AP and AR automation explained: Invoice-to-pay, order-to-cash and DPO

Controls that come with automation 

Automation builds controls into the process. Role-based permissions help separate validation, approval and payment responsibilities, reducing the risk of one person having control over all three. Automated duplicate checks compare incoming invoices against existing records to identify potential duplicates, using invoice numbers, supplier references, amounts and dates. Any potential duplicates are flagged and held for review, reducing the risk of duplicate payments going unnoticed. 

How AR automation works: The order-to-cash process 

Accounts receivable automation streamlines the order-to-cash cycle across invoicing, collections, and payment processing. 

1. Invoice creation from template 

Invoices are auto-generated from order or contract data held in the system. 

2. Multi-channel delivery 

Invoices are sent automatically via email, customer portal, or post, reducing delivery lag and ensuring customers receive invoices promptly. 

3. Automated payment reminders 

The system sends configurable reminder sequences before and after due dates, reducing reliance on collections staff for routine follow-up. 

4. Cash application and reconciliation 

Incoming payments are matched automatically to open invoices, even for partial payments or remittances with reference mismatches. 

5. Collections management 

Overdue accounts are prioritised and escalated according to rules, with full communication history logged for dispute resolution. 

6. DSO reporting 

Real-time dashboards surface Days Sales Outstanding (DSO), ageing analysis, and collection performance, enabling finance teams to act on trends early. 

AP vs AR automation: Key differences at a glance 

While AP and AR automation both streamline financial operations, they operate on opposite ends of the cash flow cycle with different objectives and metrics. 

Aspect	AP Automation	AR Automation
Primary objective	Control costs, ensure compliance, optimise payment timing and supplier relationships	Accelerate cash conversion and reduce collection delays
Workflow ownership	Internally controlled; organisations control invoice approvals and payment execution	Customer-dependent; payment timing depends on customer actions and collections
Process complexity	Rule-based workflows with standardised approval hierarchies	Dynamic workflows involving reminders, disputes, credit management, and payment behaviour
Typical AI capabilities	OCR, intelligent invoice capture, three-way matching, duplicate detection, approval routing	Predictive collections, automated reminders, cash application, payment prediction, dispute classification
Success metrics	Invoice processing time, cost per invoice, DPO, invoice exception rate, early-payment discounts captured	DSO, Collection Effectiveness Index (CEI), overdue invoices, bad debt ratio, cash application accuracy
Primary stakeholders	Finance teams focused on payables, procurement, and spend management	Finance teams focused on receivables, credit control, and revenue collection
Risk reduced	Duplicate payments, fraud, invoice errors, compliance issues, late-payment fees	Revenue leakage, delayed collections, payment disputes, unapplied cash, write-offs

AP automation is often prioritised as AP processes are highly standardised, invoice driven, and fully controlled internally, making them easier to automate and often delivering faster ROI. AR automation, on the other hand, is more dependent on customer payment behaviour, credit terms, and dispute resolution, which makes it more dynamic and less predictable. 

While automating AP improves the payables side, it alone doesn't show the full cash flow picture. Automating both AP and AR gives finance teams visibility into cash inflows and outflows, supporting better forecasting and working capital management. 

DPO: How to calculate it and what it tells your AP team 

Days payable outstanding (DPO), also called creditor days or trade payables days, is the average number of days an organisation takes to pay its suppliers. It gives AP teams a clearer picture of how long payments take and whether they align with agreed terms. 

Days payable outstanding formula: 

DPO = (average trade payables ÷ cost of sales) × number of days in the period

Trade payables represent the amounts a business owes suppliers for purchases made on credit, while cost of sales represents the direct costs associated with the goods or services sold during the period. 

Worked example: 

Average trade payables over the year are £100,000 and annual cost of sales is £1,200,000. 

 DPO = (100,000 ÷ 1,200,000) × 365 = 30.4 days. 

How to read DPO 

• A DPO significantly above agreed payment terms may indicate that you are paying suppliers late, potentially risking supplier relationships, late-payment interest and your business reputation. 

