From efficiency to security: The key benefits of automating AP
by Pushpendra Mehta, Executive Writer, CTMfile
“Accounts payable (AP) processing is a time-consuming, laborious, error-prone and paper-based process at most companies. Research shows that many finance professionals are overburdened by manual data entry, and that processing invoice exceptions and dealing with the resulting delays are particularly challenging. In fact, the cycle time of the manual invoicing process can take as long as 90 days for some organizations. The burden of AP processing could be greatly alleviated by Automation”, according to the Association for Financial Professionals® (AFP) Financial Operations Guide: Automating Accounts Payable Processing.
Despite the availability of comprehensive solutions, only 10% of businesses had completely automated their AP processes as of June 2021, as per CPA Practice Advisor.
Thankfully, businesses are beginning to embrace automation. A PYMNTS study shows that 64% of mid-sized firms, with annual revenues ranging from US$3.5 million to $15 million, have partially automated their AP disbursements. The resulting improvements in accuracy and efficiency have prompted 93% of these companies to extend automation to more of their AP and accounts receivable (AR) processes.
There is a wide range of benefits associated with AP automation. Here is a list of advantages that accompany AR automation:
Optimized working capital management, greater efficiency and cost savings
End-to-end automation of the AP function results in considerable efficiencies and cost savings.
“Automated AP systems improves speed and reduces errors, cutting down on the amount of time it takes to approve and pay invoices. This reduces late payments and opens up the possibility of paying early. While AP usually wants to hold onto payment until due, having the option to pay early sometimes allows the company to take advantage of discounts. Efficiency produces flexibility, and flexibility gives the company more levers to adjust in its efforts to optimize working capital”, states Strategic Treasurer’s 2024 Treasury Technology Analyst Report.*
Beyond speeding up payments, AP automation offers businesses the flexibility to schedule payments that enhance cash flow and select the most suitable payment type that aligns with their liquidity strategy. By managing their days payable outstanding (DPO) strategically, companies can pay key vendors and early discounters sooner when advantageous, while deferring less critical invoices to maximise liquidity.
Among other AP automation advantages is vendor management automation, which updates vendor details, monitors communications, and ensures adherence with contract terms, as noted in the AFP guide.
Another capability of AP automation, as outlined in the AFP guide, is the automated processing of expense reports, which involves capturing and validating employee receipts, categorising expenses, routing them for approvals, and ensuring policy compliance.
The synergy of these features, along with other capabilities, lowers processing costs, minimises errors caused by human intervention, and enables businesses to scale their AP functions seamlessly as they grow, without hiring additional staff. In essence, “Automation makes the whole process faster, cheaper, and more accurate”, the AFP guide suggests.
Effective monitoring and prevention of fraud
The ability to detect, prevent, and mitigate fraud is one of the key benefits of AP automation. According to the AFP’s 2024 Payments Fraud and Control Survey, 80% of organizations reported being victims of attempted or actual payments fraud attacks in 2023, reflecting a 15% increase from 2022. Notably, paper-based transactions remain particularly vulnerable to fraud, with 65% of AFP survey participants indicating their organizations had encountered cheque (check) fraud as part of their paper-based payment processes.
Accounts payable is a frequent focus of cyberattacks and fraud, as highlighted in the AFP guide. Sources of fraud include supplier impersonation by external bad actors, legitimate vendors submitting duplicate invoices, false charges for unrendered services, and employees orchestrating billing scams through personal bank accounts. The AFP guide emphasises that the primary motivations for adopting AP automation are the need for stronger controls and more effective fraud risk management.
The AFP guide further elaborates, noting that “With automated AP solutions, advanced algorithms can monitor transactions and flag suspicious activities. AI-enabled AP solutions can detect duplicate invoices and look for patterns that may indicate fraud. Furthermore, accounts payable activity is centralized, so multiple employees cannot pay invoices from multiple offices. All invoices proceed through one online process, enabling end-to-end visibility.”
Improved forecasting powered by automated AP reporting and analytics
With AP automation software, businesses gain access to dashboards and analytical tools that assist them in managing the AP process, identify problems, and discover opportunities. Through automated reporting, businesses can detect bottlenecks, recognize spending patterns and find areas for further optimisation, as stated in the AFP guide.
Specifically for treasury and FP&A teams, the AFP guide points out that “The reporting and analysis generated by automated AP solutions can improve the accuracy of forecasting. AP automation can enhance treasury teams’ liquidity management by enabling them to accurately forecast cash flow.”
Simplify compliance
The AFP guide observes that with automated AP solutions, organizations can easily calculate tax liabilities, maintain proper documentation, provide real-time tracking, and generate the necessary AP reports, thereby minimising the risk of noncompliance penalties. Moreover, AI-enabled systems can be trained to monitor and enforce compliance with local tax laws and invoicing regulations, thus safeguarding businesses from potential penalties.
In conclusion, the future of AP automation will be driven by AI, machine learning, and advancements in ERP systems, with AI being the primary game-changer, as per the AFP guide. By integrating AI, AP solutions can analyse invoicing data to identify potential cash flow disruptions and early payment opportunities, while also recommending optimal payment schedules based on cash availability, further enhancing organizational efficiency and cash management, and generating rich, actionable insights into both their processes and customer needs.
Implementing AFP automation enables companies to better handle economic uncertainty marked by inflation, supply chain challenges, and interest rates fluctuations, as recommended by the AFP guide. It also allows organizations to build a reputation for timely payments, reinforcing supplier-buyer relationships. Additionally, the AFP guide underscores that “Employees will be happier in their value-added roles. Ultimately, they can stay ahead of competitors and become nimbler in a rapidly evolving field.”
⃰ Disclosure: Strategic Treasurer owns CTMfile.
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