The Only Comprehensive Guide to Accounts Payable (AP) Automation That You Need Right Now

When it comes to most business operations, you already know that efficiency is king. One of the most critical areas where your company can (and should) streamline operations is in accounts payable. Automating existing processes not only saves you time and money, but also reduces errors and enhances your overall financial management.  

This comprehensive guide will take you through everything you need to know about accounts payable (AP) automation, from understanding what AP is, to exploring the latest solutions.

Key takeaways:

• AP automation eliminates manual invoice processing, reducing errors and improving efficiency through digital invoice capture, approval workflows, and payment processing —  streamlining financial operations and minimizing human intervention.
• Automated accounts payable systems improve cash flow management and supplier relationships with faster invoice approvals and on-time payments, helping businesses take advantage of early payment discounts while maintaining strong partnerships.
• Integrating AP automation with existing financial systems enhances visibility and control, providing real-time insights that empower businesses to make informed financial decisions.

What is Accounts Payable?

Accounts Payable (AP) refers to the money your company owes to your vendors and suppliers for goods or services received but not yet paid for. This liability represents a crucial component of your company’s balance sheet and reflects your short-term obligations. Proper management of accounts payable is vital for maintaining good supplier relationships and ensuring the smooth operation of the supply chain.

What Is Accounts Payable Automation?

Accounts payable (AP) automation refers to the use of technology to streamline workflows within finance operations, eliminating manual tasks associated with invoice processing and payments. 

By automating existing processes, finance teams can ensure that invoices are received, verified, approved, and paid electronically within a centralized system, reducing reliance on paper-based processes, minimizing human intervention, and enhancing overall efficiency.

Why Businesses Need Automated Accounts Payable

Handling accounts payable manually can be a tedious and error-prone process. An automated AP system takes the guesswork out of processing invoices and payments, ensuring everything runs smoothly from start to finish. By eliminating inefficiencies, businesses gain better control over cash flow, strengthen supplier trust, and maintain a clear financial picture.

• Cash Flow Management: Automated accounts payable helps maintain healthy cash flow by processing payments promptly and efficiently, allowing your business to take advantage of early payment discounts and avoid late payment penalties.
• Supplier Relationships: People like to be paid on time, and they like people who pay them on time. Timely and accurate payments foster strong relationships with suppliers, which can lead to better terms, increased reliability, and preferential treatment. 
• Financial Health: Automation ensures that AP records are accurate and up-to-date, providing a clearer picture of a company’s financial health, contributing to better decision-making and strategic planning.

Key Functions of Automated AP 

Automated AP solutions streamline invoice handling, approvals, payments, and record-keeping, reducing manual effort and improving accuracy. By digitizing and optimizing these core processes, businesses can enhance efficiency, minimize errors, and ensure compliance.

• AP Invoice Processing: Automation involves receiving vendor invoices electronically, verifying their accuracy using OCR (Optical Character Recognition), and entering them into the accounting system. Automated verification ensures that the goods or services billed have been received as per the purchase order.
• Approval Workflow: Automated systems route invoices to the relevant stakeholders for approval based on predefined logic. This may involve multiple levels of authorization depending on your company’s policies.
• Payment Processing: Once approved, invoices are automatically scheduled for payment. Automated payment processing includes determining the payment date based on terms negotiated with the supplier and your company’s cash flow situation.
• Record Keeping: Automated systems maintain accurate and up-to-date digital records of all transactions, which is essential for financial reporting, audit trails, and ensuring compliance with regulatory requirements.

How Does Accounts Payable Automation Work?

Accounts Payable Invoice Automation works by leveraging technology to automate the various steps in the accounts payable process, such as invoice management. This includes the use of optical character recognition (OCR) to scan invoices, machine learning algorithms to match purchase orders with invoices, and automated workflows to route invoices for approval.

Core components of AP automation include:

• Invoice Capture: Uses OCR and other technologies to digitize paper invoices.
• Data Extraction: Extracts relevant data from invoices for processing.
• Approval Workflow Automation: Routes invoices to the appropriate approvers.
• Payment Processing Automation: Schedules and processes payments automatically.
• Integration/Inclusion: Connects with existing ERP systems, such as Microsoft Dynamics 365 Business Central (BC) and Finance and Operations (F&O), to ensure seamless data flow.

