Automating Your Accounts Payable (AP) Strategy

What is AP automation and how can it transform businesses?

AP automation uses technology to streamline and digitize the entire purchasing process from purchase order through payment. It integrates with an organization’s enterprise resource planning (ERP) and accounting systems, plus communicates with vendors to create a smooth payables experience with predictable workflows and alerts.

What makes AP automation different from integrated payables? AP automation starts from the moment you receive a bill or purchase order. By comparison, integrated payables solutions are specifically for payment processing and may be a better fit for companies with solutions that already have a satisfactory solution to handle invoices.

AP automation isn’t one-size-fits-all. However, a good solution should serve a wide range of industries. You’ll find it being used in governments, retailers, nonprofit organizations, manufacturers, construction companies and more.

The benefits of AP automation include:

• Improved cash flow
• Lower labor and processing costs
• Faster payment processing
• Fewer fees and penalties for late payments
• Discounts for early payments
• Reduced errors
• Fraud prevention
• Payment optimization

Dispelling common AP automation myths

Our Elan and PaperTrl presenters shared some of the reasons businesses often hesitate to implement a payables automation solution and why there’s no call for concern.

• Myth: “Automation means giving up control of my payments.”
  • Reality: The right solution gives you plenty of control over your payments, such as workflows, alerts and permission levels that you can enable.
• Myth: “I don’t want to change my banking information.”
  • Reality: You don’t have to change banks or accounts to implement AP automation.
• Myth: “My accounting/ERP system is too outdated or unique to integrate with another solution.”
  • Reality: Despite what your software vendor may have told you, you’re not locked into one payment solution forever. A strong AP automation solution will work with a wide range of systems via live synchronization or file-based integration.
• Myth: “AP automation takes months to implement.”
  • Reality: Even a complicated implementation with thorough business process planning and vendor data cleanup can be completed in 10 to 12 weeks.
• Myth: “We don’t have time to contact our vendors.”
  • Reality: Your provider can perform this service for you and go as far as to move vendors over to more favorable payment methods.
• Myth: “Our vendors won’t switch to card or ACH.”
  • Reality: Around 15% to 20% of vendors will accept virtual cards, and 55% to 60% will accept ACH payments—especially if they’re offered attractive payment terms.

Choosing an AP automation solution

Once your business has chosen to move forward with AP automation, it’s crucial to carefully consider your options. Characteristics of a winning solution can be clustered around three core pillars: control, security and adaptability.

Your chosen solution should give your business greater control over your payments compared to using paper, email or your ERP alone. You dictate when payments are made, what payment methods are used and how you bank, including maintaining custody of your funds. Administrators choose who has access to certain parts of the system and can define workflows that enforce standard operating procedures and existing approval processes.

Your AP automation solution should be secure, protecting your funds and financial data as well as your vendors’ data. Fraud protection for check payments (positive pay) is a must. Role-based access and dual approval for releasing payments improve internal security, while a secure vendor data portal reduces the threat of external phishing attacks. End-to-end audit trails for every transaction increase visibility and prepare you for your next audit. For both security and bottom-line benefits, look for a provider that supports virtual card payments.

Although it’s tempting to spring for flashy, day-one capabilities, consider an adaptable solution that’s flexible enough to fit your business long-term as well. It should support your current ERP system, as well as any future systems. The ability to add custom fields, workflows and alerts allows you to form the solution to your needs. Support for multiple banks and seamless scalability are important as your business expands and considers potential mergers. All told, think of your AP automation purchase as a 10- to 15-year decision.

Moving vendors to more favorable payment methods

Any payables transformation starts with a vendor analysis, which shows how you pay each of your vendors now—and helps your partners build a new payables strategy.

Your AP automation provider can help with an important part of transforming your payables setup: payment optimization. When contacting your vendors, your provider can move these vendors over to payment methods that offer your business savings opportunities, as well as fraud protection.

The most favorable payment method for you is virtual card. ACH is another good option for vendors who are unable to accept card payments. Both methods are more secure and faster to process than checks.

Virtual cards offer the typical benefits of paying by traditional credit card, like free float and opportunities to earn rebates. In addition, this single-use digital payment method has nearly eliminated the threat of fraud.

While some vendors may resist switching away from check, they can be enticed by better payment terms. For example, your automation partner might suggest offering net 15 for virtual card and net 30 for ACH. (A virtual card bonus: money won’t leave your account until your card statement is due.)

Ready to optimize your AP strategy?

Our Associated Bank Treasury Management team can help your organization create a more efficient, secure account payables process. Get in touch at Treasury@AssociatedBank.com to learn more or request a vendor analysis.