Advertiser & Editorial Disclosure

• Accounts payable (AP) automation is the process of using automated systems and computer programs or software to create, track, and pay invoices for a business.
• Using automation can eliminate data entry errors caused by manual processes, streamline workflows for financial departments, and make accounting systems more efficient overall.
• Read on to learn more about AP automation and how it may benefit your small business.

What Is Accounts Payable Automation (AP Automation)?

Accounts payable is an important part of financial systems for small businesses, and includes managing all debts and payments for a business’s vendors or suppliers. Accounts payable automation, or AP automation, is a system that automates the accounts payable process. An AP automation solution is usually software or a service that streamlines the workflow to remove human error and reduce the time it takes to run AP. The right automated AP software will optimize the AP workflow to save your company valuable time and reduce errors. 

The AP process includes all aspects of paying vendors or other suppliers for any goods and services that your company buys. The process can include:

• Procurement and purchasing
• Receiving invoices and bills
• Invoice processing and routing
• Validation
• Invoice approval process and approval workflows
• Payment processing
• Reporting and data management

Finance teams can spend a lot of time on these tasks when they’re not automated, and the more volume there is, the more error-prone the processes can get. Process automation can help businesses of all sizes in a number of ways, and can save your small business money. 

AP Automation Terms Every Small Business Owner Should Know

There are a few terms and abbreviations in AP automation that every small business owner should know:

AP — accounts payable is referred to as AP for short.

Procurement — the action of getting a good or service is called procurement. In AP automation, this can involve agreements and negotiations, such as repayment terms, amounts, and prices. This can be a complicated process for larger businesses, and may involve requests for quotation (RFQs) or requests for pricing (RFPs). 

Purchase order — a purchase order (PO) is used as the official request for goods or services, sent to the supplier from the buyer. It’s an official legal document that outlines what the buyer wants, how much they’re going to pay, and when they’re going to pay it. It may include other important identifying information, such as delivery addresses, who signed off on the purchase, and what number should appear on any documentation for the order.

Invoice — an invoice is basically a bill from the supplier or vendor to the buyer and it may come with the goods or services delivered or at a later date. It’s the list of what was provided to the buyer from a vendor or supplier as well as a sum of the total costs and a due date. It may include other identifying information such as procurement or purchase order details for reconciliation purposes. 

Cloud-based — refers to software where the data is stored and managed in an off-site server or network of servers, which means it can be accessed from virtually anywhere using mobile devices or computers. 

ERP — enterprise resource planning (ERP) software is used by organizations to manage everyday processes, including accounting, accounts payable and receivable, project management, supply chain operations, and risk management. Most AP automation software will either be part of your ERP software or will integrate with it. 

OCR — optical character recognition (OCR) is a technology that recognizes printed text and digitizes it (converts it into a digital format). This takes place when your AP automation software turns paper invoices or purchase orders into digital documents for processing. 

Why Small Businesses Should Invest in AP Automation

There are several reasons why small businesses should invest in automated AP solutions. The first is to reduce data entry errors. The AP process is full of manual tasks and manual data entry that can lead to costly errors, such as incorrect amounts or dates. Automation can reduce duplicate invoices or duplicate payments by reducing the number of chances for a human to enter the data incorrectly. 

Another reason to use an accounts payable automation solution is to save time for your accounts payable department. The time-consuming manual processes of inputting data, reconciling accounts, and other aspects of AP can cost your AP department valuable time that they could better spend addressing other issues, like analyzing your cash flow and finding ways to cut costs or earn more money. 

An automated system can manage payment methods and repayment terms, allowing you to reduce late payments to your providers and any penalties that may come with them. You may even be able to earn early payment discounts or other bonuses for being timely in your payments. On-time payments can also help increase your business credit and reduce your risk level to credit bureaus. 

AP automation software can also help you with metrics, including dashboards to view invoice data, average payment timelines, and where in your invoice management system you may be slowed down. 

How AP Automation Can Save Money

Cost savings is one of the main benefits of AP automation. Processing costs can add up, especially if you have a large volume of invoices coming in and payments going out. Your AP team may be overwhelmed by keeping up with invoice management, as manual, repetitive data entry takes them away from other more important work. 

