What is accounts payable (AP) automation?

How accounts payable (AP) automation works

Accounts payable (AP) refer to the money a company owes to suppliers, vendors, or contractors for goods or services that have been received but not yet paid for.

At its core, AP automation involves converting paper invoices into a standard digital format and routing them through a virtual workflow where they are matched with purchase orders and receipts. Payment details are then pre-populated before the AP payments are routed for approval and final processing. When an invoice is approved and paid, the company’s financial records are updated automatically.

This end-to-end process can be broken down into three distinct workflows: invoice management, payment automation, and bank reconciliation. Each of these are covered in more detail below.

Accounts payable automation has been growing in popularity for years—and for good reason. Managing the full AP cycle manually is not only time-consuming but also prone to errors.

Today, most finance departments have at least partially automated their AP process, though pockets of manual work remain. A recent IFOL survey found that 56% of AP teams continue to spend over 10 hours per week on manual invoice processing alone.

Automated invoice management

Invoice automation starts with capturing and scanning an incoming invoice using optical character recognition (OCR). This extracts key data such as supplier details, invoice amounts, and dates, minimizing the need for manual data entry.

If no errors or duplicate invoices are detected, the invoice is then matched with supporting documents, such as purchase orders and shipping receipts, using a process known as three-way PO matching.

The data extracted from a scanned invoice is used to automatically categorize it in the company’s internal records and route it to the relevant people for approval. If a company uses invoice coding, the invoice line items can be recorded and used to automatically update the company’s general ledger chart of accounts.

Payment automation

Once an invoice is approved, the next step is payment. The various methods for processing AP payments are covered in detail above, as well as in our corporate payments guide. The key point here is that direct integration with a company's banks is essential to avoid manual data entry and processing.

When an invoice is ready for payment, the payment reference and counterparty details are automatically pre-populated from the invoice data. In a fully automated process, the correct account would be selected based on the invoice type, and payments would be made in the appropriate currency. Before the payment is sent, additional approvals from the finance team may be required to mitigate potential liquidity risks.

Payment automation tools integrated with a company’s banks allow for payments to be tracked in real time, notifying you of any errors and helping to avoid late payments. Once processed successfully, the payment is reflected in the company’s bank statement, which must then be reconciled with internal records to ensure accuracy.

Bank reconciliation

The final step in AP automation involves the accounting team: bank-ERP reconciliation. In this process, a company’s bank statements are automatically fed into the ERP system on a periodic or real time basis.

The ERP system matches the payment transactions in the company’s records with the corresponding entries in the bank statement, and any discrepancies—such as unrecorded or duplicate payments—are flagged for review. Once the transactions are reconciled, the ERP updates the bank account balances and the AP ledger accordingly.

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Which AP automation software is best?

Broadly speaking, there are three types of systems that enable full or partial AP process automation: ERP systems, standalone AP software, and accounting software.

Most ERP systems, like SAP S/4HANA, Oracle NetSuite, and Microsoft Dynamics 365, offer modules for AP and invoice processing. The main benefit is that everything is centralized in one system. Unless the ERP has been directly integrated with the company’s banks, manual file uploads and data entry will still be required to process payments.

It’s important to note that none of these systems support a fully automated AP cycle in isolation. AP and accounting software need to be integrated with a company’s ERP system, and ERP systems in turn require direct bank integrations in order to support automated payment processing and reconciliation.

A general rule of thumb is that ERP systems are well-suited for larger organizations with more complex needs, while accounting software is geared towards small to medium-sized businesses that need basic AP and accounting functionality. Companies with a high volume of AP payments often choose to use standalone AP software in addition to their ERP or accounting system.

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How Atlar can help with AP payments

Atlar enables companies to process AP payments from inside their ERP, such as NetSuite or Dynamics 365, and send these for payment in bulk through Atlar to their banking partners. This lets companies automate AP processes at scale with full bank-ERP syncing and a high degree of internal control.

Using a treasury platform like Atlar with robust user management features, full audit trails, and built-in approval chains can help companies oversee AP payments from one central dashboard, enabling teams to collaborate securely and efficiently when it comes to AP payments. For more information, visit our feature page dedicated to accounts payable.