Why Does Healthcare Need Accounts Payable Automation?

Accounts payable is the backbone of healthcare organizations and medical facilities, as it enables investments in better equipment, supplies, and services. These investments, in turn, define the quality of patient care. However, institutions still rely on manual or traditional methods of managing accounts payable (AP), which require heavy data entry and a large amount of storage space for paper invoices and bill archives. This eats up staff time, delays payments, and increases the risk of errors and compliance issues.

Automation, therefore, is a much-needed strategic pathway for medical facilities to tackle these challenges and boost efficiency in healthcare. It can help healthcare organizations handle tens of thousands of invoices, meet compliance requirements, and withstand increasing cost pressures. This blog explores why automation is needed in healthcare, along with its challenges, benefits, and implementation strategies.

Key takeaways

• Manual AP processes in healthcare are error-prone, costly, and compliance-heavy.
• Healthcare accounts payable automation optimizes end-to-end AP operations, automating invoice capture, approval, payments, and even reporting.
• Healthcare AP automation, by aligning finance operations, can simplify compliance, strengthen audits, and provide real-time visibility into workflows and bottlenecks.
• Hospitals, clinics, telehealth providers, and long-term care facilities can all benefit substantially from AP automation.
• Implementing automation in healthcare workflows requires careful assessment of multi-site and multi-entity operations, technology stacks, system security, and integration capabilities.
• A modern, AI-powered AP platform, Collatio, can help medical facilities better manage their invoices and payments, enabling stronger vendor relationships and faster reimbursements.

How accounts payable automation works in healthcare

Accounts payable automation facilitates the processing of invoices, payments, and other AP operations and minimizes the need for human intervention. Given that complete reliance on manual labor is replaced by intelligent workflows, human error is reduced, which eventually improves compliance.

Let’s understand the step-by-step workflow of healthcare AP automation:

1. Invoice capture and data extraction 

Healthcare providers receive invoices from suppliers such as pharmaceutical companies, device manufacturers, labs, or insurers for services or supplies. These invoices are often in different formats and layouts. Some may be in paper form, others in PDF, handwritten, or as static images. Automation systems use advanced optical character recognition (OCR) and AI-driven line-item extraction to capture the precise details from invoices. It digitizes invoices, converts them into a machine-readable format, and standardizes them for downstream processing. The automated transcription of invoice details removes the need for manual keying and ensures data accuracy.

2. Validation workflow and invoice approval

The system reviews the invoice and looks for mistakes, missing or misplaced details, and other anomalies to ensure everything checks out. This is done via advanced invoice reconciliation, where 3-way or 6-way matching occurs and the invoice is mapped against relevant internal and external databases. It also flags invoice discrepancies and duplicates before they reach the payment stage, reducing significant losses and delays. Instead of printing a physical copy for approval, the AI system automatically routes the invoice to the designated department or authorized personnel. It does so using predefined rules.

3. Automated payment processing 

Once validated, invoices are linked with purchase orders and then payments are automatically scheduled by the system. Automation supports flexible integration with banking and ERP systems to initiate payment runs securely. It also aligns transactions with set due dates and optimizes them for early discounts and better cash flow, ensuring hospitals pay on time while protecting liquidity.

4. Vendor and payment management 

Healthcare organizations manage tens of thousands of suppliers. Tracking such a large volume of vendor data and payments is optimized via automation. The system provides a self-service vendor portal, which consolidates vendor communication and gives them real-time status updates on every invoice, ensuring complete transparency.

5. Reporting, analytics, and compliance 

From Medicare reimbursements to HIPAA audit trails and SOX requirements, compliance is non-negotiable. Automated AP systems generate audit-ready digital reports and monitor adherence to payment policies and other compliance regulations. The system also provides real-time insights into liabilities, payment histories, and cash flow that support better financial forecasting and planning.

Challenges in traditional healthcare accounting

The healthcare industry, when using a paper-based system that involves manual data entry to account for every stakeholder and penny, encounters many challenges.

1. Complexity of multiple payers and billing parties

Healthcare billing involves insurers, government programs, and patients. They might send invoices in different formats and layouts, some through fax, email, or even handwritten invoices. Reconciliation of these invoices with multiple payers and relevant databases can be tricky, but it is important to ensure charges match what was actually delivered. However, handling this task manually can increase administrative burdens and payment delays as healthcare staff go through every payment document.

2. Risks of manual errors and inefficient workflows

Manual invoice processing, verification, and payment execution can introduce costly errors. Even typos in invoice amounts while keying in data, lost paper records, or duplicate receipts can substantially impact financial accuracy. These types of errors are also difficult to track without full digitization. Healthcare staff and finance teams often lack reliable ways to track or identify erroneous or duplicate overpayments. 

