The Benefits of Accounts Payable (AP) Automation

Benefits of AP Automation

Modern, automated accounts payable (AP) systems are far smoother, more efficient and more environmentally friendly than traditional manual processes.

The days of manual AP operations are numbered. Paper invoices are more costly to maintain and need to be processed by office-based staff. They increase the risk of serious errors and make compliance with the Data Protection Act (2018) and other data protection laws more difficult.

Here we explore what AP automation technology is and how it can benefit your business.

What is Accounts Payable Automation?

AP automation (1)

Accounts payable (AP) automation reduces manual processing and human intervention throughout the invoice management lifecycle. Automating accounts payable is done digitally through a specific type of software that allows for.

Software that specialises in data capture and extraction such as OCR (Optical Character Recognition) can pull invoices into one digital dashboard, where within minutes of an invoice being received, a finance assistant can quickly review, make any notes and process the invoice.

Benefits of AP Automation

Aside from the instant ability to digitalise the invoice process, speeding up the lifecycle of paying and receiving payment for invoices, AP automation has many other benefits for businesses.

1. Increased Invoice Visibility

Many staff in the construction industry work on sites or on small projects away from the head office and having visibility on where each invoice is can be tricky if they’re all on paper. With a digital and automated system, invoices can be tracked and applied against jobs, employees or teams without the need for major human intervention.

This creates a simple and effective process for finance and reporting teams, who can quickly chase and report on individual accounts.

Not only does increased invoice visibility make chasing invoices easier, but it also makes it easier to understand the profitability of individual jobs and sites.

2. Fewer Errors

Invoice errors are costly, both in terms of monetary value and the hours spent putting them right. They also put a company’s brand reputation and trustworthiness at risk. While a single, simple error may be easy to forgive, large-scale problems and multiple errors could set the alarm bells ringing.

With automated AP, invoices are scanned and processed digitally through a data capture service, such as an OCR reader. This picks up the data in the document and tracks it into the relevant fields in your invoice software, instantly reducing the risk of manual input error.

By using an automated process, you also have greater visibility through an audit trail of change, which allows for easier problem identification if questions are raised and/or errors occur.

3. Less Paperwork

Switching from paper to digital invoices can clear paperwork from desks and cabinets and remove the need to store archived paperwork offsite. It’s a greener solution and one that contributes to overall sustainability goals.

This also benefits security as invoices stored on software that is password protected ensure that your payment process is not susceptible to theft or accidental loss of information.

4. Less Time Spent on Manual Processing

Where before invoices would have been posted and data had to be manually entered into a ledger or accounts payable book, then the introduction of computer systems meant that data needed to be entered by hand into a spreadsheet or other program. In today’s modern world, this task simply isn’t required anymore, as we now have technology that can easily replace these processes.

Automated AP software makes it instantly much simpler to process invoices, as the data capture software can pick up the data from an invoice and transpose it in a matter of minutes to your AP software.

5. Efficient Processes & Approvals

While most organisations will have a thorough approvals process, it is often reliant on the printing and stamping of a paper document. This approach is a costly and time-consuming process and can leave invoices missed accidentally.

By using AP automation software, those who have the authority to approve can simply log in and approve invoices in their own time, which creates a much more efficient and asynchronous process. It also means that finance managers can chase approvals with ease, even if they are not working in the office.

6. Improved Supplier Relations

When working in construction, it’s often the little things that matter, such as quick and user-friendly, branded invoices that are branded, as well as an easy way to see the status of a particular invoice easily; and having fast access to a complete audit trail.

7. Ease of Auditing and Reporting

Whether for HMRC purposes or your own company financial reporting, paper invoices can create a hassle when it comes to end-of-year or tax-period reporting. Invoice digitalisation simplifies these and other tasks, such as finding and auditing individual invoices. It also makes you compliant with Making Tax Digital if you are VAT registered, as you can submit returns through your software if your AP software is MTD registered.

8. Reduced Cost per Invoice

The average cost of processing an invoice manually is estimated to be between £4 and £25 with certain complex or error-prone processes costing up to £50 per invoice, according to research from the Hackett Group and Gartner.

Complex and error-prone processes are often manual ones, that require human entry and filing, rather than a fully digitalised and automated process.

With an AP system, there is a much lower cost per invoice, as there is a reduced risk of error and reduced manual intervention.

9. Better Cash Flow

ROI of automation

Being able to send and receive invoices in a matter of days rather than weeks is a huge benefit, especially when it comes to improving your workflow.

One of our Invoice Register customers said: “We are a mainly zero-rated business, so are now able to submit and apply for our sizeable VAT refunds a good 10 days earlier than previously. This is good news for our cash flow because generally the funding is agreed before the point when we would previously have closed off the month-end costs!”

Understanding the ROI of Automated Accounts Payable (AP) Software

The ROI (Return on Investment) of implementing a software change is harder to track, as it isn’t always tangible. However, the immediate time savings begin to add up, enabling you to invest more people hours into critical thinking tasks rather than data entry.

The Financial ROI of AP Automation

With automated AP, you greatly reduce the risk of errors, which in turn, reduces the risk of fines and losses due to data entry errors or late payments. In a Qvalia report – The hidden cost of invoice errors in the Nordics 2020 businesses, it was estimated that 31 days were lost on correcting errors, and 0.44 euros were lost per every purchase invoice.

Similarly, it’s estimated that one accounts admin can only process 1,000 invoices per month for simple invoices and with no errors. This number is relatively small for most large businesses, especially those in construction who need to contend with contractors, subcontractors, goods received and services to the site.

With automated AP you could in theory process a limitless number of invoices a month.

The Non-Financial ROI of AP Automation

When it comes to the intangible and non-financial ROI you get from using an automated AP solution, there are three core areas, scalability, control and timelines.

Scalability is an intangible ROI, but one that can be felt financially eventually. With hours of time no longer spent on manually processing invoices and accounts, you can do more with every working hour, which allows you to make forward-looking improvements, rather than being stuck in the maintenance mode of your business. This means you can take more jobs on and allow your construction teams to have confidence in your financial team’s ability to handle complex tasks.

Then, there’s the control over the process. With greater visibility and insight into your AP department, you can create cost savings, further automation and smoother processes.

Finally, with a fully automated AP process, you get faster timelines, which means faster payments and ultimately a stronger cash flow and faster VAT rebates. In construction, where a lot of invoices end up being zero-rated, being able to process them quickly means you can get your tax refunds quicker.

RedSky ​​AP Automation Software & Construction Accounting Software

With RedSky, you can automate your AP through our Invoice Register, and integrate it with your wider construction financial software in a simple setup.

We offer demonstrations so you can understand how our software could help streamline your construction company.

Request a Demo