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What is Accounts Payable Automation?

Invoice Approval process on Zahara

Back to Basics: brush up on the fundamentals of Accounts Payable and see how automation is changing the AP landscape.

What is Accounts Payable?

In its simplest form, ‘Accounts Payable’ (AP) refers to the amount of money that a business owes to its suppliers. There is a strict process involved so that the owed funds are handled appropriately by the AP team. The process is often very manual, and is an integral part of every company’s finance function.

What is AP Automation?

A finance department may choose to automate part or all of this AP process using advanced software. This could involve artificial intelligence reading invoices and uploading them, so that the finance team spend less time inputting data themselves, or enforcing strict budgets so that the business never overspends due to human error. Introducing automation into the AP process can hugely reduce the workload of a struggling or growing finance department. 

 

Automating helps finance teams process invoices 9 times faster.

 

How does Accounts Payable Automation work?

 

If you’re working in Accounts Payable at the moment, chances are your process looks something like this:

  1. You receive invoices from suppliers, whether by email or paper copy
  2. You manually type up the data from the invoices into an accounting system, like Xero, Sage, or Quickbooks. Sometimes AP Clerks will input the data into an Excel spreadsheet or paper record, but this is less common as finance functions have advanced over the years.
  3. You then either match the invoice to a purchase order or receipt.
  4. Once you or a higher-up are happy with it, payments are scheduled and processed.

In its totality, this can be described as a traditional manual AP process. Despite it being the default, the process is widely considered to be inefficient because of mistakes that can draw out the process, and how long manual data-entry takes to complete and authorise.

Alternatively, the Accounts Payable process, with the addition of automation software, can look like this:

    1. When you want to buy something, you raise a purchase order using your AP software.
    2. The purchase order is approved in-app after going through checks in a workflow. It is then sent out to the supplier.
    3. Your suppliers email invoices into your AP software.
    4. The intelligent software reads the invoice, and automatically matches it to the corresponding purchase order.
    5. You can then make the payment, with confidence.
 

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What are the key benefits of Accounts Payable Automation?

There are a myriad of process improvements you’ll notice when you automate, but these are the most significant:

  • Time saving
  • Reduced errors
  • Improved visibility
  • Greater compliance

The Institute of Finance and Management report that organisations who implement AP automation experience 80% faster invoice processing times. Ardent Partners had similar findings, seeing companies who automate cut their processing costs by 80%.

If you’re prone to late payments (don’t be embarrassed, we’ve all been there), you’ll be pleased to hear that Levvel Research concluded that AP automation software can reduce late fees by 82%, due to advanced control and visibility.

 
Let's take Lush as an example:

Originally, the cosmetics giant had an incredibly manual process. They would scan each individual supplier invoice and send them to approvers via email. Their volumes of invoices to be processed reached unmanageable levels, and they had no way of knowing where in the AP pipeline any given invoice was.

They decided that automating was the best way to bring their AP department under control.
Their chosen solution, Zahara, used OCR technology to read huge batches of invoices automatically, and provided users with a full audit trail so that every invoice can be tracked at each stage of its journey.

By making automation a part of their accounts payable process, Lush can now handle their 2000 supplier invoices per month with ease. They’ve also been accredited by HMRC as a Prompt Payer.

Every company is different, but Lush is a great example of how automating can truly optimise the AP function.

Take control and book in with one of our AP Specialists today.