What is Accounts Payable (AP) Automation?

AP Automation is the use of software to automate tedious tasks like invoice management, approvals, payments, and accounting. Rather than handle these tasks manually, finance and procurement teams today prefer to use automation to streamline and optimize the entire procurement process with Accounts Payable automation software.

There are significant financial, economic, and operational benefits to using AP automation over manual processes. The most robust and powerful solutions automate and streamline the entire procurement process, from vendor management to vendor payments.

Did you know? RazorpayX Source to Pay can integrate your entire accounts payables workflow in one single platform. 

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Drawbacks of Manual Accounts Payable Process

Delays and errors

Manual accounts payable processes are slow, error-prone and inefficient.

Time-consuming and repetitive

Tasks like data entry, invoice routing, and manual approvals are tedious, time-consuming and labour-intensive . They strain resources and limit employee productivity. Further, human error is likely to result in incorrect payments, delays and high costs.

This can impact vendor relationships since payments frequently get delayed. Inefficient processes can also affect cash flow and financial health.

Lack of transparency

Paper-based accounts payables are highly restrictive and opaque. Lost or misplaced paper-based invoices can lead to miscommunications, errors and confusion. This results in painful month-end reconciliation.

With automated digital processes, all invoices and documents are uploaded onto one centralized dashboard for all stakeholders to view at any time.

RazorpayX Source to Pay’s automated approval workflow allows department heads to instantly approve invoices and payments from anywhere in the world.

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How Does AP Automation Work?

The accounts payables automation process works by digitizing and automating paper-based processes. A digital workflow helps reduce the risk of human error and delays, resulting in improved cash flow, better vendor relationships and overall financial health.

Here are the steps in an automated AP process.

  1. Spend Management: Budgeting and spend management are the twin pillars that hold up a robust procurement process.Different departments have different needs. Budgeting involves allocating a specific amount of money to each department, based on historical data, future plans and the overall goal of the organization.

    Automated solutions come with smart features like auto-declining purchase orders that exceed the budget and department-wise spend analytics for accurate spend forecasts.

  2. Approval Workflow: Getting approvals from various department heads ensures that departmental purchases comply with company policies and are within the budget.Not all purchases need to be approved. Several factors need to be considered when setting up an approval workflow.

    Purchase Amount: Higher-value purchases often require approval from higher management levels.
    Purchase Type: Certain categories, like IT equipment or specialized services, might have stricter approval processes.
    Department: Departments with a history of overspending may face additional approval hurdles.

    With solutions like RazorpayX Source to Pay, you can even customize permissions and create multi-layers approval workflows for rule-bawsed approval automation suited to the unique needs of your business.

    Automate Your Payables

  3. Vendor Management: Once a vendor has been identified who can satisfy the departmental needs, it is the responsibility of the procurement team to onboard and manage the vendor.Vendor management is about building a strong, collaborative relationship that ensures the vendor consistently delivers value throughout the partnership.

    Robust AP automation software comes with a vendor portal, allowing self-onboarding, KYC and document sharing. RazorpayX Source to Pay also enables GSTIN verification to prevent fraudulent payments.

  4. Invoice Management: Invoice management is the process of receiving, storing, processing and clearing invoices on time and accurately. A business might receive multiple invoices from multiple vendors.Each invoice has a different due date, different compliances, pricing, approval workflows and may require different matching processes. When done manually, it is a tedious, very time-consuming, error-prone process.

    With AP automation software like RazorpayX Source to Pay, invoices raised by vendors on email are automatically uploaded onto the central dashboard with OCR technology. Advanced accounts payable solutions like RazorpayX Source to Pay can also automatically 3-way match the PO-GRN-Invoice for error-free invoice processing.

