What is AP Automation and How Does it Work?

Accounts payable (AP) teams face the constant challenge of managing invoices, approvals, and payments efficiently while ensuring accuracy, security, and cost-effectiveness.

The solution? AP automation. This guide takes a deep dive into AP automation, exploring strategies, benefits, and solutions that can transform how businesses manage their accounts payables.

Key takeaways

• Accounts payable (AP) automation uses technology to automate tasks and workflows, including invoice capture, approvals, payments, and reconciliation.
• AP automation streamlines the end-to-end process, saving time, reducing errors, and increasing productivity so teams can focus on other important tasks.
• By reducing processing costs, AP automation helps businesses capitalize on discounts, improve cash flow, and achieve significant cost savings.
• AP automation gives finance teams greater control and real-time visibility over invoice approvals and payments while helping reduce the risk of fraud.

How do you automate the AP process?

There are a few ways to automate the AP process, like through e-voicing, automated data entry, and automated invoice match, but the best way is to leverage an AP automation solution like MineralTree. MineralTree integrates directly with corporate bank accounts and accounting systems in as little as 12 days. The solution keeps overhead to a minimum by paying for itself as quickly as 60 days after the simple implementation and is proven to streamline the entire accounts payable process — from invoice capture to invoice approval, payment authorization, and payment execution.

How does the AP automation process work?

The AP automation process uses technology to streamline manual tasks across the accounts payable workflow. An AP automation solution, like MineralTree, connects these steps by integrating directly with corporate bank accounts and accounting systems. While many AP automation solutions address a single pain point in the accounts payable workflow, the right software takes into account the unique challenges stakeholders face at each step of the process with a complete end-to-end solution.

While the exact workflow differs between organizations, the AP automation process typically includes the following six steps:

Step 1: Capture and code invoices

AP automation software extracts header and line-level data from invoices and codes it for processing. There are several ways to initiate the capture process, including the use of a dedicated email inbox for electronic invoices or a PO box service for mailed invoices, manual uploads, or by syncing directly into your ERP. Any invoice uploaded to MineralTree will automatically sync back to your ERP system, maintaining it as your system of record. With MineralTree, duplicate invoices are automatically detected and flagged for review, saving time and preventing duplicate payments that require reconciliation.

Step 2: Route invoices for approval

AP automation software uses pre-defined approval rules to automatically route invoices to specific approvers in real-time. Invoice approvers can then make approvals from anywhere, even on mobile. Organizations can also utilize important payment controls such as segregation of duties, two-factor authentication, and dual approvals to add more security and further protect against payment fraud.

Step 3: Match invoices to purchase orders

Purchase orders allow organizations to bypass the tedious approval process which sometimes involves people across departments, including hard-to-reach department heads. Rather than collecting everyone’s “stamp of approval” for every invoice that is received, automated PO matching links invoices with their corresponding POs, allowing the invoice to bypass approvals and go directly to payment scheduling and execution. Mismatched invoices that fall outside of pre-defined thresholds are routed through an exception handling workflow for resolution.

Step 4: Schedule and approve payments

Automating payments is a great time saver for AP departments. Many organizations start out by automating their payments as a gradual gateway towards end-to-end efficiency. For many automation solutions, execution can be automated in a single workflow across payment types. By utilizing automatic approval routing and simple payment scheduling, organizations can dramatically increase efficiency and decrease the time it takes to get a payment out the door. It’s also likely that supplier relationships will be strengthened when payments arrive accurately, securely, and on time.

Step 5: Execute payments

Some solutions will help you optimize your payment methods, which can lead to quicker payment completion, the ability to earn cash-back rebates, and enhanced security. With MineralTree, organizations gain seamless support over multiple payment types, including check, ACH, virtual card, and international/FX payments in one workflow. After a payment is complete, electronic remittance details are sent to vendors.

Step 6: Sync data and maintain an audit trail

All approval and payment details are automatically stored in one central repository that can be accessed by authorized users at their convenience. This kind of logging helps teams easily conduct internal audits or supply outside auditors with necessary information upon request.

What are the benefits of AP automation?

