Accounts payable automation: streamline your invoice process

Published Wednesday 17 December 2025

Table of contents

• What is accounts payable automation?
• The real cost of manual accounts payable
• Beyond labor: the hidden cost of manual accounts payable
• AP automation: the smarter approach
• Manual accounts payable vs automation
• Is your business ready for AP automation?
• How to transition away from manual AP
• Use Xero to streamline your accounts payable for sustainable growth
• FAQs on accounts payable automation

Key takeaways

• Implement accounts payable automation to reduce invoice processing costs from $12.88 to around $2.78 per invoice while cutting processing time from over 10 days to approximately 3 days.
• Recognize the warning signs that indicate your business needs AP automation, including frequent payment errors, missed early payment discounts, late payment penalties, and staff spending excessive time on manual paperwork tasks.
• Utilize automated systems to capture early payment discounts of 1-10% and eliminate late payment penalties of 1-2% per invoice, which can save businesses processing 100 invoices monthly over $1,000 per month.
• Plan for a 4-6 week transition period when implementing AP automation, starting with assessing current invoice volume and costs, then selecting software that integrates with your existing accounting system.

What is accounts payable automation?

Accounts payable (AP) automation is software that helps you manage and pay your bills more efficiently. Instead of manually entering invoices, chasing approvals, and writing checks, the software handles these repetitive tasks for you.

It captures invoice details, routes them for approval, and processes payments digitally. For small business owners, this means less time spent on paperwork, fewer payment errors, and a clearer view of your cash flow, so you can focus on growing your business.

The real cost of manual accounts payable

Manual accounts payable costs businesses an average of $12.88 per invoice, according to Ardent Partners' 2024 research. This includes obvious expenses like staff time, paper, and postage, plus hidden costs from errors and missed opportunities that many business owners don't realize they're paying.

Ardent Partners reports the cost of manual accounts payable is $12.88 per invoice as of 2024:

• Labor costs: entering data, chasing approvals, fixing errors, and other tasks make up 90% of manual AP costs
• Error expenses: manual processing has a 22% exception rate (invoices that need manual intervention for errors or mistakes), but AP automation drops that to 9%
• Opportunity costs: teams using a manual AP workflow spend 27% of their time managing supplier inquiries – automation cuts that in half, freeing up time to focus on more strategic tasks

Missed opportunities with manual accounts payable

In addition to labor costs, manual accounts payable creates several major bottlenecks that slow your business and increase costs:

• Paper and supply costs: ink, postage, and printer maintenance all add up
• Inefficiency: manual workflows are slow and harder to manage as you grow
• Lack of visibility and control: paper invoices make it hard to track what's been paid and what's due
• Scalability challenges: manual systems don't scale well, while automation helps you grow

Beyond labor: the hidden cost of manual accounts payable

Manual processing adds costs in time and supplies, but also in missed opportunities and risk.

Five hidden expenses often go unnoticed:

Late payment penalties

Late payments often cost 1–2% of the invoice amount, or a flat fee of $25 to $50.

How AP automation helps: Automation schedules payments so every invoice is paid on time, without manual follow-up.

Missed early payment discounts

Vendors may offer early payment discounts of 1–10%, but they're easy to miss without a system in place.

How AP automation helps: Schedule payments in advance to capture every available discount.

Duplicate payments

Even if you recover the funds, duplicate payments tie up your cash and disrupt your cash flow.

How AP automation helps: Automate invoice tracking so each bill is paid once.

Damaged vendor relationships

Late or missed payments can lead to supply delays, reduced product access, or terminated contracts.

How AP automation helps: Keep vendors happy with consistent, on-time payments.

Cash flow unpredictability

Inconsistent or reactive payments make it harder to budget, plan, and seize growth opportunities.

How AP automation helps: Get a real-time view of your accounts payable (AP) activity and integrate with your accounting software to maintain cash flow visibility.

AP automation: the smarter approach

AP automation uses software to handle invoice processing, approvals, and payments automatically. This technology fixes most problems caused by manual processing through six key capabilities:

• Automated data capture: use OCR and AI to upload invoices automatically
• Digital workflows: automate approvals and payments from start to finish
• Electronic payments: pay vendors electronically from within your software
• Invoice matching: automatically compare POs and invoices to prevent errors
• Real-time visibility: use dashboards and reports to track what's due
• Software integration: sync AP tools with platforms like Xero to simplify bookkeeping

Manual accounts payable vs automation

Automation cuts invoice processing time by 70%, from over 10 days with manual methods to around 3 days with automated systems.

