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6 ways to automate accounts payable
Taxes and Accounting

6 ways to automate accounts payable

12 min read

To thrive in the modern business world you need to minimize your time-consuming busywork so you can maximize the time you spend executing your business strategy. One of the best ways to do this is by utilizing effective technology. When you can automate the more menial processes of your operations, you will save time and mitigate human error (amongst other benefits). 

Every business in the world has an accounts payable (AP) process which is responsible for managing the invoices and debts of the company, and we’d argue that every business can benefit from automating at least some of this process. Here are six ways you can automate AP integration to save time—and money.

What is accounts payable?

Accounts payable is the categorization of any amount owed by your company. On your company’s balance sheet, accounts payable are indicated as current liabilities. Whether your company purchased inventory from a vendor on credit or needs to pay outstanding bills for fixed costs, accounts payable manages every debt or liability of the business. 

Every company incurs expenses through day-to-day operations and utilizes accounts payable to track and complete expenses that usually fall into these categories:

  • Travel expenses: arrangements for flights, hotels, taxis, per diem, etc. 
  • Internal finance: reimbursing employees for business expenses, distributing petty cash
  • Vendor payments: paying invoices and managing vendor information
  • Reducing costs: negotiating payment terms, finding ways to save or consolidate

What is the accounts payable process?

Generally the AP process follows this workflow: 

  1. Invoice received: Whether received as paper invoices or electronically, the process begins with receiving unpaid invoices or bills for which you owe. Receiving documentation of the expense is key for recording. 
  2. Review: The accounts payable team will carefully review the received invoice, checking for vendor identification, itemized purchases, totals, and dates of issue and payment. Invoices should be compared to purchase orders when possible to ensure validity. 
  3. Invoice approval: The purchase must be approved by AP department managers, and the quantity, price, and use verified. Pre-approval may be acceptable for certain purchases, depending on your policies. 
  4. Record: The expense will be recorded in company books, with the invoice and related data being filed away for future reference.
  5. Payment: Accounts payable will send an electronic payment or paper checks with proper authorization and recording. All payments should be made on time—or early.

What does it mean to automate accounts payable?

Accounts payable automation means finding ways to let technology do the heavy lifting and tedious manual data entry of the aforementioned process. As you can see, the accounts payable process involves a lot of repetitive validations and data-gathering. By automating one or more of these steps you can minimize error and save time. 

AP automation might involve SaaS subscriptions, utilizing smart cards or bill pay, or streamlining the purchase order and pre-approval stage—we’ll address each of these below. Modern solutions help your expense management and bookkeeping talk to one another for fluid data recording at every step of the process. Let’s talk about how.

How to automate accounts payable

It can be tempting to apply AP automation indiscriminately to every possible point of your AP process, but you’ll have better success if you carefully assess your needs. There are six main points where automation can make a positive difference for your business. 

1. Switch to e-invoicing

The initial point of your accounts payable process is actually receiving the vendor invoice or request for payment. This is a critical point, because a misstep in invoice processing can plague the entire workflow. And it’s complicated, because there isn’t a universally standardized method for invoice capture. They may come as PDFs, JPGs, PNGs, DOCXs, emails, faxes, or even a physically mailed paper invoices. It can be incredibly time-consuming to have your employees consolidate those varied invoices with sorting and scanning.

An OCR system is an optical character recognition system. These systems scan documents to identify and gather data, as well as creating editable versions.

The first step of automated invoice processing is to make the shift to e-invoicing exclusively. Work with your vendors and clients to process all invoices electronically. Not only does this cut down on the amount of paper clutter in your office, but it also makes it much more difficult to “lose” important documents. Then you can utilize an OCR invoice system to flag important data fields and categorize expenses. 

2. Go seamless with approvals

The approval process of accounts payable can create significant snags and points of error, since responsibility changes hands. Despite the hassle, approval is key for verifying expenses and managing budgets. Before payment, a vendor invoice must be routed to the appropriate party and then approved for payment. 

An automated AP workflow can seamlessly route each invoice to the concerned parties. For example, if an invoice for new inventory arrives it will first be sent to the individual who initiated the purchase order, then to the department head or manager, then to the CFO or financial admin for final approval. Each individual will have clear data and easy-to-complete approval workflow, which then passes instantaneously to the next approver. No lost paperwork, no lost time. 

3. Ditch data entry

Data entry is a critical part of the accounting process, and provides meaning for many other departments as they look for trends and ways to increase profits. While critical, manual data entry is also one of the most time-consuming and error-ridden tasks in any business. Automation can serve an important role. 

As mentioned above, OCR systems can capture data through software. By loading in invoice data to your OCR system you can springload all other accounts payable processes. Unlike the other stages of your AP process which are completed once the payment is sent, data entry is one automated step that can prove useful long after the invoice has been completed. By automating this data capture and then storing it in an accessible medium such as a smart spreadsheet or CSV file you can facilitate future analysis or investigation. 

