AP automation: Where to start and examples to follow

Automating your accounts payable (AP) process can save time, reduce errors, and free up your team to focus on more strategic tasks. But where do you start?

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In this guide, we’ll explore the benefits of accounts payable automation, highlight parts of the AP process that are ripe for automation, and provide some practical steps to help you get started.

What is accounts payable automation?

Accounts payable automation is the process of using technology to streamline and digitize AP workflows. Instead of manually entering data, chasing down approvals, and issuing payments, automation tools handle these tasks for you. You might automate every step in the process—from invoice receipt to payment—or just highly repetitive parts of your workflow.

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For example, you might capture supplier invoices electronically, match them against purchase orders, and route them for approval without needing human intervention. You may also be able to schedule approved payments automatically.

What are the benefits of automating your AP processes?

The benefits of AP automation go beyond simply saving time. Other advantages include:

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• Increased efficiency: Automating repetitive tasks speeds up invoice processing and reduces bottlenecks
• Improved accuracy: Automation minimizes manual data entry, reducing the risk of human error
• Cost savings: Fewer errors mean lower processing costs and fewer late fees
• Timely financial data: Automation gets you closer to having real-time financial data, which you can use to make better business decisions
• Better vendor relationships: Accurate, on-time payments improve your reputation with vendors
• Stronger security: Automation reduces the risk of fraud by implementing tighter controls

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How does accounts payable automation work?

AP automation streamlines the entire payment process by using software to handle tasks that traditionally require manual effort. Here’s an example of how that works in practice.

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Say you receive an invoice from a vendor. Instead of manually entering the details, your AP automation software scans the invoice, automatically extracting information like the vendor name, amount, and due date.

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The system matches the invoice with the corresponding purchase order (PO) and tags the appropriate team members for approval. Approvers receive an automated notification and can approve the invoice with a click, even from a mobile device.

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Once approved, the software schedules the payment based on the vendor’s terms. The software tracks the entire process in real time for easy reporting and auditing.

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By automating these steps, you eliminate the need for manual data entry, reduce errors, and streamline the entire AP process.

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Which aspects of AP can you automate?

You can automate several core functions of your accounts payable workflow to save time and improve accuracy. Automated workflows ensure each vendor invoice moves through the correct steps—from receipt to payment—without manual intervention.

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The key is knowing your AP workflow’s starting and stopping points and the triggers that move you from one step in the process to the next. Here are a few standard steps in an accounts payable workflow:

Invoice processing

Through automation and artificial intelligence, employees don’t have to enter invoice data manually. Your technology captures invoices electronically and extracts critical information automatically.

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For example, your AP process might start when a client emails an invoice. Optical character recognition (OCR) technology scans, reads, and converts a PDF invoice into data. Then, the system automatically compares and matches the invoice to your purchase order to ensure the invoice is accurate.

Approvals

Instead of manually chasing approvals through email, you can set up custom rules to route invoices to the appropriate team members for review. Reviewers can approve invoices with a few clicks—often from a mobile device—to keep the work flowing.

Payments

Once a reviewer approves the invoice, the system schedules the payment, reducing the risk of late payments and penalties.

Reconciliation

Next, the system reconciles payments with the bank statements to verify the payment amounts and payees align. This happens behind the scenes, with AP team members only getting involved if there’s an issue, like an invoice that doesn’t match the PO or a cleared check on the bank statement that doesn’t match the transaction recorded in your accounting system.

Reporting

Automation makes it easy to generate real-time reports on your AP process. For example, the system can generate an AP aging report that summarizes all outstanding payables, broken down by vendor and date. Up-to-date information on invoice statuses, cash flow, and vendor payments gives you greater visibility and control over your finances.

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What are the challenges of automating AP?

Despite the potential benefits of AP automation, successfully automating your workflows can be challenging. Understanding these potential obstacles helps you avoid common pitfalls and plan for a smoother transition:

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• Poorly documented processes: It’s tough to move from manual to automated workflows without clear and well-documented procedures. Look at your current procurement processes and find opportunities to define and formalize them.
• Initial setup costs: Investing in AP automation software can require a significant upfront cost, especially for smaller businesses. However, the long-term savings often outweigh the initial investment.
• Change management: Moving from manual processes to automation might require a cultural shift within your organization. Employees may resist the change because they’re comfortable with the status quo; others might fear automation will result in job loss. It’s essential to communicate the benefits of automation and assure people that it will pay dividends for them in the long run.
• Integration with existing systems: Some AP automation tools might not integrate well with your current accounting or ERP systems. To really benefit from automation, you need a solution that integrates seamlessly with other tools in your technology stack. Choosing the right solution reduces data entry and eliminates redundancy.
• Customization limitations: Depending on the software, you may encounter limitations in tailoring the automation to match your specific processes. While you do need to be realistic about any tool’s capabilities, you should be able to customize the technology to fit your processes—not be forced to customize your processes to fit the technology. Be sure to evaluate the flexibility of the tool you choose.
• Data security concerns: The AP department has a wealth of data about your organization, employees, and vendors. While automation reduces the risk of fraud by validating invoices, detecting duplicate payments, and maintaining an audit trail, you must ensure the software you choose has strong security features. This includes role-based access controls, data encryption, and secure cloud-based storage.

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You can set up your AP automation system for success by identifying and addressing these challenges early on.

Where should you start?

