The A-Z guide of Accounts Payable Automation

Accounts payable (AP) automation is a rapidly growing trend in the business world, driven by the need for greater efficiency, accuracy, and compliance. AP automation involves using technology-based solutions to streamline the AP process, reducing the manual effort, errors, and time spent on invoice processing, payment approvals, and related tasks.

The benefits of AP automation are significant. By automating many of the manual processes involved in the AP process, businesses can increase efficiency, reduce errors, and improve compliance with internal controls and external regulations. In addition, AP automation provides better visibility into the AP process, enabling businesses to make more informed decisions and optimise their AP process.

Here is an A-Z guide of some of the most common terms used in accounts payable automation:

A - Artificial intelligence (AI) is an increasingly important component of accounts payable automation. AI technology uses machine learning algorithms to analyse data and make decisions based on that analysis. In Accounts Payable automation, AI can be used to automate many of the manual processes involved in invoice processing, payment approvals, and related tasks.

B - Business rules can be used to automate many of the manual processes involved in the AP process. For example, a business rule might specify the invoice approval workflow based on the invoice amount or the vendor's location. Automated workflow tools can then use these business rules to route invoices to the appropriate approver, reducing the time spent waiting for approval and improving the efficiency of the AP process.

C - Cloud-based technology is an increasingly popular option for AP automation. Cloud-based AP automation solutions provide businesses with a scalable, flexible, and cost-effective way to streamline the AP process without requiring extensive IT infrastructure.

D - Digital invoice processing is a critical component of accounts payable automation. Digital invoice processing uses technology to streamline the invoicing process, reduce the need for manual data entry, improve accuracy, and speed up the payment cycle.

E - E-invoicing, or electronic invoicing, sends and receives invoices electronically rather than on paper. E-invoicing is an essential component of accounts payable (AP) automation, as it can help businesses streamline the invoicing process, reduce errors, and improve efficiency.

F - Fraud detection is an essential component of accounts payable automation. Fraud detection tools use advanced analytics and machine learning algorithms to identify patterns and anomalies in AP data, flagging potential instances of fraud or other financial irregularities.

G - General Ledger (GL) is a core accounting component in accounts payable automation. The GL is a comprehensive record of a company's financial transactions, organised by version and date. In AP automation, the GL is typically integrated with the AP system, allowing for the automatic recording of transactions in real time. This integration can help businesses streamline their accounting processes, reducing the time and effort required for manual data entry and reconciliation.

H - Hosted solutions provide greater accessibility, as users can access the system anywhere with an internet connection. This can be particularly beneficial for businesses with remote or distributed teams, as it allows users to access the AP system anywhere, anytime.

I - An invoice approval workflow is critical to accounts payable automation. An invoice approval workflow is a series of steps that an invoice goes through before it is approved for payment. The invoice approval workflow is typically automated in AP automation, using a software platform that allows businesses to define and customise their approval process. The workflow may include multiple steps, such as the initial receipt and validation of the invoice, review and approval by one or more approvers, and final payment processing.

J - Journal entries are a key accounting component in accounts payable automation. Journal entries are used to record financial transactions, such as purchasing goods or services on credit, receiving invoices, or paying bills. In AP automation, the AP system automatically generates journal entries based on the data captured during invoice processing and payment. The journal entries record the accounts payable transactions, such as the amount owed, the vendor name, and the payment date.

K - Key Performance Indicators (KPIs) are a set of quantifiable metrics used to measure and track the performance of a business process or operation. In accounts payable (AP) automation, KPI tracking is critical to optimising the AP process and ensuring it meets the organisation's goals and objectives. Some common KPIs used in AP automation include invoice processing time, invoice accuracy, vendor payment history and cost per invoice.

L - Line-item matching is critical to accounts payable automation. It is a process in which individual line items on an invoice are compared to corresponding purchase order (PO) data or receiving information to ensure the invoice is accurate and valid. Line-item matching helps to ensure that the invoice matches the PO, reducing the risk of errors and fraud. It also helps to improve the accuracy and efficiency of the AP process by automating the matching process, reducing the need for manual intervention and reducing the time required to process invoices.

