(This column originally appeared in The Inquirer)
By automating how bills are paid, many small business owners are finding out that they can reduce their overhead expenses, which is critical in these times of sticky inflation and rising costs.
I know what you’re thinking: accounts payable? What a boring topic!
But here’s what’s not boring: by automating how bills are paid, many small business owners are finding out that they can reduce their overhead expenses, which is critical in these times of sticky inflation and rising costs. The idea of automating accounts payable for businesses of all sizes is catching on too. Recent reports show that the global accounts payable automation market will increase to as much as $5.3 billion by 2028, an annual growth rate of 11.3%.
What is accounts payable automation?
In short, it’s removing humans from the process of receiving and paying vendor invoices, and there are a number of technology platforms using artificial intelligence like Ramp, Bill, Expensify and AvidXchange that do this. Pricing and services are very different depending on the platform you choose. For example, Ramp – which recently raised $300 million and has been valued at close to $6 billion – offers many of its services for free, relying on credit card transactions for its revenues. Bill charges as much as $55 per user per month depending on the level of integration and customization required.
How does accounts payable automation work?
Instead of mailing an invoice, a vendor – or an employee – emails it to a pre-established address. Or an invoice can be scanned by a mobile device using an app or in some cases texted. Using a technology called Optical Character Recognition, the details from the invoice are extracted from the message or image, analyzed with AI and imported. Payment details are set up in advance so, depending on the vendor terms, a credit card, electronic check or ACH payment can be scheduled. As the applications get smarter with more transactions, each invoice is coded for accounting and then synchronized into a company’s accounting system like QuickBooks, Sage or Xero.
Automating accounts payable can bring your business many benefits. Once set up, the system can significantly reduce data input errors, improve accuracy and process your payables faster. It can be used to better forecast and manage a company’s cash flow. Fraud is reduced because transactions are only coming from a known source and are less likely to be tampered with by a human. Less work is needed by accounting staff which means their hours can be directed towards more productive activities, or even eliminated. Reporting and analytics can identify spending trends to make better decisions.
“We’ve saved our customers over $600 million and 8.5 million hours,” Ramp’s CEO Eric Glyman said “And the average customer spends 3.5% less after adopting our platform.” AvidXchange says that more than 90% of their 8,800 customers report that automating accounts payable has saved them time and has improved productivity employee satisfaction.
There are some challenges to implementing these systems, however.
Getting all suppliers to adopt can require effort. Communicating value and providing training to accounting staff will take some time. To fully realize the benefits of an accounts payable automation system, a business owner will need to prepare to spend some upfront time notifying and setting up vendors, overseeing the implementation of the platform and its integration both with their accounting software and payment services, as well as establishing approval processes and rules for when certain transactions are flagged for further review and authorization.
Mark Kuhn, CEO & Founder of Oat Foundry, a manufacturer of analog technology products based in Philadelphia, has realized the benefits of his accounts payable automation system by helping him identify expenses quicker.
“If purchases are made on a credit card for example that have never been made before, the system has AI that can recognize the purchase and suggest how it should be coded for accounting purposes,” he said. “It does this by comparing the transaction to similar ones made by other customers on the platform. If a small business owner doesn’t have a bookkeeper this can really save time and improve the quality of their books.”
Some of the services, like Ramp, offer credit card and working capital financing options to help smooth out cash flow. Others, like Expensify, can be set up to automatically recognize and then forward travel invoices from airlines, rental car agencies and hotels for import and processing as the expenses are incurred.
Matt Dougherty, who is a Finance and Strategy Director for Crossbeam, a data escrow and relationship building platform in Philadelphia, has relied on Ramp to manage his expenses even as his company has grown from 25 to over 100 employees over the past few years.
“We use the service for basically every expense that isn’t payroll,” he said. “We use it to pay our international vendors and for employee reimbursements too.”
Dougherty says that he implemented a monthly spending limit on certain vendors and when that’s exceeded payments stop until he reviews.
“I also have a budget owner set up for certain expenses who has to approve any transaction over a certain amount” he said. “As a finance person it’s my job to make sure things don’t get out of control and my accounts payable system helps me do that.”
Still think accounts payable is boring? You’re not alone. But by automating how you pay your bills you could save your business a significant amount of money. And there’s nothing boring about that.