Reduced labor hours and lower error rates

Manual workflows require multiple time-consuming steps:

• matching invoices to purchase orders
• sending them for approval
• processing payments
• filing paperwork and updating records

Automation can take care of all of these steps, saving time while also reducing error rates. Here are just some of the tasks automation eliminates or simplifies:

• invoice matching
• approval workflows
• data entry
• discrepancy resolution
• document filing
• report generation

Fraud and compliance risks

Manual systems increase fraud risk because paper records are difficult to audit and it's harder to track approval chains. AP automation creates a clear digital audit trail that supports compliance, a critical step given that over 75% of organizations in one survey believed formal control efforts increased the reliability of their financial reporting.

A digital trail supports:

• tax audits
• insurance requirements
• internal controls
• lender or investor due diligence

Payment delays and vendor relations

Manual processes damage vendor relationships through payment delays and errors. Late payments can cause vendors to delay shipments or terminate contracts.

Strong vendor relationships are critical for business success, as they are built on correctly managing sensitive procurement data, including invoice amounts, contract terms, and vendor contact information. Payment delays and mistakes disrupt your supply chain and damage your reputation.

Is your business ready for AP automation?

Your business is ready for AP automation if you experience any of these five warning signs:

• You're spending too much time tracking paperwork
• You're seeing frequent errors, like missed or duplicate payments
• You're paying late fees or missing early payment discounts
• Staff are frustrated with how long AP takes
• Growth feels limited by your current processes

If you process 100 invoices a month at $12.88 each, switching to automation (at around $2.78 per invoice) could save you over $1,000 a month.

How to transition away from manual AP

Transitioning to AP automation typically takes 4-6 weeks and involves four key phases. Follow these steps to move smoothly from manual to automated processes:

1. Assess current invoice volume

Track your current AP performance using these metrics:

• Time spent on manual AP tasks per week
• Labor cost divided by number of invoices processed
• Bottlenecks and pain points in your workflow

This baseline helps you measure improvement after automation, a key part of the evaluation process that led 67% of CFO Act agencies in a GAO study to conclude that the benefits of migrating their financial systems outweighed their concerns.

2. Outline key automation goals

List your goals. How much do you want to spend per invoice? How much time do you want to save? Do you want to reduce errors? Set clear, measurable targets to guide your automation.

Get feedback from your AP team; they can help identify pain points and set realistic goals.

3. Select and implement your accounts payable software

Choose software that fits your budget, has the features you need, and syncs with your current system. Think about growth, too, and pick a solution that can scale with your business. For example, Xero offers AP automation and bookkeeping at different price points and service levels.

4. Train your team and monitor results

Train your team on the new software. To measure automation versus manual AP productivity, track how long AP tasks take, add software costs, and divide by the number of invoices.

Compare this to your manual AP costs to see how much you're saving. There may be a learning curve, so allow some time before fully evaluating results.

Use Xero to streamline your accounts payable for sustainable growth

You can use accounts payable automation to simplify your day-to-day work and support long-term growth. AP automation software can help your business scale, improve efficiency, and free up time for more high-level tasks. Xero makes that all possible.

Automation gives you a competitive advantage; don't get left behind. Get one month of Xero free.

FAQs on accounts payable automation

Still have more questions on the benefits of accounts payable (AP) automation? Check out answers to these common concerns.

How much can my business save by automating accounts payable?

Automation reduces AP costs by 60-80% for most businesses. The average cost per invoice drops from $15 to $3, saving over $1,000 monthly for businesses processing 100 invoices.

Will AP automation work with my existing accounting system?

Modern accounts payable software like Xero is designed to integrate with most accounting systems, making the transition smooth and preserving your existing financial data.

How long does implementing accounts payable automation typically take?

Timing varies based on business complexity, but most small businesses can fully transition to automated AP within 4–6 weeks.

What security measures protect my financial data in automated systems?

Look for AP automation systems with bank-level encryption, multi-factor authentication, and regular security audits to protect your sensitive financial information.