A Complete Guide to AP Automation

A faster, smarter way forward

Imagine the possibilities

Imagine having every invoice automatically captured and coded for you. Data is effortlessly extracted from all your invoices. Billing errors and usage outliers are identified and tagged before they turn into a nuisance. Late payments are a thing of the past, and cash rebates and early-pay discounts are utilized to fund strategic initiatives. Invoices are digitally routed for review and approval with a bird’s-eye view of progress. And best of all, decision-makers have the data they need in order to to make decisions with confidence.

All of this is possible with accounts payable automation

If your accounts payable department is still relying on manual processes, then you know how tedious and frustrating this can be. But it doesn’t have to be this way.

There’s a better way

Accounts payable automation frees up the hours you and your team have been spending on manual tasks. It eliminates the clutter from your workday and empowers your employees to work on strategic initiatives that move your company forward.

Automation will change the way your department is perceived by peers and vendors alike. It will inspire your entire team to perform at the next level.

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The Current State of the AP Industry

The accounts payable process at most businesses is a very hands-on affair.

In most businesses, invoices can be received in paper or electronic format by anyone, anywhere in the organization, including a branch office, centralized mailroom, finance department, or a purchaser.

The invoices are then reviewed and forwarded (usually via inter-office mail) for approval and coding. Much of the invoice approval process resides in the heads of seasoned, trusted employees who at any time can go on vacation, quit, or become sick, significantly delaying payments. Any exceptions need to be chased through the organization, a process that typically takes two to four weeks.

Once approved, invoice data is keyed into an Enterprise Resource Platform (ERP) and the invoices are physically filed.

Sound familiar? If so, then your accounts payable department likely suffers from:

  • Costly and error-prone keying of invoice information
  • Lost or misplaced invoices
  • Lengthy approval and exception resolution cycles
  • Compliance and security risks
  • High paper storage and retrieval costs
  • Delays uploading approved invoice data to downstream systems
  • Time-consuming supplier inquiries regarding invoice and payment statuses
  • Difficulty implementing operational best practices
  • Lack of opportunity to optimize payment scheduling, capture early payment discounts, or avoid late fees
  • No visibility into performance or data analytics

If you’re looking for a more contemporary approach to accounts payable, you’re not alone.

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The Future is AP Automation

And the future is now.

Businesses increasingly recognize the need to automate their accounts payable department. Organizations want to create a future where accounts payable is no longer just a tactical, back-office function.

Accounts payable practitioners are eager to make that vision a reality.

Here’s the future of accounts payable that industry thought leaders foresee:

  • Reduced keying & paper pushing: By 2021, 51% of accounts payable practitioners anticipate that their department will eliminate most of the paper invoices it currently receives from suppliers, according to IOFM’s 2018 Future of Accounts Payable Study. IOFM also found that nearly one-third of practitioners expect that their accounts payable department will eliminate 25-50% of the paper invoices it currently receives from suppliers.
  • More digital technologies: The wide array of technologies available for AP automation can overwhelm even the most tech-savvy individuals. So, which technologies will be most important to the future of the accounts payable profession? Accounts payable practitioners are placing their bets on image capture, intelligent data capture, mobile, cloud, and artificial intelligence, per IOFM.
  • Data-driven payables: According to IOFM’s study, 63% of accounts payable practitioners expect that the use of their department’s data across the enterprise will increase “slightly” or “significantly” over the next three years. Automation will put critical data at the fingertips of authorized users, no matter where they are located. Users across the enterprise will track cost and consumption metrics, gain full visibility into working capital and spending trends, manage utility costs and consumption in a single location, filter reports, and benchmark performance to reveal opportunities with year-over-year reporting.
  • Better staff utilization: In the future, accounts payable staff will spend less time on manual tasks and more time on value-add activities such as data analysis and vendor master cleanup. AP automation will eliminate most of the laborious steps associated with invoice processing, including invoice receipt and validation, extraction of header and line-item data, matching of invoices to purchase orders, routing of invoices for approval or exceptions handling, and uploading information from approved invoices to an ERP and payment application.
  • An end to snail mail payments: Accounts payable departments expect to make less than half as many payments to suppliers via paper check within the next three years, according to IOFM. Compared to electronic payment methods, paper checks cost over 30 times as much, are responsible for 10 times the fraud losses, and take longer to send. Businesses will use ACH and virtual card to pay more of their suppliers.
  • Profitability: Automation will create opportunities in the future for accounts payable to deliver value to the business through cash-back card rebates, more early payment discounts, longer standard payment terms, and better spend management. 57% of accounts payable practitioners expect to capture higher card rebates as a total percentage of spend within the next three years. 54% of practitioners expect their organization to capture more early-payment discounts. One-third of practitioners will extend their standard payments. And nearly two-thirds of AP departments will play a bigger role in helping to manage spending.