• A DPO well below agreed payment terms may mean you are paying suppliers earlier than necessary, tying up cash that could be used elsewhere, unless early payment discounts or other benefits justify it. 

• When customers take 60 days to pay while suppliers expect payment within 15 days, the business may face a significant working capital gap, as cash is collected later than supplier payments are due. 

DPO is most useful when considered alongside agreed supplier payment terms and customer payment patterns, giving finance teams a clearer picture of working capital and where payment processes could be improved. 

DPO, DSO and the cash conversion cycle 

DPO works alongside days sales outstanding (DSO), which measures how long customers take to pay, and days inventory outstanding (DIO), which measures how long inventory is held before being sold. Together, these metrics determine the cash conversion cycle (CCC), calculated as:  

Cash conversion cycle = DIO + DSO − DPO. 

A shorter cash conversion cycle means the business recovers the cash invested in inventory and operations sooner. 

UK payment practice 

UK payment practices are governed by reporting requirements and late-payment legislation, alongside voluntary standards that encourage businesses to pay suppliers promptly. Key rules and initiatives include: 

Reporting on Payment Practices and Performance Regulations 2017

Qualifying large companies and LLPs must publish details of their payment practices and performance twice a year, including how quickly they pay suppliers. 

Fair Payment Code

This voluntary scheme recognises businesses that meet defined standards for paying suppliers promptly. It replaced the Prompt Payment Code in December 2024. 

Late Payment of Commercial Debts legislation

Suppliers can generally claim statutory interest on overdue commercial payments at 8% above the Bank of England base rate. 

Public-sector payment policy

Public-sector bodies, including NHS organisations, are expected to pay valid, undisputed invoices within 30 days.

The business case: 8 benefits of AP and AR automation 

The benefits of AP and AR automation extend beyond finance, bringing improvements across the wider organisation. 

1. Fewer errors and duplicate payments 

Automating data entry reduces human error, while validation checks improve accuracy and PO matching and duplicate checks help prevent incorrect or fraudulent invoices from reaching the payment run. 

2. Cost and time savings 

According to Ardent Partners' AP Metrics That Matter in 2025, Best-in-Class organisations using AI and automation process invoices in 3.1 days, compared with an average of 17.4 days for others. 

In addition, electronic payment methods, including Bacs, Faster Payments (FPS) and virtual cards, can reduce transaction fees compared with traditional paper-based payments, further contributing to cost efficiency. 

3. Better cash flow management 

By accelerating invoice processing and streamlining approval workflows, automation reduces the time taken to receive customer payments and settle supplier invoices. On the AP side, it can help capture early payment discounts, while on the AR side, faster invoicing and automated reminders help free up cash tied up in unpaid invoices. 

Faster turnaround improves liquidity and strengthens working capital management, helping reduce the risk of cash flow gaps and ensuring funds are available for financial commitments. 

4. Better visibility and control 

Automated systems provide real-time visibility into payment statuses, outstanding invoices and overall account activity, improving cash flow forecasting and working capital management. Tracking key metrics such as DSO and invoice ageing helps identify collection bottlenecks and manage receivables more effectively. 

Many solutions offer configurable reporting, providing insights into cash flow projections, revenue trends, spending patterns and historical performance, helping finance teams make better-informed decisions. 

5. Stronger supplier and customer relationships 

Timely supplier payments, combined with visibility into payment status, help build trust and strengthen supplier relationships, enabling better negotiation outcomes and more collaborative partnerships. 

For customers, AR automation means receiving timely invoices and clear payment communication, with electronic payment options, self-service portals and simpler dispute handling improving the customer experience. 

6. Compliance and audit readiness 

Automated systems maintain a detailed audit trail of transactions, approvals, and changes, providing a clear record of financial activity for audits and dispute resolution. Standardised workflows and document formats help ensure consistency in financial processes and compliance with regulatory requirements, while automated reporting simplifies audit preparation. 

