How Does Automated Accounts Payable Work?
Automated accounts payable is just like it sounds, with the application automating the tedious, time-consuming parts of AP. The typical AP process includes the following tasks:
- Purchase Order Processing
- Purchase Order Approval
- Invoice Receipt and Distribution
- Three-Way Matching (Invoice, Purchase Order, and Delivery Receipt)
- Invoice Approval (if No Purchase Order)
- Invoice Coding and Data Entry
- Invoice Payment
There are variations in this process. For instance, if your company does not utilize a purchase order system, you’ll only match the invoice with the delivery receipt.
Without a purchase order system in place, you’ll also need to send invoices for approval prior to entering them into your accounting software application.
However, when you add AP automation and AI to your accounts payable department, many of these manual processes are automated.
This process starts with invoice automation, digitizing invoices, and using optical character recognition or OCR technology to extract the information found on the invoice.
By also incorporating the use machine learning, which helps to recognize patterns in invoices, making the OCR invoice data extracted is more accurate.
You can also assign a GL posting code to the invoice line items which will later be recognized when a similar invoice is received.
For example, if you receive an invoice for wood 2×4 panels, you can assign a GL code and the next time you receive a similar invoice from that vendor, the item on the invoice will automatically be posted to the same GL code.
There is also an opportunity to adjust any information that may be read inaccurately.
Because you’ve been able to capture invoice data automatically, you’re eliminating manual data entry and the human errors that go along with it. Errors in financial reporting can prove extremely costly.
But along with data entry, AP automation can also easily handle another time-consuming AP process; invoice matching. For auditing purposes, all incoming invoices should be matched with a corresponding purchase order and shipping receipt.
Depending on the number of invoices your business processes, invoice matching can take a significant amount of time, particularly when a variance is found.
AP automation will automatically match incoming invoices to all supporting documents, flagging those that need to be investigated for potential issues such as duplicate payments.
But perhaps the best part of AP automation is the electronic invoice approval process that will direct invoices to the correct approver or approvers, eliminating lost and misplaced invoices and approval delays.