Do you want to be the AP hero and good corporate citizen who makes your accounts payable automated, efficient, and valuable to the business? Read on.

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Getting Started

Where do you stand?

Is accounts payable automation right for your organization? Yes, it is! The two important questions to ask now are “When?” and “How?”. And of course you’ll need a solid business case to excite your organization’s leadership and stakeholders.

The best way to find out is to take stock of your current situation and identify the potential benefits. The four steps outlined below will help provide solid footing as you to get started.

#1: Determine your “as-is” process

The first step in taking stock of where you are is to document your accounts payable department’s primary approval and exceptions workflows. Be sure to involve front-line payables staff in this process and thoroughly capture every unique workflow for different types of invoices, suppliers, and business units. Then document the challenges present in your current workflows. Quantify issues such as:

  • Lost invoices and duplicate copies
  • Manual data entry
  • Matching errors and other invoice exceptions
  • Supplier inquiries and escalations
  • Duplicate payments
  • Late payments and lost discounts (dollar amounts)

#2: Find your data

The second step in taking stock of where you stand is to gather baseline operational data. This information will be essential for building a business case for automation. The data required in this step includes, but is not limited to:

  • Annual invoice volume
  • Number of full-time equivalents (FTEs) in your department (don’t forget temps!)
  • Average value of compensation & benefits (C&B) per accounts payable FTE
  • Total accounts payable cost (FTEs * C&B) + (any allocations and overhead)
  • Cost per invoice (total accounts payable cost / annual invoice volume)

#3: Benchmark your baseline

The third step in taking stock of where you stand is to compare your baseline operational data with industry benchmarks. This comparison will reveal what your department could achieve through automation. Some key benchmarks to focus on include:

  • Cost per invoice
  • Cycle time for purchase order-based invoices
  • Cycle time for non-purchase order-based invoices
  • Invoices processed per FTE per month
  • Rate of duplicate payments
  • Supplier inquiries per 1,000 invoices
  • Overall first-pass match rate (invoices to purchase orders)
  • Early-payment discounts captured as a percentage of spend

#4: Begin your list

Based on the review of the current state of your accounts payable department, you can begin to create a list of the processes that will be transformed through automation and how you can utilize your data to support those improvements. Consider processes such as:

  • Receiving invoices
  • Extracting data from invoices
  • Matching invoices to purchase orders
  • Invoice approval workflows
  • Invoice exception workflows
  • Supplier account reconciliation and query resolution
  • Reporting and analytics

Be sure to document how processes are currently handled, and the resulting issues.

Once you know where you stand and what you can achieve, it’s time to engage stakeholders.

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Engaging Stakeholders

Identifying key stakeholders | Complete Guide to AP Automation

The stakeholders you’ll need vary from company to company, but there are several common roles, such as the chief financial and information officers, controllers, procurement and treasury, and of course your AP team.

Engaging department staff and key stakeholders across the enterprise is key to a successful AP Automation project. Here are four proven strategies for successfully engaging stakeholders:

1. Identify key stakeholders

These will likely include front-line accounts payable staff, IT staff, purchasers (those who raise purchase orders), procurement, financial analysts, and treasury. Your goal is to engage those who can help contribute to the success of the project.

2. Engage stakeholders early in the project

Establish a team of stakeholders representing different functional responsibilities. This team will help you diagnose the current state of processes, identify areas for improvement, gather business requirements, define the scope of the project, develop business rules for configuring the system, make decisions regarding process changes, and monitor the progress of the project. Keep in mind that “bigger doesn’t equal better” when it comes to establishing a project team; having too many people involved can make meetings unwieldy, delay decision-making, cloud goals, and complicate communications. Limit the team to essential representatives from each of the key stakeholders in the project.

3. Address stakeholder concerns head-on

Nothing good comes from ignoring a “check engine” light. The same can be said about ignoring the concerns of stakeholders. Be proactive about addressing concerns, such as how current operational roles will change, how systems integration will be managed, and how the technology will be rolled out, as soon as they’re raised. One member of your team of stakeholders should be assigned to “champion” the project with constituents across the business and to keep senior-level management apprised of any issues.

4. Roll up your sleeves when it comes to change management

Taking shortcuts when it comes to rolling out a new system can lead to deployment issues and poor adoption. Be sure to allocate or line up enough resources for IT support, systems administration, testing, training, and “go-live” tasks. Some departments use temporary staff in the lead-up to system deployment to free up power users and allow them to spend more time training their peers and testing the system.