Benefits of AP Automation 

Automating your accounts payable processes offers numerous benefits that will significantly improve your company’s financial operations.

The key benefits of AP automation implementation are:

• Increased Efficiency: Reduces the time spent on manual tasks, allowing your team to focus on more strategic and value-added activities.
• Cost Savings: Lowers operational costs by minimizing errors and avoiding late payment penalties.
• Improved Accuracy: Enhances data accuracy through automated data capture and validation.
• Enhanced Visibility: Provides real-time insights into your accounts payable status and cash flow.
• Better Supplier Relationships: Ensures timely payments, fostering good vendor relationships.

Data Point: It’s All About the Value Drive Once viewed as a routine administrative task, accounts payable is now recognized as a critical function that enhances operational efficiency and financial strategy. More companies are seeing the value AP brings in streamlining workflows, reducing costs, and delivering real-time insights.  Research by Ardent Partners reveals that 61% of business leaders in 2024 considered AP to be “very valuable” or even “exceptionally valuable,” reinforcing its position as a hub of intelligence and efficiency. This growing recognition highlights AP’s expanding role in shaping financial strategy and optimizing business performance.

How to Create an AP Automation Workflow

AP automation involves using technology to handle repetitive and time-consuming tasks within the accounts payable process. AP automation can be achieved through various software solutions that streamline invoice processing, approval workflows, and payment disbursements.

Here are the 5 steps to automate your accounts payable workflow:

1. Assess Your Current Process: Identify the manual tasks that are time-consuming and prone to errors. These are the ones you want to overhaul first.
2. Choose the Right AP Invoice Automation Solution: Look for features such as invoice scanning, automated approval, and integration capabilities.
3. Implement Automation Software: Deploy the tool and ensure it integrates seamlessly with your existing accounting systems. Or, in the best case scenario, it’s purposely built for your existing ERP.
4. Train Your Team: Ensure your AP team is well-versed in using the new system to maximize its benefits.
5. Monitor and Optimize: Continuously monitor the performance of the new AP automation process and make necessary adjustments to improve your overall efficiency.

Accounts Payable Automation Processes Inside D365 Finance & Operations and Business Central

The process of automating accounts payable using D365 involves several stages, from initial assessment to full deployment and continuous optimization:

1. Initial Assessment: Evaluate your current AP process to identify inefficiencies.
2. Solution Selection: Choose an AP automation solution that fits your business needs.
3. Implementation: Deploy the chosen solution and integrate it with your existing systems. If you are already a Microsoft Dynamics 365 Business Central (BC) or Finance and Operations (F&O) customer, you have the bonus option of choosing an AP Automation solution that is already built into your trusted ERP.  
4. Training: Train your team on how to use the new system effectively.
5. Monitoring and Optimization: Continuously monitor the system’s performance and make adjustments as needed.

Comparing Manual vs Automated AP Process Steps

By understanding and automating the detailed steps of the accounts payable process, your business can revel in significant efficiency gains, cost savings, and improved overall financial management. Implementing advanced AP automation solutions not only streamlines your operations, but also positions your company for future growth and success in an extremely competitive market. When the stakes are high, you need all the advantages you can get.

That said, taking a deep dive into the detailed steps of the accounts payable process is crucial for successful automation. Now, let’s dig deeper into each step for a comprehensive understanding of how the steps function, and the role of automation in enhancing their individual efficiency.

Let’s also examine the benefits of accounts payable process automation over manual data processing.

Invoice Capture

Collect and Digitize Invoices Using OCR Technology:

• Manual Process: In a traditional manual process, invoices arrive via mail, email, or fax. These physical or digital documents need to be collected, sorted, and manually entered into the accounting system.
• Automated Process: AP invoice processing automation employs OCR to scan and digitize paper documents. For e-invoices, systems can capture data directly from email or supplier portals. OCR technology reads and standardizes various formats, allowing for seamless extraction and integration into your accounting software.