Implementing AP automation can feel overwhelming, but starting small and focusing on the most impactful areas can help you achieve some quick wins to propel you forward. Here are a few areas where you can begin automating your AP processes and see immediate results.

Capturing invoices

Start by automating the way you receive invoices. With invoice capture tools, you can digitize invoices from multiple formats, including email and paper invoices, automatically pulling key data into your system. This eliminates manual data entry, reduces human error, and creates a centralized storage location for all invoices.

Coding invoices

Automating invoice coding helps streamline the process of classifying invoices based on department, expense type, or project. The software automatically applies the correct general ledger codes, improving accuracy. This helps create consistency across your financial records and frees up time for your accounting and finance teams.

Matching invoices

Automating matching invoices to POs and receipts speeds up the invoice approval process because your accounts payable department doesn’t have to do it manually. It also helps prevent overpayments or duplicate payments. The system automatically verifies that the invoice details match the corresponding purchase orders and delivery records.

Routing approvals

You can automate routing invoices for approval based on predefined rules. This ensures invoices automatically go to the right people for review without the need for manual tracking. Approvers can review, approve, or reject invoices quickly, even from mobile devices, keeping the process moving smoothly. You can even automate reminders for reviewers, helping prevent missed payments and potential late fees.

Scheduling and sending payments

Once reviewers approve invoices, you can automate scheduling and sending payments to ensure your vendors get paid on time. You can automate payments via the automated clearing house (ACH) system, wire transfers, credit card, or other payment methods.

AP automation examples

To help you visualize how AP automation might work in your company, here are a few examples of automations other organizations have implemented and how they’ve benefitted from the experience:

Invoice data entry

Instead of manually entering invoice details into your system, accounts payable automation software can capture data from digital invoices and automatically populate fields in your accounting software, eliminating human error.

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When REVA Air Ambulance, a medical transportation company, streamlined its AP processes with Ramp, the AP team could simply drag and drop invoices directly into the program and code them automatically rather than manually entering and coding each invoice. For a company processing roughly 2,500 invoices per month, cutting invoice processing from 15 or 20 minutes per invoice to 3 minutes per invoice meant significant time savings.

Automated payment scheduling

You can automatically schedule and send payments after reviewers approve an invoice to ensure you never miss a deadline or incur late fees because someone on the AP team is on vacation. That’s one of the benefits enjoyed by Skin Pharm, a beauty brand with a line of at-home skin care products and 11 clinics across the southern US.

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Skin Pharm implemented Ramp Bill Pay to automate its accounts payable and ensure its bills get paid automatically, regardless of whether a team member is in the office. This automation gives the company’s finance leader peace of mind knowing they’re not falling behind on vendor payments.

Real-time reporting

Instead of manually compiling reports at the end of every month, automated systems can generate real-time reports on your AP operations, giving you visibility into outstanding payments, processing times, and the company’s overall financial operations.

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Quora, the social question-and-answer website and online knowledge marketplace, had clunky AP processes holding it back. Vendors would email bills to an AP email address, then the Quora team would download those invoices, save them to Google Drive, and link them to the bill in the company’s ERP.

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But since employees couldn’t access the ERP, approvals were handled via email, and emails were constantly getting lost. Making matters worse, tools in the company’s fintech stack didn’t integrate easily with the ERP, so closing the books meant a lot of manual data entry.

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Once the company implemented Ramp, it streamlined and automated its AP processes by integrating directly with its ERP, NetSuite. Finance Manager Richard Gobea noted that the two-way sync between Ramp and NetSuite makes it possible to see changes in real time because it’s just three steps from invoice processing to payment and reporting.

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What to look for in AP automation software

The right tool can transform your AP function, so here are a few features to look for when selecting an AP automation solution:

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• Ease of use: Look for software that’s easy to implement and easy for users to learn. You don’t want to spend months getting the software up and running and training your team. A user-friendly interface makes the transition smoother and reduces the learning curve.
• Seamless integration: Your AP automation software should easily integrate with your existing accounting or ERP system to ensure data flows smoothly through your fintech stack. Ramp offers robust integrations with many popular financial tools, including NetSuite, Xero, QuickBooks, and Sage Intacct, making the transition seamless.
• Real-time reporting: You want software that gives you real-time insights into your AP process, including outstanding invoices, scheduled payments, and cash flow. This helps you stay on top of your finances without manually generating reports.
• Customizable workflows: Choose a tool that lets you customize workflows to match your unique approval and payment processes. Ramp offers customizable approval workflows, letting you route invoices to the right people quickly and efficiently.
• Fraud protection: Ensure the software you choose has fraud detection tools to protect your business from unauthorized payments or phishing scams. Ramp excels in this area with built-in fraud monitoring and secure payment processing.
• Vendor management: Managing vendor relationships is easier with automation that tracks payment terms, schedules, and discounts. Ramp’s platform simplifies vendor management by automating payments and helping you take advantage of early payment discounts.

Save time and money with Ramp’s AP automation software

When you automate your AP workflows, you can reduce errors, improve vendor relationships, and free up your team to focus on more valuable work. Ramp’s modern finance operations platform helps you do just that.

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Ramp Bill Pay uses machine learning to help you automate your entire accounts payable workflow, from invoice receipt to approval, payment, and invoice matching. Ramp’s automation features free up your AP department to focus on more strategic work, like managing vendor relationships and finding new ways to optimize growth.

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Want to learn more? Watch a demo video to see why Ramp customers save an average of 5% a year.