Guide to AP Automation: How to get started with Accounts Payable Automation

Every business must deal with purchase orders, bills, invoices, and payments to an array of vendors, who provide everything from basic supplies to high-value equipment and services needed for all the operations of the company. The Accounts Payable (AP) department is responsible for the procure-to-pay process of any well-organized company and deals with the entire purchasing workflow, starting from Purchase Order (PO) processing to final payment to vendors. 

Manual AP management is laborious and time-consuming, especially as a company expands and deals with multiple suppliers and purchases. The process of sifting through stacks of paper invoices, individually reaching out to approvers, and sending out physical checks is cumbersome and error-prone. Manual AP processing can result in delayed payments and, in certain instances, even expose the business to potential vendor fraud.

Accounts Payable Automation is the solution to the problems of manual AP management and can optimize the procure-to-pay workflow for financial teams. By eliminating the sluggishness of manual procedures and their inherent errors, AP automation not only enhances partnerships with associates and suppliers but also yields substantial time and cost savings.  

According to IOFM's Fall 2020 report titled "Measuring Your AP Performance: Efficiency Benchmarks," 42% of PO invoices are paid punctually through automation, whereas the figure stands at 25% in the absence of automation. In the 2021 World Class AP Performance: Efficiency Benchmarking Metrics report, IOFM found that companies without Accounts Payable automation paid the highest average cost per invoice of $1.83 per invoice for the highest process maturity level. In contrast, companies with end-to-end AP automation and the highest level of process maturity paid only $1.45 per invoice. 

According to a 2018 Goldman Sachs report, North American B2B businesses spend around $187 billion annually on AP processing, with labor alone accounting for over 90% of direct costs. However, automated AP processing costs are just 33% of manual costs, resulting in significant annual savings of $62 billion for AP departments.

Guide to implementing AP Automation

Accounts payable operations have the potential to influence cash flow dynamics and affect the business's credit score. Furthermore, consistently monitoring accounts payable across time provides valuable insights into expenditure patterns and their correlation with business growth. However, these insights can only be gleaned from well-maintained AP records accumulated over years of operation.

The move towards AP automation requires careful planning and execution. Before embarking on AP automation, it is essential to have a clear understanding of what is expected to be accomplished through automation – be it reducing the cost per invoice, trimming full-time equivalents (FTEs), shortening days payable outstanding (DPO), or securing early payment discounts. Defining these aims aids in drawing a clear framework for assessing Accounts Payable automation software that aligns with your requisites. Establishing goals at the outset also serves as a benchmark against which you can gauge the efficacy of your AP automation implementation as it unfolds.

While the specifics of implementation might vary based on individual business needs and industries, a general roadmap can be outlined to guide the process.

Step 1: Planning and assessment

The path to achieving AP automation commences by assessing the current methods in use, whether they involve manual procedures or partial automation. A crucial step is to identify existing challenges and explore how automation could offer solutions. Defining clear and measurable objectives is imperative. Key factors to evaluate encompass the duration taken to process invoices, the cost per invoice, and the utilization of early payment incentives.

It is important to recognize the categories of documents that would require processing—such as invoices, receipts, and purchase orders. Potential variations in formats, languages, or other distinctive features must be considered. Many businesses incorporate 2-way or 3-way matching within their AP processes, necessitating a precise determination of the required matching type. Certain documents might necessitate data manipulation, such as refining dates or adding currency symbols. The automation tool should possess the capability to execute such operations.

Engaging all users and stakeholders in crafting a comprehensive plan for the automation journey is pivotal. This plan should delineate the timeline, involved parties, financial requirements, and principal milestones. 

Step 2: The selection of vendor and product

Selecting the right accounts payable automation software provider is pivotal. Extensive research and evaluation of various options are crucial. Parameters like functionality, scalability, integration capabilities, user-friendliness, vendor reputation, and customer reviews should guide the selection.

The next step would typically involve issuing Requests for Proposals (RFPs) to or acquiring product specifications from shortlisted vendors. A good Accounts Payable automation system must be able to connect with different accounting systems using methods like APIs or middleware. This allows them to easily share data between systems. The AP automation software must be able to extract invoices and purchase orders from one accounting system, process them, and update the information in another accounting platform. This integration lets businesses use the features of AP automation software while sticking to their familiar accounting software. For example, Nanonets' AP automation software can work with other accounting systems like QuickBooks and Sage. 

The specifications that guide the selection of an automation solution must include not only the technical capabilities of the software but also budget limitations, and the intended timeline for implementation. The proposals/specifications received need thorough review and evaluation, encompassing factors such as pricing, implementation support, customization options, and ongoing customer assistance. 