When you automate accounts payable, you reduce the amount of time it takes your team to handle vendor invoices and payments, which saves you money on overhead in the long run. Opening your team up to work on more important projects also saves your company money — by having your accounts payable department find new ways to be more efficient or increase sales.

Another hidden cost of manual AP processes is late payments. If you miss a payment to a vendor, they may charge you a late fee. If you’re chronically late in paying, vendors may refuse to work with you, which can cost you business. Another way late payments hurt your bottom line is through your business credit score — delinquent or derogatory accounts can count against you, which can make it harder for you to qualify for financing. Plus, you may be able to earn rebates or discounts for paying invoices early, which can add to your cash flow. 

Finally, errors caused by manual mistakes can really put a dent in your company’s finances. Not only do you have to take the time to find and fix errors, but you open your business up to fraud. It is much easier for an individual to use company funds to pay for their own personal gain if they have manual access to cover it up. And if your systems can’t find the problem fast enough, you could have a serious problem on your hands. 

Who Benefits From AP Automation?

Nearly your entire business benefits from AP automation, but your chief financial officer (CFO) and the accounting department will benefit the most. Automating AP will save them time and costly errors and allow them to work on more important projects.

The procurement department will also benefit from AP automation because it can help them easily create orders based on historical data, such as negotiated rates, approved vendors, and timelines. 

Another team that benefits from AP automation is your warehouse or receiving department, which can scan paper invoices quickly to check that orders are correct before the deliverer leaves. 

Your vendors and suppliers will also benefit from your automated system because they’ll be more likely to be paid on time and in the right amount. This can increase your good relationships with vendors and your business credit score as well. 

How Accounts Payable Automation Benefits Security

Data security is a big concern for most businesses, whether they’re enormous corporations or small businesses. Payment data like bank account numbers and credit card numbers need to be kept secure, or you could be setting yourself up for fraud or criminal activity.

AP automation reduces the need to keep paper invoices on-hand, allowing you to safely store information on a server that can be password protected to limit access and is less likely to be damaged by things like fires or floods. 

How to Choose an Accounts Payable Automation Software

There are a number of things to consider when choosing an accounts payable automation software:

• What kind of functionality does it have? Do you just need it to handle invoice management and payments, or procurement and other processes? Also, if you want to use it to track your sales and payments, you’ll want to make sure it has good reporting capabilities. 
• What kind of integrations does it have? If you already use accounting software, you’ll want your AP automation solution to integrate with it so that you can keep your books up to date. 
• How easy is it to use or implement? Some solutions may require you to change some of your processes, such as how to create purchase orders or enter them. You may have to ask your suppliers to make similar changes, which can be disruptive to your relationships. Also, no automation solution will work if your team members think it’s too hard to use. 
• How much does it cost? While the cost savings of AP automation can be subtle at first, they will add up over time. Still, you’ll need to make sure you can afford your AP automation solution and that it’s doing everything you need within your budget. 

Common AP Automation Challenges

There are several challenges that small business owners will face when setting up an AP automation solution. 

The first is adoption of the new automation software by your team as well as your suppliers and vendors. Change is hard for most teams, but adding a new software solution may create confusion. Make sure that you have ample time set aside to train your team to learn the software and test it before you set it live.

The next challenge is the software itself. Most accounting software can be complicated no matter how user friendly it is, and you want to make sure you have integrations set up properly. It’s a good idea to hire an expert or work with a solution provider that will give you a hands-on set up process. 

The Best Accounts Payable Automation Software

The best accounting solutions are the ones that suit your needs and meet your budget. Here are a few general recommendations for accounts payable automation software.  

Intel QuickBooks Pro

As one of the most popular accounting software solutions on the market, QuickBooks is always a top pick. 

Sage

Sage integrates with a lot of other solutions and can scale with you as you grow.

 

Bill

Bill offers a number of AP automation solutions for businesses of all sizes. Bill’s promise is to help you “pay bills and get paid”. Its small business “Corporate” tier costs $79/month per user and integrates with QuickBooks Online, QuickBooks Pro or Premier, and Xero.

Airbase

As an easy-to-use solution, Airbase can handle AP automation as well as expense management and other small business accounting solutions. It can sync transactions, integrate with your general ledger, and much more. 

To learn which software is best for you, use Nav to get personalized recommendations. You can also check out our accounting software resources for more information.