M - Multi-entity in AP automation refers to managing accounts payable processes for multiple entities or subsidiaries within a single organisation. It involves processing invoices, payments, and vendor management for each entity or subsidiary while ensuring compliance with regulatory and accounting requirements for each.

N - Net terms in AP automation refer to the payment terms agreed upon between a buyer and a supplier for purchasing goods or services. Net terms specify the amount of time a buyer has to pay an invoice after the goods or services have been delivered, and they can impact the buyer's and supplier's cash flow.

O - Optical Character Recognition (OCR) is a technology used in accounts payable automation to extract data from scanned or digital invoices. OCR technology is used to convert images of text, such as on invoices or receipts, into machine-readable text that can be processed by AP automation software. OCR technology is a critical component of digital invoice processing in AP automation. Using OCR technology, businesses can capture and digitise invoice data, including vendor information, invoice numbers, dates, line item details, and other relevant data. This allows companies to automate invoice processing workflows, such as matching invoices to purchase orders, receiving information, and streamlining payment processing.

P - Payment automation in accounts payable automation refers to using technology and software to automate the process of paying suppliers and vendors. Payment automation can streamline the entire process, from invoice receipt to payment execution, by eliminating manual tasks and improving efficiency.

Q - Query management in accounts payable automation refers to managing and resolving queries or issues related to invoices and payments. Query management involves identifying and resolving discrepancies or exceptions that may arise during the AP process, such as incorrect invoice information, disputed charges, or missing approvals.

R - Reporting and analytics can provide businesses valuable information on KPIs such as invoice processing times, payment accuracy, and supplier performance. AP automation software typically includes reporting and analytics features that allow companies to generate customised reports and dashboards, providing visibility into the entire AP process. This enables businesses to identify areas for improvement and make data-driven decisions to optimise their AP process. Reporting and analytics can also monitor compliance and identify potential fraud or errors. Businesses can detect anomalies and take appropriate actions to prevent or mitigate risk by analysing data on invoice and payment activity.

S - Student Management System (SMS) integration in accounts payable automation refers to integrating AP automation software with an SMS to streamline the payment process for educational institutions. Educational institutions often have unique AP requirements, including managing many suppliers and invoices for expenses such as textbooks, classroom supplies, and vendor services. By integrating AP automation software with SMS, educational institutions can automate invoice processing and payment workflows, reducing the time and resources required to manage the payment process.

T - Three-way matching is used in accounts payable automation to ensure an invoice matches the purchase order and the receiving information for a specific transaction. It is a critical control mechanism used to ensure the payment process's accuracy and prevent overpayment or payment errors.

U - A user-friendly interface in accounts payable automation refers to the design and functionality of the AP automation software that makes it easy for users to interact with the system. A user-friendly interface is intuitive, visually appealing, and easy to navigate, providing users with a positive experience when using the software.

V - Vendor management in accounts payable automation refers to managing and maintaining relationships with suppliers and vendors involved in the AP process. Effective vendor management is critical to ensuring the AP process's accuracy and efficiency and can significantly impact an organisation's bottom line.

W - Workflow automation in accounts payable automation refers to using technology to automate and streamline the AP process. Workflow automation replaces manual, paper-based processes with automated workflows that electronically route invoices, purchase orders, and other relevant documents between stakeholders.

X - Xero and other cloud-based accounting software can be integrated into accounts payable automation software to enhance automation capabilities. By integrating finance software with the AP system, businesses can streamline their invoice processing and payment workflows, reducing the time and resources required to manage the payment process.

Y - Year-end close is finalising an organisation's financial records at the end of the fiscal year. Accounts payable (AP) automation can streamline the year-end close process by automating critical tasks, reducing manual errors and saving time.

Z - Zero-based budgeting (ZBB) is a technique that requires organisations to justify every expense from scratch as if it were a new expenditure. ZBB can be integrated with accounts payable automation to help businesses identify unnecessary expenses and make informed budgeting decisions.

In conclusion, accounts payable automation is vital to modern financial management, streamlining the process and increasing efficiency. Understanding the terms and concepts related to accounts payable automation can benefit anyone in the field. It's always a good idea to keep learning and expanding your knowledge in this area to maximise the benefits of automation.

Interested in learning more about Accounts Payable Automation? Check out our guide on the 7 Reasons to Automate your Accounts Payable Processes.

‍