  5. Vendor Payment: Once the invoice has been processed, the final step is to make the final payment to the vendor. Making payments on time or even early has significant benefits for the business, like early payment discounts. When a vendor trusts your company’s reliability and payment history, they are more likely to offer extended payment terms.A good AP automation solution can auto-schedule payouts, even in bulk, with minimal human intervention. All details are auto-uploaded and verified. Vendors receive payments on time or even before time, resulting in improved vendor relationships.
  6.  Accounting Integrations & Reconciliation:  Finally, once all payments are done and processed, it’s time to account and reconcile all transactions. Source to Pay solutions also come with automated bill entry into accounting software like Zoho Books and Tally. All transactions can be auto synced to the General Ledger, with customizable smart rules to help categorize and analyse spends.Manual accounts payable software results in slow, tedious processes that are error prone and a waste of time and resources. Automate your procurement process today to see immediate improvement in your cash flow, vendor relationships and overall business health.

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Benefits of AP Automation

Automation eliminates tedious tasks like data entry and manual approvals, freeing up valuable employee time for more strategic endeavours.

Human errors are inherent in manual processes, leading to inaccuracy in payments and mistakes in data entry. With automation, businesses enjoy increased accuracy in data and fewer discrepancies requiring correction.

Automated workflows ensure vendor payments are done on time; solutions like RazorpayX Source to Pay even have a vendor self-serve portal where your vendors can independently share and view documents,  auto-KYC and self-onboard.

Traditionally, procurement data resided in various fragmented, unconnected systems like spreadsheets, emails, and legacy software. AP automation provides a central hub that aggregates all procurement data – bank account details, PO details, invoices, payment information.

As your business grows, automated AP scales seamlessly to accommodate increased volume without compromising efficiency.

Top Procurement Tasks to Automate

Here’s a list of top procurement tasks you can automate to streamline your process and free up valuable resources:

Early Stage AP Automation:

  • Budget Management: Automate budget allocation, track spending against budgets, and generate alerts for potential overruns.
  • Purchase Requisition Routing: Automatically route purchase requisitions to the appropriate approvers based on pre-defined rules.
  • Supplier Onboarding: Streamline the process of collecting and storing supplier information.

Core AP Automation:

  • Purchase Order Generation: Automatically generate purchase orders based on approved requisitions.
  • Vendor Selection and Sourcing: Utilize automation to shortlist vendors based on pre-defined criteria and past performance data.
  • Contract Management: Automate contract creation, track key milestones, and generate renewal reminders.

Late Stage AP Automation:

  • Invoice Processing: Extract data from invoices electronically, automate data verification, and route them for approval.
  • Payment Processing: Schedule and automate payments based on agreed-upon terms and manage different payment methods.
  • Spend Analytics and Reporting: Automatically generate reports that provide insights into spending patterns, identify cost-saving opportunities, and track performance metrics.

How to Shift to Automated Accounts Payable Process

Once a business has decided to make the shift from manual accounts payables to an automated process, the very first step is to conduct a thorough assessment of their current AP process.

Click here to take the RazorpayX Payables Blindspot Detector to find out if your Payables process is 100% accurate.

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The next step is to find a solution that does all you need and more. The ideal solution is scalable, robust, and easy to use.

The software you decide on should easily integrate with existing processes and systems, and the finance and procurement employees should be able to easily learn how to use it.

It is also important to choose software that is economical and brings the most ROI. RazorpayX Source to Pay is the only free OCR invoice reading software on the market and offers economical ap automation solutions, tailored for Indian businesses.

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FAQs

What is AP automation?

AP automation uses software to streamline tasks like receiving invoices, managing approvals, and processing payments. It replaces manual, paper-based processes with a digital workflow, boosting efficiency and accuracy. This leads to faster invoice processing, improved cash flow, and better control over your finances. By automating repetitive tasks, AP automation frees up employees to focus on more strategic work.

Is AP automation worth it?

The answer to this is an overwhelming yes. AP automation brings significant benefits to efficiency, productivity and accuracy of accounts payable processes. The ROI of investing in a robust accounts payables process is definitely worth it.

What are the features of AP automation?

Some key features of AP automation: - Automated invoice capture - Automated workflow management - Automated payments - Vendor management - Budgeting and spends - Integrations with accounting softwares - Security and compliance

How does AP automation work?

AP automation takes manual, paper-based processes and transforms them into streamlined digital workflows. AP automation streamlines the entire procurement process, reduces errors, saves resources, and provides valuable insights for better financial management.

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