The chosen vendor and product should be the one that aligns most effectively with the business's requirements, followed by negotiations to establish the contract terms. 

Step 3: Setting up and customization

Setting up the AP automation software involves configuring and customizing it to replicate preferred invoice routing and approval hierarchies of the organization. Establishing user roles and permissions within the system guarantees appropriate access and segregation of responsibilities. Adapting the system to align with distinct business requirements encompasses adjusting fields, notifications, reminders, and creating pertinent accounts payable reports. For instance, businesses have the option to institute hierarchical approval procedures based on invoice amounts. This tailored approach automates repetitive tasks and upholds compliance with established protocols.

Step 4: Training and testing

A comprehensive User Acceptance Testing (UAT) before the system's actual launch involves examining a range of scenarios, including invoice entry, 2- or 3-way matching, approval workflows, payment processing, and reporting. The objective is to verify that the system operates precisely as intended, with all elements seamlessly interlinked.

Equally important is the provision of thorough training to the Accounts Payable team and relevant stakeholders in using the AP automation solution. This training ensures a smooth transition and effective adoption of the new system. Addressing any concerns that may arise, furnishing detailed documentation, and spotlighting the advantages of automation can significantly contribute to fostering user acceptance. Clear communication and education about the system's benefits aid in building confidence and enthusiasm among users, ensuring a successful integration process.

Step 6: Implementation and refinement

The implementation of the AP automation system marks the start of the use of the software. Careful oversight during the initial phase is essential, as it allows for the prompt identification and resolution of any potential issues that might surface.

Ensuring the system's effectiveness is an ongoing commitment. Continuous evaluation and optimization are integral components of this stage. Regularly scrutinizing key performance metrics, gathering insights from user feedback, and introducing necessary improvements are AP best practices that keep the system in sync with the dynamic evolution of business requirements.

Cultivating a strong partnership with the automation vendor is important to ensure ongoing support, keeping the system up-to-date with timely updates, and promptly addressing any technical challenges that might arise. The automation vendor's expertise and assistance would help in maintaining the system's seamless functionality, thus contributing to the sustained success of the automation journey.

Nanonets in your AP automation journey

AP automation tools like Nanonets offer a multitude of benefits. With the power of AI, these tools enable the effortless creation of AP workflows that automatically aggregate files and documents from diverse sources, ranging from emails and scanned documents to digital files, cloud storage, and ERP systems. 

Beyond its smart capture capabilities, effective AP automation tools, including Nanonets, provide a comprehensive suite of features. These encompass automated and intelligent data extraction from a variety of document types, expense matching, and reconciliation, streamlined management of expense workflows, from generating reports to securing manager approvals, and seamless integration of monthly accounting closure with preferred ERPs, accounting software, or business tools.

Nanonets excels in data extraction from a wide variety of invoices, spanning credit/debit invoices, proforma invoices, commercial invoices, and more. Beyond invoices, Nanonets showcases its proficiency in scanning diverse financial documents like receipts, price tags, purchase orders, debit and credit cards, and various others.

Nanonets offers substantial advantages to AP teams, including an impressive 80% cost reduction for businesses, up to a tenfold increase in invoice processing speed, and enhanced optimization of AP days. It effectively eliminates inaccuracies arising from manual checks and verifications, proficiently addresses exceptions, and intelligently routes them to the relevant personnel. Additionally, Nanonets can help in detecting and eliminating fraud, theft, double payments, and other inefficiencies.

Central to Nanonets' capabilities is its AI-driven platform called Flow. This innovative platform redefines the AP process by seamlessly incorporating crucial AI elements into the Accounts Processing workflow. Nanonets aids in driving AP automation, establishing end-to-end accounting workflows, and effortlessly integrating with a range of platforms including Sage, Xero, Netsuite, Quickbooks, and more. Furthermore, Nanonets supports both domestic and global payment methods, encompassing ACH, wire transfers, credit cards, wallets, and neobanks.

Take Away

AP automation can significantly impact a business's financial health, operational efficiency, and overall competitiveness. As evident from industry reports and statistics, the benefits of AP automation are substantial. The implementation of automation leads to a remarkable increase in on-time payment rates, a reduction in processing costs, and more efficient invoice management. With businesses spending billions on AP processing, the potential for saving substantial sums through automation is clear. As technology continues to evolve, embracing solutions like Nanonets not only brings short-term advantages but also positions businesses for sustained growth and success in an increasingly digitized business landscape.