Automating the accounts payable process can help finance teams work more efficiently, reduce costs, strengthen control, and gain greater visibility into invoices and payments.  Six key benefits of AP automation include:

Save time and increase efficiency

AP automation streamlines each step in the AP process. Instead of having to manually input invoice data, write paper checks, and chase down team members for signatures and approvals, everything is done digitally. With this extra time, your team can focus on higher-value projects that drive revenue and process more work volume.

Reduce costs and capitalize on discounts

AP automation can reduce manual labor and processing costs. It also gives organizations more control over invoice timing, allowing them to take advantage of early payment discounts. Many suppliers offer a discount for paying invoices early, which can improve cash flow and vendor relationships.

Increase control and visibility

With automation, users have greater control and visibility surrounding the invoice approval process. Build-in internal controls, such as segregation of duties and two-factor authentication, can help teams manage success. Additionally, AP teams can unlock their AP data to automate the reporting and analysis of AP KPIs across invoices, payments, and vendors.

Decrease fraud risk

AP automation greatly decreases fraud risk by creating a centralized space for all AP activity and applying consistent controls to invoices and payments. Features such as segregation of duties, dual-factor authentication, and Positive Pay Files, can provide additional protection, while electronic payment methods eliminate the need for paper checks.

Improve supplier relationships

Automated accounts payable software can greatly improve your vendor relationships by making it easier to facilitate secure payments on time and giving suppliers visibility via their self-service vendor portal. Self-service vendor portals eliminate the back–and–forth communication from vendors to businesses regarding their payment status and provide vendors with detailed downloadable remittance data for reconciliation in their systems.

Increase cash flow, ROI, and scalability

AP automation provides teams with a digitized system where they can monitor payments, compare cash-in versus cash-out, take advantage of cash-back rebates, and troubleshooting any cash flow problems as they arise. In addition, by switching to an automated AP process, organizations can significantly cut down on labor and infrastructure costs, which lowers the cost per invoice and improves overall ROI.

What industries are using AP automation?

There are various industries that are utilizing the benefits of an AP automation solution. Primarily, businesses that deal with a significant volume of invoices and payments take advantage of an AP automation solution to streamline the entire AP process. Those industries include:

• Healthcare, pharma, and biotech
• Food and beverage
• Retail/E-commerce
• Professional services
• Education
• Hospitality and travel
• Manufacturing and distribution

How to select an AP automation software checklist

There are a wide variety of AP automation solutions available on the market. However, when choosing the best solution and building your AP roadmap, it’s important to understand that taking a holistic approach to automating accounts payable will set your organization up for success. Investing in a solution that streamlines the end-to-end process will deliver greater efficiency, improve control over cash flow, and enhance protections against fraud.

Organizations can use the following nine steps when comparing AP automation software to find the right solution that best fits their needs:

1. Define your requirements and objectives: Identify the AP challenges you want to solve and the workflows you want to automate.
2. Evaluate features and functionality: Confirm that the solution supports essential capabilities such as invoice capture, approval routing, PO matching, payment execution, reporting, and reconciliation.
3. Consider UX and ease of adoption: Choose a platform that is easy for AP teams, approvers, and administrators to use.
4. Review supplier reputation and reliability: Consider the supplier’s experience and history of serving organizations with needs similar to yours.
5. Compare cost and pricing structure: Review licensing, implementation, transaction, and support costs to understand the solution’s pricing structure.
6. Determine integration capabilities: Work with IT to understand how each solution will connect with your existing ERP, accounting software, banking platforms, and other systems. Ask vendors about prebuilt integrations and APIs, what’s involved in setting up those connections, and how much ongoing maintenance they’ll need.
7. Understand customization and scalability: Ask what resources implementation will require, how existing data and workflows will be migrated, and whether the solution can adapt over time.
8. Assess security and compliance measures: Evaluate controls such as segregation of duties, approval permissions, authentication, encryption, audit trails, and relevant regulatory compliance.
9. Inquire about support and training: Evaluate the vendor’s support process. The vendor can show you how to apply the best practices that increase the likelihood of a smooth transition and avoid the pitfalls that tend to derail implementations.

MineralTree is leading the AP automation solution, providing the most comprehensive approach to automating your accounts payable process. With market-leading features, a simple implementation process, and praise-worthy customer support, MineralTree continues to redefine what is possible in the realm of AP efficiency.