According to Kaufman Hall’s Flash report, approximately 52% of Medicare-dependent and 49% of sole community hospitals reported negative operating margins. On the other hand, McKinsey estimated that hospital administrative overhead exceeds $265 billion annually, much of it tied to manual paperwork. This underscores how manual processing and slow workflows can directly contribute to financial strain. Even small inaccuracies introduced through inefficient processes can compound over thousands of transactions, leading to revenue leakage and compliance risks.

3. High-stakes regulatory and compliance burdens

Healthcare organizations manage their AP operations manually, which are often laden with inefficiencies, gaps, and delays. Mistakes in handling invoice details, payments, and supplier information, or even medical records, can create compliance issues. Particularly in healthcare, noncompliance with regulations such as HIPAA, HITECH, SOX, and CMS can lead to costly penalties, fines, and legal issues.

4. Vendor management and relationship strain

Manual AP workflows do not meet vendor expectations and fail to provide complete end-to-end transparency or communication between involved parties. It can cause incorrect or late payments, which can frustrate suppliers. Over time, this issue can erode vendor trust and disrupt supply chains, such as the delivery of life-saving equipment or pharmaceuticals.

5. Lack of real-time visibility into cash flow

Finance leaders rely on traditional workflows or spreadsheet tracking to access payment data or status. It means they cannot identify which invoices are pending, which payments are at risk of being late, or what net amount will be available after obligations. This outdated approach, however, is not proactive and can lead to uninformed decision-making. Plus, it makes it harder for healthcare facilities to forecast cash flow, negotiate terms, or even allocate funds effectively.

Benefits of healthcare accounts payable automation

Embracing the change with AI-powered automation can significantly transform healthcare accounts payable end-to-end workflows. AP automation can offer numerous benefits, including:

1. Improved accuracy and fewer errors

Automation reduces invoice processing errors by automatically capturing invoice data, segmenting it with proper tags, and interpreting it accurately for downstream actions. AI-driven extraction and validation modules instantly catch inconsistencies, automatically correct minor entry errors, and reconcile records in real time. It eliminates manual data handling, which improves payment accuracy, preventing overpayments and duplicate liabilities.

2. Lower processing costs and faster payments

Automated healthcare accounts payable eliminates manual roadblocks by digitizing invoices, matching them, and routing them to departments for payment automatically. It lowers processing costs, which involve manual labor for data entry, error correction, approvals, and paper-based filing. Automation allows healthcare providers to avoid late fees and benefit from early payment discounts by scheduling transactions within set due dates. This speeds up invoice processing and vendor payments.

3. Fraud prevention and control

Paper-based AP processes are embedded with many gaps and loopholes that can be exploited by bad actors to duplicate or forge invoices. Manual workflows are also not transparent and can lead to shadow spending and external or internal AP fraud. Employees can initiate unauthorized transactions or multiple payments without being noticed. Automation ensures that this does not happen by enforcing advanced reconciliation, user controls, and segregation of duties within the AP workflows. It makes sure that no single employee initiates, processes, and executes payments, and delegates pay processing to designated and authorized personnel. Advanced invoice matching ensures that no fraudulent, duplicate, or suspicious invoice slips through.

4. Simplified compliance and stronger audit trails

Healthcare finance teams must adhere to regulations such as HIPAA, PCI DSS, or SOX to ensure that patient health and financial data is up to a given standard and properly secured. Automation makes this process much easier by encrypting sensitive data and securing transactions with robust security frameworks. It enforces business rules, validates data formats, and creates searchable digital records, allowing healthcare organizations to maintain a clear, auditable record of every payment.

5. Stronger vendor relationships and real-time visibility

Automation removes bottlenecks and makes sure that vendors get paid on time. On-time payments improve trust and reduce disputes and supply chain risks. It even helps medical facilities negotiate better or more favorable terms with reliable healthcare partners. Automation also captures spend data across departments and reveals trends in the expenses pipeline, enabling smarter procurement and resource allocation.

To understand how AI and advanced technologies are transforming accounts payable processes, read this detailed guide: AI in Accounts Payable

Types of healthcare organizations that can use AP automation

Medical institutions that handle a variety of paper documents, such as registration forms, clinical reports, or medical bills, can use AP automation to positively impact their operations.

1. Hospitals and large care networks

Healthcare companies treat patients with preventive, curative, palliative, and rehabilitative care. This includes:

• Medical centers
• Hospitals
• Pharmaceutical companies
• Doctor’s offices
• Medical device companies

These facilities or organizations can automate manual tasks such as invoice data entry, approval, matching, or signing paper checks in person. AP automation solutions can help them lower operational costs, reduce clinical inefficiencies, and decrease significant workloads. Doctors and providers can have more time to allocate to quality patient care rather than repetitive grunt work.

