AP Automation in Construction: The How, The Why, The ROI

In the construction industry, time is money. The longer it takes to process invoices and accounts payable (AP), the fewer projects you can take on. Manual AP processes can be cumbersome and error-prone, stopping your construction company from reaching its full potential. 

There’s a solution: AP automation. This process transforms construction financial management by streamlining processes, reducing errors, and enhancing ROI. In this article, we’ll dive into everything you need to know about AP automation for your company and how to boost your efficiency. 

What is AP Automation? 

AP automation uses technology to streamline and remove the repetitive human element from the accounts payable process. Instead of performing accounts payable tasks by hand, AP automation platforms allow for seamless and automatic payments from start to finish.  

AP automation follows three key components: 

• Invoice receipt. This component collects invoices, either electronically or by converting paper invoices into digital form. Digital invoices can send data automatically between payment systems and the AP system, and AI extracts relevant data from paper invoices. 

• Matching and workflow. After collecting invoice data, invoices are automatically matched to purchase orders or sent to the appropriate team for review before being routed to the accounting system for payment. 

• Archive and audit. After payment has been made, invoices are stored digitally. Automatic organization leaves an audit trail and makes it easy to find invoices in the future. AP automation also offers real-time tracking and reporting capabilities for an accurate view of a company’s payments and finances. 

The main difference between manual and automated AP processes is that an automated process runs on its own and leverages artificial intelligence and machine learning. Automated processes connect with other payment systems and digital invoices so information is transferred quickly and easily, compared to a manual system where humans have to enter information by hand — often more than once. Manual AP processes are also disjointed and can lead to friction and roadblocks as invoices are collected, routed, paid, and stored. Each step is a separate manual process but works together much more smoothly in an automated process. 

4 Steps to Implementing AP Automation 

AP automation can transform the accounts payable process and create more efficient payments. But how can construction companies get started? There are four main steps to successfully implementing AP automation in construction: 

Assessment and Planning 

• Evaluate AP processes. Start by evaluating your current AP process and identifying pain points. What slows it down? Where do most errors occur? Taking a step back to evaluate the strengths and weaknesses of your current process can highlight areas where automation can help. 

• Set clear goals. Before jumping into AP automation, set clear goals and objectives for what you want to achieve. Is your goal to make payments faster, have fewer processing errors, or be prepared for a future audit? Getting the company and finance department on board with clear objectives will help you choose the right system. 

Choosing the Right AP Automation Solution 

• Understand common criteria. Not all AP automation systems are created equally. As you consider the best option for your construction company, it’s helpful to understand common criteria so you can find a solution that meets your goals and is a strong match for your company. Consider the integration capabilities of how the system will interact with your current payment, project management, and finance systems. You should also consider the system's user-friendliness, what training is required, the cost, and how many invoices can be processed each month. 

Implementation 

• Set up software. After you’ve selected your AP automation tool, set up the software and configure the workflows. 

• Train staff. One of the biggest obstacles to AP automation implementation is training and ensuring buy-in from employees and stakeholders. To ensure successful adoption, appoint change champions in your company to train other employees and share the benefits of automation. Once employees see the many benefits of automation, they will be much more likely to want to learn about and adopt the system. 

• Monitor phased performance. Moving to an entirely new process can overwhelm the accounting team and vendors. For best results, consider a phased rollout to groups of vendors or types of invoices. Monitor the initial performance by looking at metrics and gathering employee feedback. Employees in the earlier phases can share best practices as the process is rolled out to other groups for smooth adoption. 

Integration 

• Ensure seamless data transfer. To get the most out of your AP automation process, you need seamless data transfer between the AP automation software and accounting systems. Start by correctly setting up each system and ensuring they are compatible. Then, move small amounts of data between the two systems and test results before moving on to larger batches of automated data.  

The Why: Benefits of AP Automation in Construction 

Is AP automation worth it for construction companies? Absolutely. Below, we’ll highlight four key benefits. 

Efficiency and Productivity 

Construction companies are busy, and there are often many moving parts for accounting and finance teams. AP automation reduces manual data entry and administrative tasks, freeing accounting staff from performing repetitive tasks. The streamlined invoice processing and approval workflows also allow for greater efficiency instead of invoices or payments getting stuck on different steps of the process. 

Accuracy and Compliance 

Manual data entry opens the door to errors. Even the most detail-oriented employee can enter information incorrectly, which can lead to payment and compliance issues. Automated data capture leverages AI to extract accurate, relevant information from invoices and validate the data. Because AP automation has built-in audit trails, accounting teams can ensure invoices are processed properly and have the data to back them up to ensure they’re in compliance with financial regulations. 

Cost Savings 

New systems and technology can be expensive, but AP automation saves construction companies money. AP automation can sort through invoices more quickly, leading to a reduction in processing costs. Because the systems are connected and invoices move seamlessly through them, companies can avoid late payment penalties and have stronger cash flow management. 

Enhanced Vendor Relationships 

Faster and more accurate payments can improve your relationship with your vendors and improve vendor satisfaction. With timely payments and transparent records, AP automation can put your construction company in a better position to negotiate, potentially leading to more cost savings and additional services. 

The ROI: Calculating the Return on Investment 

One of the best ways to get stakeholder buy-in about AP automation is to show the return on investment. AP automation ROI can be calculated in three different ways: 

• Direct financial benefits include the cost savings from reduced manual labor and processing times and the savings from avoiding late fees and receiving early payment discounts. 

• Indirect financial benefits of AP automation include improved cash flow and liquidity, project cost management, and budgeting accuracy. 

• Intangible benefits, which can’t be measured directly but improve company effectiveness and culture. These benefits include improved employee satisfaction and reduced turnover, especially among employees used to repetitive, mundane data-entry tasks. Additional benefits include improved vendor relationships and better negotiating power. 

Transform Your AP Process 

Ready to transform your AP process? Book your demo to see hh2’s AP automation tools help eliminate manual tasks and supercharge your accounts payable process.