Data Entry

Automatically extract data from invoices and input it into your accounting system:

• Manual Process: Data from each invoice must be manually keyed into the accounting system, which is time-consuming and prone to errors.
• Automated Process: Automation software extracts key data fields from digitized invoices using advanced data capture technologies, eliminating manual work. This includes details such as invoice number, date, supplier name, line items, amounts, and terms. The extracted data is then automatically entered into the accounting system, significantly reducing the time and error rate associated with manual data entry.

Matching

Match invoices with purchase orders and receipts to ensure accuracy:

• Manual Process: Manually matching invoices to corresponding purchase orders (POs) and goods receipt notes is labor-intensive and can lead to discrepancies and delays.
• Automated Process: Automated matching systems compare invoice data with POs and receipts stored in the system. Three-way matching ensures that the invoice details align with the PO and the received goods or services. Any discrepancies are flagged for review, allowing for quick resolution. This step is crucial for verifying the accuracy of charges and preventing overpayments or fraud.

Approval Routing

Automatically route invoices to the appropriate approvers based on predefined workflows:

• Manual Process: Invoices are physically or digitally passed along to various approvers, which can be slow and result in lost or delayed approvals.
• Automated Process: AP automation software uses predefined processes to route invoices to the relevant approvers based on the company’s approval policies. Approvers receive notifications and can review and approve invoices from any device. This speeds up the process and ensures compliance with internal controls. Additionally, automated reminders can be set to ensure timely approvals.

Exception Handling

Flag and resolve any discrepancies or exceptions:

• Manual Process: Identifying and resolving exceptions, such as mismatched amounts or missing information, requires manual intervention and extensive and sometimes tedious communication between departments. Nobody has time for that!
• Automated Process: Exception handling is streamlined through automation. The system automatically flags any discrepancies or exceptions detected during the matching or approval stages. Detailed exception reports are generated, and the responsible personnel are notified to take corrective action. Automated AP workflows can also be designed to resolve common exceptions without manual intervention, further improving efficiency.

Payment Scheduling

Automatically schedule payments according to payment terms:

• Manual Process: Payment scheduling involves manually tracking due dates and prioritizing payments based on cash flow and supplier invoices and terms.
• Automated Process: Once invoices are approved, the automation software schedules payments according to the negotiated payment terms. The system considers factors such as early payment discounts, cash flow management, and supplier preferences to optimize the payment schedule. This ensures timely payments and maximizes cost-saving opportunities.

Payment Execution

Execute payments through your bank or payment provider:

• Manual Process: Payment execution involves manually preparing and sending payments through checks, bank transfers, or other methods, which can be error-prone and inefficient.
• Automated Process: AP automation systems integrate with banking and payment platforms to execute payments automatically. Electronic payments, including ACH transfers, wire transfers, and virtual card payments, are processed directly through the system. Automated payment execution reduces the risk of errors, enhances security, and provides real-time visibility into payment status.

Record Keeping

Maintain accurate records of all transactions for auditing and compliance purposes:

• Manual Process: Keeping accurate records requires diligent filing and organization of paper documents and manual entry of transaction details into accounting ledgers.
• Automated Process: Automated document management maintains a comprehensive digital archive of all invoices, approvals, and payment records. These records are easily accessible for auditing, compliance, and reporting purposes. The system also ensures that all documentation is stored securely and in accordance with regulatory requirements. Automated record-keeping improves data accuracy, enhances traceability, and simplifies the audit process.

Enhancing AP Automation with Advanced Technologies

AP automation is continuously evolving, with new technologies enhancing each step of the process. Here are some advanced technologies that further bolster and optimize AP automation:

Key Technologies	How they impact AP Automation
Artificial Intelligence (AI) and Machine Learning (ML)	AI and ML algorithms can predict anomalies, optimize approvals, and continuously improve matching accuracy by learning from historical data.
Blockchain	Blockchain technology ensures transparency and security in transactions by providing an immutable ledger of all invoice and payment records, enhancing trust and compliance.
Robotic Process Automation (RPA)	RPA bots can handle repetitive tasks such as data entry, exception handling, and reconciliation, further reducing manual intervention and increasing efficiency.
Advanced Analytics and Reporting	Enhanced analytics provide deeper insights into AP performance, cash flow trends, and supplier behaviors, enabling more informed decision-making and strategic planning.

