What is accounts payable (AP) automation, and why’s everyone talking about it? You’re in the right place to find out! Here we’ll go over the benefits it has for finance departments and for a workforce that is increasingly remote — and it’s all in this handy guide. Jump forward to what interests you via the table of contents or start from the beginning and get all the good stuff.
AP automation is complicated to explain. To make it simple, consider first what accounts payable is.
Accounts payable is the portion of a finance department that handles paying vendors and sellers for the received goods and services. If you looked for accounts payable on your balance sheet, it would be on the incoming side.
The definition of accounts payable is: invoices from suppliers you haven’t paid yet.
From a cash flow standpoint, this is great. You are getting a free loan from your supplier — they deliver goods or services to you, and you don’t have to pay for them in cash right away.
Next, we’ll tackle ‘automation’.
Automation can mean different things, to different people, to different industries. In the modern AP world, it means moving away from manual workflows and paper payment processes. Instead of paying your vendors via paper checks, automation enables you to process and approve payments electronically from wherever you are.
It’s a game-changer you can’t afford to miss out on.
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That’s a sizeable portion of businesses that are still using antiquated payment processes. One possible reason? People, and businesses, are hesitant to fix what isn’t broken.
Of course, that only lasts as long as that premise remains true.
What Do Accounts Payable Departments Do?
Simply put, accounts payable is the department that ensures your bills (i.e. invoices) are paid in-full and on-time.
Common day-to-day tasks can include hours of scanning and entering invoices into relevant systems and printing and signing checks for mailing.
The tasks above are often manual and bogged down with paper — making for convoluted processes. It is a broken process with plenty of room for advancement and improvement. For instance, paper-based AP processes cost businesses hundreds of billions of dollar per year.
Reducing the use of paper invoices and checks would have an enormous impact on AP departments.
No doubt you’re already aware of some of them.
The parts of the payment system and processes that are needlessly tedious. The tasks that often leave your finance staff frustrated and unmotivated.
Accounts payable departments waste a lot of time and energy on tasks that would be better off automated. The digitization journey for AP is an essential undertaking for companies looking to stay competitive.
4 Friction Points in Accounts Payable
Have you heard the saying: “efficiency is doing things right, effectiveness is doing the right things”? Various versions of this saying abound in corporate settings, but we all know what it means. There are efficient ways to file paperwork or to type data into systems. But is it effective to spend time on those tasks?
The answer is ‘no’. Automated accounting processes would remove these tasks from your team’s to-do list, allowing them to focus on increasing their effectiveness by working on the right tasks that benefit from their time.
Without further ado, lets dive into what these friction points are:
I. Time Wasters
Time management is the foundation of creating an effective business. Accounts Payable departments are among the most burdened, as too much time is spent on manual tasks.
Recent studies have estimated that 25% of the average workweek is devoted to manual tasks. By automating easy aspects of business invoicing and payments, employees would be free to focus on more meaningful tasks.
25% of a standard 40 hour work week, roughly equates to 10 total weekly hours per employee spent on manual tasks. That math, those 10 hours per week, would add up to a significant amount of time. Automation allows you to allocate that time to better purposes.
This is good for the department and for your staff. High-value tasks have a mental pay-off that low-value ones do not. Empowering your team to do more worthwhile work will help prevent burnout and keep their morale up.