Growth, profit and your company’s longevity all depend on how you pay and get paid. Accounts payable is one important half of this cash flow equation. If you can consistently pay your suppliers on time, and without too much hassle, you’ll have more time, energy and focus to spend on bringing in new business.

In this complete guide, we explore everything SMB owners, finance teams and accounting firms need to know about AP automation, from what it is and how it benefits businesses to what to look for in an AP automation solution.

What is accounts payable (AP)?

Before we dig into the automation side of things, let’s nail down what accounts payable (AP) is. 

Accounts payable is a term used primarily by accountants to gauge what your business owes to suppliers. Accounts payable is considered a liability on your company’s balance sheet. It’s essentially a loan that hasn’t been repaid yet. 

This is almost always made up of supplier invoices, where you’ve received goods or services on credit but haven’t yet paid.

‘Money out’ is a simple way of defining AP.  

AP is often contrasted (and confused) with accounts receivable (AR). Account receivable is the outstanding amounts owed to you by customers – ‘money in’.

What is accounts payable automation and why is it so important?

Managing AP is a repetitive, often predictable process. This makes it ripe for automation. Any process that involves lots of human time and manual data manipulation should be at the top of your list to upgrade with modern technology.

Accounts payable automation is a combination of policies, processes and tools that automate and optimise accounts payable in your business. More simply, it’s a way to streamline and optimise your supplier payments. 

Most AP automation solutions will include:

• Invoice submission (and digitising documents)

• Approval flows to ensure that every payment is validated

• Ways to spot duplicates and avoid basic human errors

• Built-in steps payment terms and contractual arrangements

• Stored supplier details

  
  

7 drawbacks of traditional, manual AP processing

If you’ve not made the most of AP automation yet, you’re not alone – many companies still rely on traditional, human-powered processes to manage and pay their invoices. 

But there are consequences to sticking to the status quo…

The larger your business grows, the more invoices you’ll have and the more people-hours it will take to submit, review and approve them. 

This invariably leads to the following issues:

1. Wasted time. Manual invoice management doesn’t scale - the more invoices you have, the longer it takes to process and pay them.

2. Reduced profits. Time is money, after all. Manual, people-led processes are costly and ultimately result in smaller profit margins.
   
   

3. Lots of errors. Manual data entry always leads to mistakes. Basic typos and duplicate invoices are common human errors that can lead to missed payments, which bring penalties or interest that eat into profits.
   
   

4. Accountants become police. Errors and unclear approval processes demand detective work from those processing and paying invoices - usually accountants and financial controllers. These are highly qualified, often well-paid team members or outsourced services. They should be adding value, not chasing down basic information and disciplining repeat offenders. This is particularly frustrating for accounting firms dealing with dozens of clients – simple errors and missing documents from one company can interrupt the work of all.

5. Lack of real-time data. Most company finance processes have a monthly rhythm – you process and pay invoices towards the end of the month, then close the books and build reports in the coming weeks. This means you have no idea how much is committed or paid until the month is over. And when cash management is at a premium, it can be too late to make the decisions your business needs.
   
   

6. Limited control over cash flow. Companies with delays in their AP processes have much less control over their cash flow. You may not realise that you’ve overcommitted until it’s too late.
   
   

7. No overview of the full cash conversion cycle. Money in and money out need to work hand in hand. With manual AP and AR processes, it’s very hard to connect one to the other to see the bigger cash picture. 

   
   

7 benefits of accounts payable automation

Naturally, the benefits of AP automation respond directly to the key challenges we’ve just outlined. 

When used well, accounts payable automation:

1. Saves time. By simply removing data entry from the equation, you’re already saving countless hours. In addition to this, you also save time on reviews, approvals and the actual payment runs themselves. The difference is night and day.
   
   

2. Scales easily. As you go from processing 10 invoices per month to 100, you don’t need 10x the time and people-power. AP automation software can process huge swathes of invoices almost instantly. This is even more apparent for accountants working with a portfolio of companies. You can easily serve more clients and deliver a more strategic, tailored service when you’re not spending precious time on the small stuff.
   