2. Telemedicine and digital health providers

Telemedicine or virtual care organizations are rising due to high demand for online healthcare and remote monitoring. These firms often do not have well-established finance departments; therefore, manual processing can become overwhelming for their AP teams. Automation helps digital health companies stay compliant with healthcare finance regulations without needing to employ additional staff for paperwork. It provides them with the ability to process vendor invoices, manage patient care, and grow rapidly with strong financial oversight.

3. Wellness and long-term care companies

Wellness and long-term care companies usually offer their services through applications and online platforms. They handle client payments and purchases with basic traditional approaches, which involve spreadsheets and loads of manual labor. The setup becomes inefficient as the number of facilities or patients grows. AP automation eliminates the outdated approach with AI-driven workflows, which minimize manual work, process invoices & payments faster, and allow the institutions to scale and expand into other areas.

Best practices for implementing healthcare AP automation

Healthcare organizations making the shift toward AP automation should keep the following factors in mind for successful implementation:

1. Integration with existing ERP, EHR, and financial systems

For an AP automation solution to work effectively, it must integrate well with the technologies and systems that healthcare already uses. The automation platform must support integration with Enterprise Resource Planning systems, CRMs, and other financial solutions to ensure data flows without silos.

2. Addressing security and data privacy requirements

Healthcare deals with sensitive patient and vendor information, making data security paramount. AP automation platforms must be HIPAA-compliant, employ encryption, and support role-based access controls. They should comply with established internal business policies and external regulations to avoid data breaches, compliance issues, and costly penalties.

3. Planning for multi-entity and multi-site operations

Hospitals, labs, clinics, and other subsidiaries all fall under a healthcare network. These entities can operate across different states or even countries, where tax codes or vendor requirements are not uniform. The automation system must be capable of centralizing diverse data and vendor communication and accommodating different currencies, vendor standards, and tax codes.

4. Change management and staff training for success

Healthcare organizations must engage in proper staff training programs to help staff understand how to use software and move away from repetitive tasks. Training can guide teams and familiarize them with new technologies, which will maximize impact. Upon completing the training, the AP staff will be able to manage AP and invoice operations and devote more time to analytical and strategic responsibilities.

How Collatio AP redefines efficiency in healthcare

Collatio Accounts Payable is an AI-powered automation solution designed to address common AP challenges in healthcare organizations. It eliminates manual work, improves AP processes, and strengthens compliance to foster better patient care. Here are Collatio AP’s key capabilities:

1. AI-Driven invoice management for healthcare finance

Collatio AP uses advanced OCR and AI models to intelligently extract, validate, and classify healthcare invoices. It automatically ingests invoices and relevant documents from pipelines or channels, processes them accurately, and tags them with appropriate metadata for proper segmentation. The AI, NLP, and ML models interpret data so that the system not only reads the invoice accurately but also understands the content within it to provide high accuracy.

2. Advanced 6-way matching to eliminate errors

Unlike traditional 2-way or 3-way matching, Collatio AP applies 6-way matching, where it maps invoice details to relevant records and databases. It includes POs, GRNs, quality inspection reports, contracts/SOWs/MSAs, vendor master data, and government tax portals/e-invoicing systems. This rigorous approach helps the platform eliminate invoice discrepancies, including errors, mismatches, and duplicates.

3. Enterprise-wide visibility across healthcare networks

Healthcare providers can gain real-time visibility into their AP functions, invoice payments, and due obligations with Collatio. The system connects scattered data and feeds it into a centralized dashboard. It unifies payables across hospitals, labs, and telehealth networks, giving users an instant, consolidated view of their liabilities.

4. Automated compliance and continuous audit readiness

Collatio AP enforces user controls, standardization of invoice documents, and segregation of roles to ensure the AP process adheres to business policies and compliance regulations. It also employs built-in audit logs, regulatory compliance screenings, and policy validations to make sure every transaction and record remains audit-ready.

5. Accelerated payments driving financial and operational stability

The platform automates approvals, routing, and even payment scheduling, which shortens invoice cycles. Given that vendors are paid on time, it strengthens trust and helps healthcare organizations negotiate better terms and opportunities. This directly supports uninterrupted care delivery for patients while keeping the broader healthcare supply chain intact.

Bottom line: Why implementation of AI in healthcare shouldn’t be ingonred

Healthcare organizations continue to face substantial administrative burdens driven by manual paperwork, complex billing workflows, and time-intensive accounts payable processes. These persistent inefficiencies in billing, clerical work, and other AP functions, whether directly or indirectly, undermine operating margins. Such ongoing challenges make AI-powered automation critical for healthcare organizations.

Collatio AP is a modern automation platform that digitizes large-scale administrative and AP operations, reducing inefficiencies that increase costs and contribute to negative margins. It enables healthcare organizations to address these AP challenges before they escalate into broader financial instability. The platform helps institutions cut significant costs, strengthen compliance, and reallocate resources to what matters most: patient care. Book a demo now to transform your healthcare AP operations.