Transaction monitoring, access controls, and role-based permissions further reinforce compliance by helping detect anomalies and safeguard sensitive financial data. 

7. Scalability 

As organisations grow through acquisitions, new sites or seasonal peaks, automated workflows can handle higher transaction volumes without requiring a proportional increase in headcount. Standardised workflows and multi-entity features help maintain consistent processing across business units, regions and currencies. 

8. Faster decisions 

With accurate data and faster reporting, finance teams can respond more quickly to changing conditions and devote more time to analysis rather than manual reporting and reconciliation. 

UK e-invoicing and VAT 

Making Tax Digital (MTD) for VAT requires VAT-registered businesses to keep digital VAT records and submit their returns using compatible software. Building on this shift, the UK will make e-invoicing mandatory for VAT invoices from 1 April 2029, subject to specific exemptions. Organisations will need to issue and receive VAT invoices in a specified electronic format, meaning paper invoices and emailed PDFs alone will no longer meet the requirements for in-scope transactions. 

Invoice automation can help finance teams manage this transition by capturing supplier invoice data and validating it before posting. OneAdvanced's AI-powered Purchase Invoice Automation takes this further by automatically capturing, validating and matching supplier invoices before they move into Financials for processing. 

When to move from manual invoice processing 

If any of the following sound familiar, it may be time to automate: 

• Invoices sit in email inboxes or approval queues, delaying payments. 
• Chasing approvals and reconciling invoices hold up the month-end close. 
• Suppliers regularly call to ask about the status of their invoices. 
• Invoice status and approvals are tracked in spreadsheets. 
• Invoice volumes are growing, requiring additional staff just to keep up. 

How AP and AR automation integrates with your ERP 

Our latest Trends Report highlights how disconnected systems remain a major barrier to automation and AI adoption across organisations. 

Standalone AP or AR solutions that don't connect with ERP and finance systems can create the very silos automation is intended to remove. Finance teams may end up transferring data manually, entering the same information more than once and reconciling records to keep systems aligned. 

Effective automation depends on two-way integration between AP, AR, procurement and the wider finance system. This keeps invoices, payments, approvals and GL coding data synchronised, with approved transactions posted to the general ledger automatically. 

By reducing manual data handling, integrated solutions improve accuracy, strengthen financial control and give finance teams better visibility of cash flow, supplier balances and receivables. 

OneAdvanced Financials supports this connected approach, helping organisations integrate AP and AR automation with wider financial management processes to achieve a more unified view of financial operations. 

How to choose AP and AR automation software 

AP and AR automation can only deliver long-term value when it fits well with your wider finance environment. When comparing solutions, consider the following: 

• ERP integration: Two-way integration with real-time synchronisation of financial data. 

• Invoice format support: Ability to process PDFs, EDI, XML, scanned documents, e-invoices and supplier portal submissions. 

• Capture accuracy: High first-pass extraction rates; ask for real-world exception rates and performance data from customers with similar requirements. 

• Approval workflows: Configurable approval paths, multi-level approver chains, delegation rules and mobile access. 

• Compliance: Support for Making Tax Digital, UK GDPR, audit trails, segregation of duties and readiness for e-invoicing. 

• Supplier and customer portals: Self-service access for invoice submission, statement viewing, payment tracking and dispute management. 

• Reporting: Configurable role-based dashboards with visibility of cash flow, invoice ageing, DSO, DPO and approval status. 

• Implementation and support: UK implementation expertise with sector knowledge and ongoing technical support. 

AP and AR automation for different organisation sizes 

AP and AR automation requirements vary depending on the size and complexity of the organisation. While the underlying goals remain similar, the capabilities required often differ as finance operations grow and become more complex. 