   

3. Reduces errors. Tedious processes inevitably lead to human error. But machines can repeat steps over and over again without fault.
   
   

4. Helps you go digital. Digitisation is vital for companies that want to be more efficient and effective. By prioritising automation, you’re forced to modernise – which is a great thing!
   
   

5. Keeps you on-policy. Team members struggle to remember and follow internal rules. Good software walks them through each step and ensures every invoice meets your internal rules and requirements.
   
   

6. Shifts resources towards adding value. When you remove manual admin and tasks from your teams’ workloads, they can focus on higher-value tasks and help drive growth.
   
   

7. Maximises working capital. All of your invoices will have different payment terms. Some even have early payment discounts, while others have costly penalties for delays. Automation lets you schedule every payment for the perfect moment, so you get the most out of your hard-won cash. 

In a nutshell, AP automation enables you to work with more efficiency, keep costs down, reduce errors and scale your business without annoying admin snags and holdups. 

What to look for in an accounts payable automation solution

Accounts payable automation should bring you two key wins:

1. More efficiency (with less admin)

2. Greater visibility over supplier spending.

Together, these keep you focused on the ultimate goal of building and running a successful small business. 

So when you build your automated AP process, what are the must-haves? 

Invoice capture and data extraction

If AP automation gets you away from physical filing cabinets, that’s a good start. But beyond simply storing invoices digitally, it’s even more impactful to avoid the data entry step altogether.

Look for AP tools with OCR software built in. OCR software reads a PDF or JPG file and extracts all the data you need. This means instant invoice capture and none of the basic errors that come with data entry. 

Approval workflows

While almost anyone in the business can request or receive an invoice, not everyone has the right to approve it. Good tools let you build an approval hierarchy to ensure that when a team member submits an invoice for payment, the budget manager (or an executive) validates it. 

Crucially, this process should be fast and native to the system. Rather than sending emails or walking down the hall for a “quick chat”, the manager should receive a notification and be able to approve without any conversation required. 

Direct electronic payments

The typical “bank run” adds days to the AP process, particularly once you factor in weekends and public holidays. When these cause you to miss payment due dates and incur fees, that’s a real issue.

The best accounts payable software lets you pay directly from the platform. There’s no need to open your banking app or even find the company credit card. Instead, you have a “wallet” loaded with funds (reloading can be automated too) from which to pay. You can even hold wallets in different currencies to pay international suppliers.

Instant reconciliations

Because good tools let you pay directly, there’s also no need to reconcile payments against your bank account. The software has both the invoice (with the amount requested) and a log of the actual amount paid. 

This saves even more time at the end of the month. You simply export the information to your accounting tools and the job’s done.

Integrations with your other tools

Whether you have a complex and comprehensive finance tool stack or just a few essentials, they must work well together. This could be through native integrations or well-built data exports. 

Thankfully, most good AP tools are built with this in mind. They should easily communicate with your accounting software (or ERP), business intelligence and performance tools, budgeting software and anything else you rely on to manage your finances. 

Real-time visibility and reporting

It’s nearly impossible to master your cash flow if you only get reports at the end of the month. Within a week or two, you have no idea how much more has been committed to suppliers or when those payments are due to be made. 

The beauty of automation software is that it stays up-to-date. As soon as an invoice is submitted for approval, you can instantly update budgets and revise forecasts to then take real action. At the very least, you can step in immediately if a particular invoice seems likely to cause an issue. This is also a great value add for accounting firms – you can be more responsive and reactive to your clients, without any additional work.

Automate your AP processes, simply

Mimo was built to tackle the inadequacies of traditional AP management. 

Our accounts payable solutions, Mimo Pay, provide everything you and your teams need to automate and optimise your AP processes, take control of your cash flow and spend more time focussing on growing your business. 

With Mimo’s powerful automation tools, you can:

• Save up to 1 day a week with super-fast invoice payments

• Pay international suppliers (and employees) effortlessly

• Enjoy flexible payment terms that suit you

• Easily set up approval flows for optimal cross-team collaboration

• Seamlessly sync with your accounting platform

Want more Mimo magic? Check out Mimo Pay and take your financial processes to the next level.