Accounts Payable: How It Started, How It’s Going, and Where it’s Headed

Accounts payable is a core business function that has changed tremendously over time to keep up with modern consumer demands — and evolving technology. These evolutions have ushered in significant improvements in how financial teams manage invoices, purchase orders, vendor relationships, and internal workflows and approvals. AP has come a long way in the past few decades and innovative technology continues to help teams improve accuracy, while also saving time and money.

Let’s take a look at how we got here. We’ll revisit where accounts payable started, explore its first technological revolution, and seek to understand where it’s going.

The early days of accounts payable

During the infantile iterations in the 1980s and prior, accounts payable was a manual process for managing invoices and purchase orders (POs). There were no emails, automated vendor invoices, or digital spreadsheets — all operations were reliant on pen and paper.

This meant receiving invoices by mail; physically storing all documents, invoices, and receipts; hand-delivering paperwork among departments; and manually cutting and mailing checks. Systems of this kind clearly led to countless inefficiencies and errors.

What’s more, it was standard practice for vendors to wait months before their invoices were paid.

This approach was also incredibly resource-heavy, requiring mountains of paper and large file storage cabinets to be competitively effective. Because everything was paper-based, processes were clunky and siloed. It was difficult for other departments to understand what was happening in the accounts payable department and how it affected the company as a whole.

There HAD to be a better way.

Then, in the 1990s, a newly accessible technology triggered the first wave of accounts payable automation — the desktop computer.

The first wave of AP’s evolution

In the ‘90s, AP departments utilized computers to conduct their work for the very first time. With this new technology, AP professionals could work more quickly, efficiently, and accurately. They could now receive invoices and correspond electronically, thus speeding up payment processes.

However, even though computers ignited widespread change in AP processes, many functions remained on paper. Payments were still made via physical checks, and manual data entry was still required. Even with tech-enabled advances, severe limitations existed with these old-school approaches to AP operations.

Human Error

Manual data entry — whether based on paper or computer spreadsheets — is highly error-prone. One misread digit or typo can throw the entire general ledger out of whack, causing time-consuming and tedious investigations to correct mismatched records.

Manpower

With paper-based processes, the only way to scale up operations was to onboard more employees. This required more money, training, and overhead which contributed to a “two steps forward/two steps back” momentum. There were firm ceilings of what and how much could be done which proved to undercut the progress that computers had initiated.

File Mismanagement

With paper-based processes, documents are easy to lose or simply forget about. Missing a payment due to a misplaced invoice can damage vendor relationships, as your company will no longer be seen as a reliable client. File mismanagement doesn’t just apply to paper-based processes, either. Accounts payable systems that rely on email and Excel spreadsheets are also vulnerable to mismanagement.

Hefty Costs

Paper and paper-related costs are expensive. These charges include equipment and maintenance for printers, supplies, postage, file cabinets, and even rent. Expansive document filing systems require some companies to rent larger offices than are necessary because they need space to store their paperwork. Paper also carries significant non-monetary costs with its environmental harm.

Security

New technology opened the door to new types of problems. Computers made new types of AP fraud possible, and in the early days, security and fraud prevention measures were limited.

Though computers brought about huge change and major advancements for the AP function, better solutions were still needed. This brings us from accounts payable processes of the recent past to AP of today and the future.

Accounts payable today and beyond: AP automation

Today, accounts payable is largely based in the cloud, handled by third-party software-as-a-service (SaaS) providers. While modern businesses use these tools to cut down on paper waste and make it easy to process and pay invoices electronically, they may still be missing out.

That’s because many are not streamlining AP functions as much as they could be with sophisticated AP automation. In fact, without smart AP automation, many AP teams are behind the times and wasting unnecessary resources. Thankfully, AP automation solves the historical problems of yesterday’s approaches to accounts payable.

What is AP automation?

AP automation leverages software to create fast and efficient workflows that streamline the invoice payment process. It eliminates the need for manual tasks, like invoice processing and approving invoices, PO matching, cutting checks, and stitching together data from your bank statements, ERP spreadsheets, and other tools.

An automated AP workflow might resemble the following multi-step process:

1. Vendor submits an invoice.
2. Invoice data automatically populates forms and records in the AP software (thanks to OCR).
3. Approval forms are automatically sent to appropriate approvers to review.
4. Approval is granted with electronic sign-off.
5. Payment is issued, and the vendor is automatically notified.
6. Records are appropriately stored in the cloud, while the digital paper trail logs each step of the process.

Why AP automation?

Not only does AP automation allow accounts payable teams to work more efficiently, it also improves several key areas of the accounting and operations processes. The following are a few benefits of AP automation: 

• Increased transparency on where company money is going: Transactions are centralized so company-wide transparency is possible — and audits are easier.

• Faster approval time: AP automation software enables real-time communication in one centralized place, so approvals can be made more quickly. Plus, automated reminders prevent approvals from slipping through the cracks.

• Increased compliance and improved vendor relationships: When invoices are paid accurately and on time, vendor relationships are easier to maintain, while saving your company from overpayments or missed discounts.

• Eliminated manual data entry: ERP integrations mean companies don’t need to copy data over from one tool to another — everything is already inputted via intuitive OCR (optical character recognition) and machine learning.

• Reduced errors: Less manual data entry means less room for human error and fewer mistakes. This saves time, money, and energy.

• Predictive insights: AP automation software learns your company’s patterns, allowing it to create data-driven forecasts you can use to improve your vendor purchasing strategy, negotiate better terms, and enhance profitability.

• Lower risk and better processes: Audit paper trails remove any doubt from the equation and reduce risk of fraud.

How to choose AP automation software

It can be difficult to choose the right AP automation software for your business because there are many different factors that need to be accounted for. Teams should follow the following high-level process when selecting the best AP automation software for their unique situation:

1. Identify your team’s primary AP pain points that you want your automation software to solve. Whether that’s faster approvals, smoother workflows, improved vendor management, or something else, think about the most important features your software needs to have.
2. Map out your current process.
3. Consider what software or systems (like your ERP, for example) will need to work with your AP software.
4. Think about any potential roadblocks that could arise when implementing a new AP software solution.
5. Vet and compare vendors.

When vetting vendors to select the right AP automation software, these are some key features you’ll want to look for:

• OCR document capture to digitize paper invoices
• ERP integration to ensure your ERP solution seamlessly synchronizes with your AP automation software, so everything is connected
• Electronic workflows that automate document routing, streamline approvals, and ensure every step is properly executed
• Search functionality so you can quickly retrieve the content you’re looking for
• Mobile access that enables your team to collaborate and capture documents even when they’re away from the office
• Smart webforms that automatically validate data entered against your accounting, ERP, and CRM solution, while simultaneously removing the labor costs associated with processing forms

Choose PairSoft for AP automation

PairSoft checks all of the boxes you need your AP automation software to fulfill. Our streamlined AP automation system is the modern solution for AP teams both of today and the future. And it seamlessly integrates with the ERP you already use and many you might choose to migrate to in the future, like Microsoft Dynamics, Blackbaud, NetSuite, and Sage Intacct.

With PairSoft, AP teams enjoy bottleneck-free approvals, consistent process controls, visibility into invoices processing across companies and locations, secure document retention with fast retrieval, and more. All of these benefits boil down to two key wins: making your job easier and saving your company money.

Get in touch with our team to schedule a free demo to find out how PairSoft can transform your accounts payable process today.