to code, apply distributions, and approve.

Rather than handwriting the company or department codes on the physical invoice, she simply searches for “plumbing” or the beginning number sequence, and selects the code she would like to apply. When she’s done this for all her open invoices, she approves them and the invoices are automatically routed to the next approver. From here, the Controller receives the invoices, checks the coding and distributions, and approves them. Notice, the Controller didn’t take any extra action on any invoices over $5,000, because the application automatically routes those invoices to the appropriate approver – in this case – the CFO.

Finally, the CFO receives the invoices that require action, reviews, and approves them. But remember, the CFO is on vacation. With automation, it doesn’t matter. The CFO can review and approve from her smartphone while on vacation in just a few minutes. Now, there’s no need to wait a week and a half until the invoice is finally approved and the overall approval cycle is much shorter. Lastly, a payment is facilitated to the supplier and the process starts all over again.

Learn more about AvidXchange and accounts payable automation.

In this blog, we only discussed one scenario and a few benefits of automating your invoice and payment processes. If you want to learn more about AvidXchange, read through some of our free resources to discover how automating your accounts payable processes will make your life easier.

Download our free e-book to learn the 12 Benefits AP Automation to your Workday. 

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