Selecting the Right Accounts Payable Software

Choosing the right accounts payable software is critical for effective AP automation. The software should offer robust features and seamless integration (or, ideally, native inclusion) with your existing systems.

Key features of AP software are:

• Invoice Scanning Solutions and OCR: Captures and digitizes paper invoices.
• Automated Workflows: Streamlines the approval process.
• Integration Capabilities: Integrates with or is built into ERP systems like Microsoft Dynamics 365.
• Analytics and Reporting: Provides insights into AP performance.
• Security Features: Ensures data security and compliance.

Software	Key Features	Integration	Price Range	Review Points	Review Source
Microsoft Dynamics 365 BC & F&O	Invoice scanning, approval workflows, analytics	Seamless D365 integration	$$$	4.5/5	G2 Reviews
ExFlow	Invoice scanning, workflow automation, real-time insights	Custom built into Microsoft Dynamics 365	$$	4.6/5	G2 Reviews
Medius	Invoice automation, spend management, analytics	Integration with multiple ERP systems including Dynamics 365	$$	4.4/5	G2 Reviews
Tipalti	Global payments, tax compliance, invoice capture	Multiple ERP integrations	$$	4.4/5	G2 Reviews
SAP Concur	Expense management, invoice automation, reporting	Integration with SAP ERP	$$$	4.3/5	G2 Reviews

*This table provides a comparison of some popular AP automation software solutions, highlighting their key features, integration capabilities, price ranges, and review scores as of June 2024. The review points are based on user reviews from G2, a well-known platform for business software.

What Is AP Invoice Processing Automation?

An AP invoice processing solution automates the receipt, processing, and payment of invoices, eliminating manual tasks to improve efficiency and accuracy.

Key Steps in AP Invoice Automation:

• Invoice Capture – OCR technology digitizes invoices.
• Data Extraction – Automatically pulls relevant invoice details.
• Invoice Matching – Matches invoices with purchase orders and receipts.
• Approval Workflow – Routes invoices for automated approval.
• Payment Processing – Schedules and executes payments.
• Record Keeping – Maintains a digital archive of invoices and payments.

Benefits of AP Invoice Automation:

• Faster Processing – Speeds up invoice handling and approvals.
• Fewer Errors – Reduces manual data entry mistakes.
• Cost Savings – Lowers labor costs and prevents late payment fees.
• Improved Compliance – Ensures adherence to policies and regulations.
• Stronger Supplier Relationships – Supports timely payments and better communication.

Choosing the Right AP Invoice Processing Solution for Your Business

When selecting an accounts payable (AP) automation solution, consider the following factors:

• Integration: Ensure the solution integrates, or ideally, is already built into your existing ERP and accounting systems.
• Scalability: Choose a solution that can scale with your business growth.
• User-Friendliness: Ensure the solution is easy to use for your team.
• Customer Support: Look for a provider with robust customer support and training resources.

Case Study: BLS Industries

For a real-world example of the benefits of AP automation, check out this case study on how AP automation and purchase order matching drove efficiency for Scandinavian sanitaryware group BLS Industries.

Efficiency Gains from AP Automation vs. Manual Processes

 Efficiency Gains with AP Automation

Efficiency Metric	Manual Process	Automated Process	Source
Invoice Processing Time	20 days	8 days	Institute of Finance & Management (IOFM)
Invoice Processing Cost	$15 per invoice	$3 per invoice	Aberdeen GroupAmerican Productivity & Quality Center (APQC)
Error Rate	3-5%	0.1-0.5%	American Productivity & Quality Center (APQC)
Early Payment Discounts	10% of invoices	25% of invoices	PayStream Advisors
Supplier Inquiry Volume	100 inquiries per month	20 inquiries per month	PayStream Advisors

Make ExFlow Your Automated AP Invoice Processing Solution

Implementing accounts payable (AP) automation will revolutionize and overhaul your accounts payable process, leading to significant efficiency gains, cost savings, and improved supplier relationships. By leveraging advanced technology and best practices, you’ll transform your AP department into a strategic asset for your business in no time at all.

Are you already a Microsoft Dynamics 365 Business Central (BC) or Finance and Operations (F&O) customer? If so, ExFlow AP just might be your ideal AP automation partner.