4. Automatically match & verify

Have you ever paid an invoice just to realize that it wasn’t exactly what you ordered—or what you received? It’s fairly common, and even small incorrect amounts can add up. Matching and verifying each entry of your accounts payable is the very detailed step of making sure that each invoice is correct and that you’re only paying for what you agreed upon and what was delivered. 

Automating your matching and verification processing can help you quickly identify inconsistencies in total of goods, amount of payment, due dates, and price-per-item. Automatic invoice-matching will use OCR technology to search for invoice and purchase order numbers and quickly match totals and accompanying data to verify the purchase. 

Whether you match to the purchase order, receiving paperwork, or any other number of supporting documents, automating this step will gather all documents from a purchase into one useful family (and tell you when inconsistencies appear). 

5. Automate complex coding

Next to data entry, coding and classification automation is the most likely to make your accounting team cheer. Payables go through a process of classification known as General Ledger (GL) coding. 

GL coding is an exhaustive process that helps identify a broad range of values for each invoice, including but not limited to: 

  • Vendor
  • Amount
  • Invoice category
  • Product line
  • Country code
  • Freight details
  • Business unit
  • Department
  • Warehouse

The larger your business and the more invoices you receive, the amount of GL coding grows exponentially. It’s a huge task for your accounting team to complete manually, and opens up a window for error that will likely go unnoticed. Instead, this coding can be automated through specific rules and identifications. As your OCR processes the data from each invoice, you can have GL coding automatically applied to each necessary data point. When it comes time to analyze spending or assemble data for taxes you’ll have everything classified and ready to go. 

6. Move ACH spend to a smart card

Many AP managers are hesitant to move their AP spend to a card because they are worried that it won’t allow for autocategorizaion. However, if you use a smart card like Divvy, AP transactions can be categorized in just a few taps from the spender. Transactions can also be auto-categorized based on the designated virtual card built for that vendor. 

Plus, if you are currently paying vendors via ACH, wire, or check, the money comes out of your bank account as soon as the payment is processed. With smart cards tied to expense management software, you can create virtual cards that allow you to float the payment—so money doesn’t actually leave your account until your payment is due, keeping your cash with you for longer.

This gives finance teams better control over AP payments, streamlines categorization, and improves cash flow flexibility.

Why should you automate accounts payable?

Think of every annoying point in your AP process—that’s why you should automate. There are many reasons that automating accounts payable might work for you (we cover seven here) but today we’ll touch on the big three. 

Save time

According to a GBTA survey of 533 travel managers who use manual AP expense management surveyed, on average:

  • It takes 20 mins to complete one expense report
  • It costs $58 to process one expense report
  • 19% of reports contain errors
  • Correcting one expense report takes 18 minutes and costs an additional $52

How much time is your team spending on manual tasks that could be better used pursuing your targeted business strategies? 

Reduce errors

A simple transposed number can change a $49.50 invoice to $94.50. Sure, $50 may not seem like a lot, but it’s still company money being lost due to error. What about the error of lost or estimated receipts? Or invoices being submitted or approved late, dipping into a future budget? 

The confusing mess of manual tasks can invite human error that grinds the gears of your operation and loses both time and money.

Prevent fraud 

Employees most often get away with fraud by altering or fabricating evidence. The ACFE found that 55% of fraudsters concealed their crimes by creating fraudulent physical documents. Creating false expense reports or altering existing reports can be as easy as a few keyboard strokes or some white-out. Your outdated AP methods can enable fraud and cost you thousands.

How to choose the right AP automation software

There are ways to improve your process that include changes in your policies and workflows, but the best way is to invest in AP automation software. The right accounts payable software can create a seamless workflow automation that allows you to spend time on more important tasks. 

So what is the right accounts payable software choice for you? Consider the following: 

  • Pain points: Of the five strategies we listed above, which is the most important to you? If invoice processing is eating the most of your time, then an accounts payable software solution that provides useful invoice automation will work best for you. 
  • Price: How much are you willing to pay for an AP automation solution? There are accounts payable software subscriptions that are paid monthly, yearly, and/or per user, and there are also free software options that allow for accounts payable automation. 
  • Implementation: How easy will it be to implement new AP automation software? If your team is small and the accounts payable software will only be used by one or two individuals, a more complicated system might be worth the learning curve. 
  • Access: Some accounts payable automations require all-digital invoicing, so scanning might be necessary. You may need AP automation that will play nicely with your other financial SaaS tools. 
  • Extras: Can you find an accounts payable automation solution that will provide additional benefits for your business? For example, you might find an AP automation software package that also includes corporate cards or reimbursements. (Divvy offers both, and more.) 

It may seem like a large undertaking, but when you look at the cost-effectiveness of accounts payable automation, it’s hard not to make the switch. Take the time back from your accounts payable and see how your business thrives.

If accounts payable is eating up your time and money, we can provide a solution that saves you time, errors, and money. Try a demo of the Divvy platform for your expense management and accounts payable process.

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