Accounts Receivable Dictionary

What is AP Automation?

AP automation, or accounts payable automation, is the use of technology to automate the accounts payable process. This typically involves using software to automate the processing and payment of invoices, which can help to streamline the accounts payable process and reduce the need for manual intervention.

AP automation systems typically include features like invoice capture, data entry, vendor management, payment processing, and reporting. These features can help organizations to manage the accounts payable process more efficiently, by automating many of the tasks that would otherwise need to be performed manually. This can help to reduce errors, improve accuracy, and save time and money.

In addition to the benefits of improved efficiency and accuracy, AP automation can also help organizations to better manage their cash flow and improve their relationships with vendors.

By automating the accounts payable process, organizations can ensure that payments are made on time and in accordance with agreed-upon terms, which can help to improve their relationships with vendors and maintain a positive reputation in the market.

The value on offer from adopting AP automation is clear, which is why the market size is predicted to reach $7.5 billion by 2030.

How does AP automation work?

AP automation solutions sit at the heart of the accounts payable process, orchestrating the flow of information between stakeholders. They are central to automating the accounts payable process since they handle the most tedious parts of the vendor invoice procurement process.

This includes receiving the vendor bill digitally, extracting the relevant information, and sending an approval request to the appropriate parties.

AP automation solutions also manage the payment process by linking to procurement systems and electronic banking systems. They provide functionality for vendor data extraction and vendor relationship management, which is critical for governing the vendor relationship.

Vendor data extraction tools are used to extract the data contained in the vendor invoice. Vendor relationship management tools help manage the contractual relationship with the vendor by storing the contractual terms and conditions, financial details, and other relevant information.

What is the AP automation process?

The accounts payable automation process typically involves the following steps:

1. Set up the automation system: The first step in the accounts payable automation process is to set up the automation system. This typically involves selecting and implementing a software solution that is designed to automate the accounts payable process. The software may be installed on-premises or accessed via the cloud, depending on the needs of the organization.

2. Import or enter data into the system: Once the automation system is set up, the next step is to import or enter the necessary data into the system. This may include vendor information, invoice details, and payment information. The data can be entered manually or imported from other systems, such as an accounting software or a purchase order system.

3. Configure the automation rules: The next step is to configure the automation rules that will govern the accounts payable process. These rules may include things like when invoices should be paid, how much should be paid, and who should approve the payments. The automation system should be configured to automatically apply these rules to the data that has been entered into the system.

4. Monitor and manage the process: Once the automation system is set up and configured, the next step is to monitor and manage the process. This may involve regularly reviewing the data and reports generated by the system, making any necessary adjustments to the automation rules, and working with vendors and other stakeholders to resolve any issues that may arise.

5. Process and approve payments: The final step in the accounts payable automation process is to process and approve the payments that are generated by the system. The automation system should be able to automatically generate payment instructions based on the data and rules that have been configured, and these instructions can then be reviewed and approved by the appropriate individuals within the organization. Once the payments have been approved, they can be processed using the chosen payment method, such as a check or an electronic payment.

Benefits of AP automation

  • Improved vendor relations - Vendors are central to the accounts payable process and therefore critical to the organization. With AP automation, businesses can create and maintain positive relationships with their vendors.
  • Better cash flow - As the accounts payable process is streamlined, businesses are able to see benefits in their cash flow. They can access the funds that have been earmarked for vendor payments more quickly and can, therefore, use them for other things.
  • Better data management - Managing data is key to managing businesses and improving their functionality. AP automation solutions help businesses to streamline their accounts payable function and manage the data that they are responsible for.
  • More efficient workflow - As the workflow is automated, businesses can see significant improvements in the flow of work through their accounts payable departments. They can therefore reduce the time taken to process vendor invoices, leading to reduced costs.

AP Automation in a nutshell

AP automation is the process by which accounts payable departments are automated. It involves receiving the vendor invoice digitally, extracting the relevant information, and sending an approval request to the appropriate parties.

The system creates an invoice for the vendor and sends it to the vendor. The vendor creates a payment and sends it to the system, which forwards it to the payable team.

The payable team sends the payment to the bank and updates the vendor invoice to show that the invoice has been paid.

The benefits of AP automation include improved vendor relations, better cash flow, better data management, and a more efficient workflow.