Accounts payable automation: how it saves your small business time and money

Published Tuesday 29 July 2025

Table of Contents

• The real cost of manual accounts payable
• Missed opportunities with 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

• Manual accounts payable wastes time and money due to labor, errors, and missed discounts.
• Automation cuts invoice processing time from over 10 days to around 3 days and lowers error rates.
• AP automation improves cash flow visibility, reduces fraud risk, and strengthens vendor relationships.
• Common signs you need automation include frequent errors, late payments, and staff frustration.
• Switching to automated AP frees your team to focus on strategic tasks and supports business growth.

The real cost of manual accounts payable

Handling accounts payable manually takes more time and energy effort than many business owners realize. You’re paying for staff time, paper, and postage—but there are also hidden costs like errors and missed opportunities.

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

Manual processing can create a number of bottlenecks. Here are some common pain points.

• labor costs: you or your team spend time on admin instead of higher-value work
• paper and supply costs: ink, postage, and printer maintenance all add up
• error rates: manual entry mistakes can lead to missed payments and penalties
• late payment penalties and missed discounts: manual processing takes longer — so you may miss early payment offers
• 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
• strained vendor relationships: late payments and errors can hurt your reputation
• scalability challenges: manual systems don’t scale well — 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.

And that's not it – there are also hidden expenses. Here are a few:

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: Set it and forget it — automation ensures you never miss a payment deadline.

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 — and only 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 AP activity and integrate with your accounting software to maintain cash flow visibility

AP automation: the smarter approach

AP automation can help fix most of the problems caused by manual processing. Check out these AP automation benefits:

• 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

Manual invoice processing takes over 10 days on average. Automation can cut that to around three days.

1. Reduced labor hours and lower error rates

Manually processing invoices takes about 10.3 days, while AP automation tools can cut that to 3.2 days.

Manual workflows often include:

• 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 errors rates. Here are just some of the tasks automation eliminates or simplifies:

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

2. Fraud and compliance risks

Manual systems make it easier for errors or fraud to go unnoticed. It’s harder to track who approved what, and paper records are difficult to audit.

AP automation creates a clear audit trail, which helps with:

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

3. Payment delays and vendor relations

Manual processes cause delays that can hurt vendor relationships. If you forget to pay, vendors may delay shipments or stop working with you. Strong vendor relationships are critical. Delays and mistakes can disrupt your supply chain and damage your reputation.

Is your business ready for AP automation?

Here are some signs manual accounts payable processes might be holding your business back:

• 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

Ready to replace your manual accounts payable processes? Follow these steps to move smoothly to automation.

1. Assess current invoice volume

Track how much time you spend on manual AP tasks and calculate the labor cost. Divide this by the number of invoices paid to find your cost per invoice. Also, note any bottlenecks or pain points in your current workflow.

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—pick a solution that can scale with your business. For example, Xero offers AP automation and bookkeeping at different price points and service levels.

Train your team and monitor results

Train your team on the new software. To measure automation vs. 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. Remember, there may be a learning curve, so allow some time before fully evaluating results.

Use Xero to streamline your accounts payable for sustainable 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 and you can try it out for free. Automation gives you a competitive advantage – don't get left behind. Try Xero for free.

FAQs on accounts payable automation

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

How much can my business save by automating accounts payable?

For most businesses, automation reduces AP costs by 60 to 80%. On average, businesses reduce their per invoice cost from $15 to $3.

Will AP automation work with our 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.