Using an AP Automation Workflow to Boost Operational Efficiency
“Work smarter, not harder” is a constant refrain in business. While the phrase is a little thin on specifics, few doubt the power of technology to boost outcomes and improve teams' day-to-day lives. Still, how should you approach using technology to work smarter?
One great place to start is in accounting. The accounting process touches many business aspects and departments, from stakeholders placing orders to the accounting clerks processing final payments. Automating AP workflows makes such end-to-end processes easier.
This article covers the basics of an AP automation workflow. You’ll learn why it’s so valuable, how to get started, and see examples of automation in action for diverse businesses.
Download the free ebook: The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)
What is an accounts payable (AP) workflow?
An AP workflow is a structured process that manages and streamlines the accounting process, from receiving an invoice to making a payment. It begins when the finance team gets an invoice for processing and proceeds through several steps to verify the expense, approve it, and remit payment to the vendor.
Every invoice should go through the following basic steps, though your process may vary based on industry or reporting requirements:
- An electronic or physical invoice arrives from the vendor.
- The AP team keys the invoice into the system to capture the necessary information (this step is handled within the system if using accounts payable automation as part of AP best practices).
- AP checks the invoice against other documents in the order, such as the purchase requisition, purchase order, bill of lading, and/or receipt.
- The team submits the invoice payment request to the necessary approvers based on the department, spend category, or dollar amount.
- When approvals are in place, the accounting team pays the invoice according to outlined contract terms and payment methods.
- Accounting records the payment in relevant systems for later reporting and spend analysis.
How does an AP automation solution work?
When you use an AP automation platform, most of the time-consuming manual tasks occur within the system and need no human intervention. Automation allows even a small business to capture, process, approve, and pay hundreds or thousands of invoices without manual keying, discrepancy research, duplication issues, or logjams.
The automated AP process goes something like this:
- The vendor sends the invoice electronically to the company's AP automation system. Upon receipt, the AP automation software automatically captures and digitizes the necessary information from the invoice using optical character recognition (OCR) technology or similar methods.
- The system then validates the captured invoice data by cross-referencing it against related documents, such as purchase requisitions, purchase orders, bills of lading, and stored receipts.
- Once validation is complete, the AP automation software uses preset rules to route the invoice for approval. These rules can be based on factors like department, spend category, or dollar thresholds.
- Approvers receive notifications to review and approve invoices directly within the system. This can often be done from anywhere and at any time, significantly speeding up the approval process.
- After receiving all necessary approvals, an AP automation workflow processes payment for the invoice according to predefined and agreed-upon terms and methods.
- The payment transaction gets automatically recorded in the company's financial systems for accurate and timely financial reporting, audit trail analysis, and spend analysis.
Through this streamlined process, AP automation speeds up invoice processing times, significantly reduces manual input errors, and enhances visibility and control over a company’s payables process.
The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)
If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.
Where AP workflows benefit most from automation
Nearly every aspect of accounts payable benefits from automation — if you have the right technology. A procurement platform with AP automation features removes the repetition, human error, and delays common in manual accounting processes.
Choose AP workflow automation to systematize high-touch aspects of invoice processing and payment.
Invoice receipt and data capture: Invoice automation tools for invoice capture and digitization of received invoices eliminate the need for manual data entry.
Three-way matching and verification: With digitized data, the system can automatically match purchase orders, receipts, and bills of lading to verify accuracy before payments are made.
Approvals workflow: A streamlined approval process routes invoices to the appropriate approvers and departments based on predefined rules, eliminating delays and hang-ups that inflate cycle times.
Duplicate payment detection: Automated systems can identify and prevent duplicate payments through automated systems that flag repeat vendor invoices.
Vendor management: A system that manages vendor information, including payment terms and details, helps companies increase efficiency and ensure compliance with contractual obligations.
Payment processing: A platform can automate payments according to scheduled terms, including electronic fund transfers (EFT), checks, or credit card payments.
Financial reconciliation: Centralizing data within a platform facilitates the reconciliation of payable accounts by automatically matching payment transactions against the general ledger.
Reporting and analytics: A system that provides real-time insights into AP processes with dashboards and reporting tools helps identify bottlenecks, enables spend analysis, and creates opportunities for further optimization.
How to automate your AP workflow
To effectively automate your trade accounts payable (AP) workflow, follow set steps and AP automation best practices with software that make the whole process easier.
1. Collect historical data
Start by gathering and analyzing historical AP data. This provides valuable data on your current procurement program, including average processing times, common bottlenecks, and vendor payment terms. This data will also be used to optimize spend and reduce redundancy in your spend categories. The analysis allows teams to improve business processes and set benchmarks for the automated system.
