What Is AP Automation and How Does It Work?
- Written by Daily Bulletin
Every organization and individual has a certain set of fixed expenses. You have rent to pay, utilities to cover, monthly credit payments to deposit, subscriptions to renew, and vendors to settle your debts with. These are your APs (account payables).
Let’s be honest; you know the approximate (or exact) amount you’ll have to pay monthly. After all, your subscription and rent are fixed, and your utilities (unless you’ve started saving electricity) are similar. Still, doing all of this manually can be quite daunting. Fortunately, with the concept of AP automation, you won’t have to take this route.
The simplest possible explanation of this concept is that you can set up your apps and platforms to automatically settle these payments when the receipts arrive or on a certain date. Here’s more about how to automate your accounts payable and how it can help you or your business lead a healthier financial life.
How does AP automation work?
The first thing we need to do is explain how AP automation works. While the process is simple, its infallibility and reliability depend on many factors. These are the factors like:
- Electronic invoicing: The key principle of AP automation lies in electronic invoicing. According to this principle, there’s no need for paper use and no risk of losing a paper copy of an invoice. Since about 7.5% of all documents get lost, this is a serious consideration to make.
- Invoice capture and data extraction: This system allows you to extract relevant invoice data via machine learning. This way, there’s a lower risk of error, and more time is saved.
- Purchase order matching: One of the biggest financial world concerns is fraud. By matching purchase orders to received invoices, this risk will be minimal.
- Exception handling: Finally, just because an invoice is not boilerplate, this doesn’t mean that it’s impossible to handle it via AP automation. A system can make accurate data-driven decisions or even notify you for confirmation.
As you can see, the system is quite dependable, and if you connect it to your ERP system, it will be even more so.
What are the benefits of AP automation?
The main reason why people use AP automation is for all the advantages that come from it. This ranges from greater reliability and saving effort to direct financial perks. Here are some of these benefits:
Increased efficiency
AP automation helps you skip manual data entry and invoice processing. If you have a time management app, check how many hours you waste on these tasks every month. Remember that it’s not just the time that’s the matter. These accounting-related tasks are often stress-inducing, which means that, by automating, you get to keep your sanity.
Saving costs
Late fees and missed payments are incredibly expensive. Sometimes, these penalties will be incredibly substantial, and there will be no way around them. Some bills have early payment discounts to incentivize you to be extra vigilant. With AP automation, you can ensure that you never miss it. Lastly, you don’t want to ruin your credit score unnecessarily. Remember that being accurate with your payments improves your credit score, giving you access to more favorable credit terms.
Improved accuracy
Human error is always a concern, but using AP automation can make this risk non-existent. No, a platform won’t make a mistake while rounding numbers, and this data (unless you set it up improperly) will maintain its integrity over months. If you integrate your AP automation platform, this accuracy and trustworthiness will also translate across all other platforms. Remember that once set up, the system will be near-infallible indefinitely. This means you must be careful on one instance instead of a myriad.
Reputational boost
Remember that if you miss a payment to a strategic vendor, you face more than a penalty fee. You’re also risking a reputational hit. The reason why you’ve missed the payment is never a positive one since you’re either non-liquid or irresponsible. Needless to say, these are the last things you want your partners to accuse you of. Also, keep in mind that credit score is a reputational metric, as well. By protecting it, you’re protecting your financial reputation in the eyes of financial institutions.
Scalability and flexibility
Another thing you need to understand is that AP automation isn’t exclusive to any industry. You can set it up regardless of what you’re doing. Moreover, it doesn’t matter what kind of influx of invoices you’re expecting. This means that, ideally, you should set up your AP automation system as soon as possible. This way, you’ll benefit the most from it. Moreover, setting up the system early is the most efficient way of handling things.
Are there any potential downsides of AP automation?
Despite its many advantages, AP automation has some downsides.
- Initial implementation: Getting your staff members to start using this new system is not easy. Also, if you have too many payment gateways and apps, these things will take a bit to set up.
- Upfront cost: Setting up the system can be quite expensive. Even though most of these platforms operate on a SaaS principle, getting accustomed to this extra expense is unpleasant.
- Learning curve: While the systems are quite simple to set up and mostly run autonomously, some of your staff members (even people in the accounting) may be intimidated by this.
- Dependence on technology: Finally, skeptics would argue that adding one more app is the last thing a modern enterprise needs.
Given how minuscule, situational, and temporary these cons are, addressing them as challenges rather than downsides would be more accurate. Still, they’re something worth considering when you first enter this world.
Daily Bulletin
