Unlocking the 3 Biggest Benefits of Automating Accounts Payable

There’s a time and a place for doing things by hand. But as the first quarter of the 21st century comes to a close, that time and place shouldn’t be a firm’s back office.

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Yet from tedious invoice processing to fragmented financial tech stacks, the inefficiencies of manual and paper-based accounting systems have, for decades beyond their expiration date, hampered organizational productivity and left businesses of all sizes vulnerable to opaque cash flow bottlenecks and even security breaches.

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And while there’s an old saying about accounts payable (AP) that goes along the lines of, as long as it works, people don’t want to see any changes; there’s also a better way of doing business, by embracing automation.

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Manual accounts payable processes are notorious for being slow, prone to human error, and above all resource intensive. The paper trail involved in processing invoices, issuing checks, and maintaining vendor relationships often leads to delays, lost documents, and miscommunication.

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Further complicating the situation is the widespread reliance on disparate technology solutions, which only amplifies inefficiencies. As companies grow, they often integrate software in an ad hoc manner, leading to a patchwork of systems that don’t communicate well with one another. Close to 60% of large businesses — those bringing in $10 billion to $20 billion in revenues per year — utilize five or more different AP systems.

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In response, PYMNTS Intelligence finds, many companies are turning to AP automation not only as a solution to streamline operations but also to enhance financial visibility and security. For those businesses still relying on outdated methods, the question isn’t whether to automate, but how quickly they can make the transition to remain competitive in an increasingly digital business environment.
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Read more: Automating Accounts Payable for Cost Savings

Boosting Productivity, Security and Cash Flow

AP automation promises significant advantages, but three key benefits stand out: enhanced productivity, improved security and better cash flow management. Each of these benefits has a substantial impact on the overall operations and financial health of an organization.

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After all, the inefficiency of manual payment processes become unavoidably clear when they are scaled across a company that may be processing thousands of invoices per month. Delays due to legacy systems can lead to missed early payment discounts, late payment penalties, and ultimately result in strained supplier relationships.

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Data show the average enterprise receives half of its invoices on paper, with nearly 4 in 10 (38%) of payments being made manually. Against this backdrop, over a third of firms (36%) cite automating their AP function as a key priority.

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“There are a lot of changes happening across a lot of outdated or antiquated industries. We’re in a good space right now to see a lot of change,” Priority Head of Commercial Court Toomey told PYMNTS. “It’s ironic that one of the areas for most companies that is the most outdated are their financial tools, when just a small investment from that same team can go a long way in improving efficiency and also cost savings.”

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AP automation reduces the time spent on mundane, repetitive tasks such as data entry and invoice verification. Instead, machine learning and artificial intelligence (AI) tools can extract data from invoices and automatically match it with purchase orders. This shift allows finance teams to reallocate their time to higher-value activities like financial analysis, forecasting and strategic planning; while the speed at which invoices are processed enables companies to capitalize on early payment discounts, leading to cost savings that directly impact the bottom line.

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See also: 4 Questions for CFOs About AP and AR Automation

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Paper Processes Belong in the Past

Manual processes also expose companies to a variety of fraud risks, including invoice duplication, payment fraud, and vendor impersonation. Paper-based systems make it difficult to implement stringent security controls, and fragmented tech stacks may not offer the necessary safeguards to prevent breaches.

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“A lot of fraud is in the checks. If you cut out checks, you cut 60% of fraud right there,” Ernest Rolfson, founder and CEO of Finexio, told PYMNTS.

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By contrast, AP automation tools typically come equipped with features such as multi-factor authentication, audit trails and fraud detection algorithms. These advanced security measures not only prevent unauthorized access but also provide finance teams with clear visibility into every step of the payment process. With a detailed digital record of approvals and transactions, businesses can easily track anomalies and suspicious activities, enhancing overall financial security.

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And one of the biggest and most important advantages of AP automation is its impact on cash flow. By accelerating the invoice-to-payment cycle, businesses gain better control over their cash outflows, allowing for more precise cash flow forecasting. Automation tools often provide real-time data on outstanding payables and liabilities, enabling CFOs to make informed decisions about spending, liquidity, and working capital.

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Companies that have adopted AP automation also find it easier to align their payment terms with cash flow priorities. For instance, they can strategically delay payments to preserve cash or take advantage of early payment discounts when cash reserves are abundant. This flexibility allows finance teams to optimize their financial strategies based on real-time data, leading to healthier cash flow.

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“The inflexibility of traditional systems and platforms have prevented lots of companies from moving forward and keeping up,” Boost Payment Solutions Chief Operating Officer Illya Shell told PYMNTS.

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That’s why, as companies continue to seek out ways to streamline their operations, it’s becoming increasingly clear that AP automation will play a central role in shaping the future of finance. Ultimately, in a rapidly changing technological landscape, AP automation is more than a trend — it’s an imperative for businesses looking to remain agile and competitive.

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Originally posted on PYMNTS |  September 3, 2024