Following these strategies for engaging stakeholders will ensure a successful automation project.

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Driving Results

So, what exactly has AP departments so excited about automation?

IOFM’s report, Is Your AP Performance Top Tier?, provides a glimpse into what accounts payable departments can expect to achieve through automation:



Approve an invoice in less than 30 seconds!

Pay more than 90% of your supplier invoices on time

Automation eliminates many of the time-consuming tasks associated with processing supplier invoices. Invoices from any delivery channel, and in any format, are received, digitized, standardized, and aggregated into a single platform. Header and line-item data is automatically extracted from invoices, which are then matched with purchase orders and/or receipts. Invoices that require approval or exceptions handling are digitally routed based on pre-configured business logic and workflows, eliminating the possibility that invoices will become lost, misfiled, or “stuck” on someone’s desk.

Paying more invoices on time enables businesses to eliminate late-payment penalties, reduce supplier inquiries regarding invoice status, strengthen vendor relationships, gain leverage at the negotiating table, capture more early-payment discounts, and achieve a higher level of visibility into their cash and spending.

Capture 97% of early-payment discounts offered

80% of businesses surveyed for IOFM’s AP Department Benchmarking & Analysis Report receive invoices that offer discounts on the invoice due amount in exchange for early payment.

The savings from early-payment discounts add up quickly. Top performers capture 7 times more early-payment discounts as a percentage of spend as their peers, per The Hackett Group. That means that a $1 billion-revenue company that previously captured $200,000 annually in early-payment discounts stands to gain $1.4 million a year in additional early-payment discounts through automation.

Process nearly 23,000 invoices annually per full-time equivalent (FTE)

According to IOFM, highly automated accounts payable departments process 14 times more invoices per FTE each month than their peers with little or no automation!

Automation eliminates most manual tasks involved in processing invoices. The technology extracts and validates invoice data, matches invoices with purchase orders and receipts, and posts approved invoices directly into an ERP system. Any invoices that require review, approval, or exceptions resolution are electronically routed to specific individuals based on pre-configured rules. Dashboards alert managers to bottlenecks and users to invoices approaching their due date.

Spend less than $5 to process an invoice

Highly-automated AP departments can spend less than one-fourth as much to process a single invoice as peers with little or no automation ($5 per invoice versus $20 per invoice). Skeptical? AP Automation solutions eliminate manual processes that drive up the cost of accounts payable processing, such as:

  • Keying invoice information
  • Matching invoices with purchase orders and receipts
  • Tracking down purchasers
  • Physically routing invoices for approval
  • Back-and-forth phone calls to resolve exceptions
  • Searching for lost or misplaced invoices
  • Filing and retrieving invoices
  • Setting up payments
  • Reconciling payments
  • Resolving payment issues
  • Preparing reports
  • Gathering information for auditors

Based on IOFM’s benchmarks for invoice processing costs, an accounts payable department that processes 5,000 invoices per month stands to save $55,650 per month ($8,850 per month instead of $64,500 per month) and $667,800 annually with an automated accounts payable solution.

Match 90% of invoices and purchase orders on the first-pass

IOFM’s 2015 AP Technology Survey reports that matching invoice line items with data in a PO system is the top pain point for 28% of AP departments.

Automation does the work for accounts payable departments.

Automated AP solutions automatically capture invoice data, checking for duplicate invoices, validating supplier information, and calculating line-items on invoices. Extracted data is automatically matched with purchase orders. Information can be validated against data sources such as an ERP. Any unmatched invoices are electronically routed to a queue for inspection and data correction or electronically routed to approvers based on pre-configured business rules.

Correct only 1% of all supplier invoices processed

39% of businesses report that duplicate payments and over-payments represent more than 1% of their payments. Worse, duplicate payments and over-payments account for 2% or more of all payments at 14% of businesses, IOFM’s 2016 AP Key Performance Indicators Study found. A rule of thumb is that a duplicate payment rate over 0.5% indicates weak controls or that the master vendor file needs a good weeding out, per IOFM’s AP Department Benchmark and Analysis.

Automated accounts payable solutions eliminate errors by:

  • Validating invoice data early in the process against information in downstream systems
  • Eliminating manual processes and paper handoffs that often result in errors
  • Providing fast online access to supporting data
  • Flagging duplicate invoices
  • Facilitating collaboration between suppliers and internal stakeholders
  • Using analytics to flag problem suppliers

Learn more about AP Automation

Fill out the form below to download our complete guide to AP Automation. Also make sure to download our free best practice guide for implementing accounts payable automation across your enterprise so you can start creating a better future for you and your payables.

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