Business size	Typical requirements	What AP/AR automation delivers
SMEs	Automated invoice processing, basic approval workflows, standard reporting	Less manual work, faster processing, and more predictable financial processes
Mid-market	ERP integration, configurable approval workflows, real-time reporting	Improved financial control, faster approvals, and better visibility of cash flow and commitments
Enterprise	Multi-entity processing, advanced compliance controls, global payment capabilities, deep ERP integration	Consistent governance, reduced risk, and consolidated reporting across entities

Sector-specific requirements are another important consideration in software selection. Manufacturing organisations often prioritise procurement integration and supplier invoice processing, while public sector and healthcare organisations typically require stronger compliance, auditability, and reporting capabilities. 

AP and AR automation with OneAdvanced 

OneAdvanced Financials supports end-to-end accounts payable and receivable workflows, from AI-powered Purchase Invoice Automation and payment processing to financial reporting. It offers real-time dashboards, budgeting, forecasting and financial planning, automated bank reconciliation, and self-service portals for suppliers and customers. 

Through OneAdvanced's wider Finance and Procurement portfolio, organisations can connect purchasing and financial processes to create a clearer picture of spending, supplier activity and financial commitments. With less time spent transferring data between systems and manually reconciling records, finance teams can focus more on managing costs, improving cash flow and making informed decisions. 

Beyond finance, OneAdvanced IQ extends this approach to how work happens across the organisation, bringing people, data and AI together in a connected system of work. This helps simplify complex processes and reduce friction between teams and business functions. 

Take control of your AP and AR processes with connected financial workflows. See OneAdvanced Financials in action. 

FAQs 

What is accounts payable? 

Accounts payable refers to the money a business owes to its creditors, suppliers, or vendors. AP obligations are often short-term and are recorded on the company's balance sheet as a current liability. Goods or services acquired on credit, and even monthly subscription fees to various software providers, are considered payables until they are settled. 

What is accounts receivable? 

Accounts receivable refers to the payments owed to the business by its customers or clients for goods and services provided but not yet paid for. AR is recorded under current assets on the balance sheet. 

What is the difference between AP and AR automation? 

AP automation handles invoice approvals and supplier payments to control spend and pay on time. AR automation handles invoicing, collections and cash application to bring cash in sooner. 

AP automation handles invoice approvals and supplier payments to control spend and ensure timely payments, while AR automation manages customer invoicing, collections and cash application to accelerate incoming payments. 

How do you calculate days payable outstanding? 

DPO = (average trade payables ÷ cost of sales) × days in the period. For example, with average payables of £100,000 and annual cost of sales of £1,200,000, DPO is 30.4 days. 

How does AP automation reduce invoice processing costs? 

AP automation reduces invoice processing costs by eliminating manual data entry, paper-based workflows, and repetitive approval tasks. By shortening processing times, reducing errors, and minimising rework, it lowers the cost per invoice and enables finance teams to manage higher invoice volumes without additional resources. 

How does AR automation reduce days sales outstanding (DSO)? 

AR automation reduces DSO by accelerating the invoice-to-cash cycle through automated invoicing, payment reminders, and cash application. Faster invoice delivery, timely follow-ups, and quicker payment reconciliation help organisations collect payments sooner and reduce outstanding receivables. 

What is three-way invoice matching? 

Three-way invoice matching checks an invoice against the corresponding purchase order and goods receipt note before payment is approved, identifying discrepancies and reducing the risk of incorrect payments. 

Can AP and AR automation integrate with my existing ERP system? 

Yes. Most modern platforms integrate with existing ERP systems through pre-built connectors, APIs or native integrations, keeping records in sync across systems. 

What is touchless invoice processing? 

Touchless invoice processing is the end-to-end automation of invoice handling, where invoices are captured, validated, matched, approved, and processed for payment with minimal or no manual intervention. 

How does AP and AR automation help with UK GDPR and Making Tax Digital? 

AP and AR automation create timestamped audit trails of transactions and approvals, supporting GDPR accountability requirements and maintaining the digital records needed for MTD. Standardised workflows also reduce the risk of non-compliant or inconsistent record-keeping. 

How long does it take to implement AP and AR automation? 

The time required to implement AP and AR automation depends on factors such as system integrations, workflow complexity, and data migration needs. While some organisations can go live in weeks, larger or more complex deployments may take several months.