2. Centralize vendor information
Vendor management is an important component of spend management. Create a centralized database of all current vendor information, including:
- Contact details
- Contract terms
- Payment timelines
- Historical transaction records
This central repository ensures easy access to vendor data and facilitates smoother transactions.
3. Develop an intake form for orders
Implement a standardized intake form for all purchase requests. This form should capture necessary details about the order, including the vendor information, product or service description, quantity needed, and desired delivery timeline. A standardized form streamlines the procurement process and ensures consistency in order submissions.
4. Identify approval stakeholders
Determine the stakeholders within your organization who need to approve purchases and under what circumstances approvals are needed. Establish clear approval workflows that specify the hierarchy and thresholds for different types of expenditures.
5. Connect platforms for reporting
Integrate the AP system with your company's other financial platforms, such as accounting software or enterprise resource planning (ERP) systems. Integration enables seamless data flow between systems, facilitating real-time reporting and analytics on AP processes. It also allows teams to establish KPIs to fuel future improvements.
6. Train purchasing stakeholders on the procurement platform
Ensure that everyone involved in making purchases is trained on the procurement platform and follows the new automated AP workflow. Provide training sessions and detailed documentation to help stakeholders adapt to the system efficiently. Selecting an easy-to-use procurement and AP automation system makes this process simpler.
7. Review and refine the process
After implementing an automated AP workflow, monitor its performance against the benchmarks set during your initial project outline. Solicit feedback from system users to identify issues or inefficiencies. Review and refine the process based on feedback and evolving business needs to ensure ongoing optimization of your AP department.
By following these steps diligently, you can transform your AP processes into a streamlined, efficient workflow that saves time, reduces errors, and enhances financial management within your organization.
The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)
If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.
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3 Case studies showcasing the power of AP workflow automation
Every organization benefits from the time efficiency and invoice management improvements of automation. Check out these case studies highlighting automation and its ability to change the game for brands across different industries.
Faherty Brand
Running a business with over 65 locations requires a lot of coordination and scalability. Faherty Brand, a family-led retail chain offering casual clothing, has expanded considerably over the last decade. This exciting growth required solid systems and attention to operations. Automating AP was essential to the brand’s success and expansion.
Faherty Brand partnered with Order.co to help streamline orders and payments for new locations. Using the platform, Faherty can quickly and easily order everything for a new grand opening. The platform's centralized features mean no more tracking orders, researching missing information, or manually matching data to ensure everything arrives as needed.
With the streamlined procurement process in place, Faherty can now:
- Process orders through a single system from intake to payment and reporting
- Match order details to purchase requisition and receipt information
- Pay suppliers for orders in a timely manner to save money and unlock discounts
Read the complete Faherty Brand case study here to learn more.
Lucy Therapeutics
Lab sciences is a supply-intensive niche of the biotech industry with constant demand for testing, safety, cleaning, and administration consumables. Lucy Therapeutics, an MA-based molecular therapies firm, needed a way to keep teams supplied with necessary items while maintaining visibility into spend.
Lucy partnered with Order.co in 2023 to create an AP automation workflow. With help from the platform, Lucy was able to:
- Eliminate manual ordering and payment processes for procurement orders
- Connect its information systems to the accounting process for automated reporting
- Reduce vendor payments to a single invoice per month
You can read more in the full Lucy Therapeutics case study.
Trade Roots
Cannabis dispensaries are complex organizations. One dispensary may operate cultivation, manufacturing, and retail distribution — all under one roof. This makes dispensary procurement and accounting needs complex. What’s more, cannabis companies are highly regulated, so they must maintain total visibility into financial operations for compliance reasons.
Trade Roots faced these complexities at its Wareham-based facility. Operations needed supplies to grow, manufacture, package, and sell its cannabis products alongside AP automation to ensure smooth financial management.
The company partnered with Order.co in April 2023, and through that collaboration, it:
- Reduced the burden of time-consuming accounting processes
- Centralized invoice processing and vendor payments
- Eliminated the errors and information silos that bog down AP teams
Learn how Order.co helped Trade Roots grow. Read the full Trade Roots case study.
Use Order.co to automate AP workflows
With Order.co, businesses can eliminate the burden of the accounting process and replace it with seamless automation that brings all vendor and order information into one place. The platform's customization capabilities make it easy to create workflows that work best for the organization.
In addition to the AP automation benefits, Order.co offers features to streamline every aspect of procurement, from purchase requisitions and approvals to budgeting and reporting.
Ready to eliminate manual data entry and automate your accounts payable workflow? Schedule a demo of Order.co today.
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