Voices

Procurement, payments, and AP automation: What’s the difference?

Automation is the top priority of accounting professionals in 2019, according to industry reports. And the reasons are clear: Highly automated accounting — particularly accounts payable — departments process invoices faster, more accurately, with better control and at a lower cost than their peers that have little or no automation.

But that doesn’t mean these benefits are a slam dunk. Many organizations miss out on the full benefits of automation because they pick the wrong technology, or they take the wrong approach to deploying technology. The terms procurement automation, payments automation, and invoice payment or AP automation are sometimes used interchangeably and there seems to be a lack of clarity about how to differentiate the three.

Before starting your automation journey ask yourselves and gain alignment on, “What is the primary goal in automating our accounting workflows?” And from there, determine what the best solution would look like. You may discover that what you actually need is different than what you originally thought. For example, you may think you need to automate your payments only and discover that a complete end-to-end solution is really what will help you achieve their business goals and gain the most efficiency. And sometimes you might actually need a payments only solution.

So, what is the difference between the three?

Procurement automation: Procurement (PO/PR) is the first step in the procure-to-pay (P2P) process. Automated solutions guide employees across the buying process. Another way to refer to it is “spend management.” It is a portal where all vendors and their products are listed in one place, so it is easy to compare prices and any promotional or volume discounts. It also provides comprehensive insight into spending and prevents rogue purchases. This is where this type of automation ends. A dedicated procurement automation solution might require a several months long implementation and considerable IT involvement. It also requires heavy lifting from the vendor, such as entering the PO and generating the invoice. Procurement automation tends to make sense for large, decentralized companies.

Payments automation: While procurement automation (the first step in the (P2P) workflow) automates the buying steps, payments automation (the final step) solves for signing and mailing physical checks. It is an integrated solution that allows organizations to make check, ACH, virtual card, and wire payments, taking automation a step further than “okay-to-pay” once invoices are received, processed, and approved.

Seems simple, right? Not necessarily. In many cases, the payments automation solution is integrated with the P2P or AP automation solution. But in many cases, data capture (powered by optical character recognition, or OCR) and invoice processing is outsourced to a third party using templates.

There is also the matter of logging in and out of different platforms that are not seamlessly integrated. It can get tricky when, for example, a client uses an outsourcer to enter invoices into its payment automation system. From there, the payment is made by a different system and the user must manually download the remittance information and upload it to their ERP (enterprise resource planning). Consequently, the user has to log in and out of three different systems!

AP automation: We reviewed the first and the final steps in the P2P process. What about all the invoice processing steps in between? That’s where accounts payable (AP) automation comes in. There are solution providers that offer a complete end-to-end solution and seamlessly integrate with most ERPs. With that type of sophisticated platform there is one solution and one login.

An example of how the workflow looks with some AP automation providers that offer a complete end-to-end process is: When invoices are received, the system will read (leveraging OCR technology) and code them and decide which workflow they need to follow for approvals. Once invoices are approved they are automatically synced into the ERP or accounting system. The system completely simplifies the payment and export steps (in comparison to the complicated scenario we reviewed in the Payments Automation section above). All of the information is stored in the system and also in the ERP. One login. One set of master data held in the ERP or accounting system. All seamless to the user.

Remember, before jumping right in to talking about the features and benefits from any automation provider you are considering, know what your primary goal is in automating your AP workflow. A good place to start might be to ask yourselves, “What part of my process costs the most time and/or direct expense?” And from there, determine what the best solution would look like.

MORE FROM ACCOUNTING TODAY