AP department drowning in paperwork and manual invoice reconciliation tasks? Find out how accounts payable process automation can solve this problem.
Accounts Payable Automation Best Practices
AP automation is the answer to disorganized, error-prone, and redundant AP processes. Read on and find out how you can streamline your AP system.
Automation is possible in streamlining your accounts payable (AP) workflow. Manual invoicing and payment take time. It also increases the chances of committing errors. These tasks are somewhat repetitive. Yet, the demand for its accuracy increases with the business transaction volume’s rise.
The cost of accounts payable error should not be taken for granted. Another article mentioned that the average cost of processing an invoice is around $25 – excluding the extra cost you’ll need to pay for when you commit an error. This number is, in fact, three times bigger than the cost of AP automation.
According to AP professionals, late receipt of invoices causes 40% of their bottleneck. This explains why they miss the cutoff and the reason why they incur corresponding penalties for late payment.
Below is a list of best practices you can review and get relevant insights. If done right, automation can turn your payable department and procurement around.
Audit Your Existing Process
To know what to improve, you need to understand what’s not working in your current accounting methods. List the things that you and your AP department are having challenges with. Review your existing processes and see how Accounts Payable Automation (APA) fits into the equation. Your current situation should be the focal point of the changes you should implement.
For example, your main accounting problem is late supplier payments on served purchase orders. Before you digitise your AP system, check first where the problem starts. Apart from that, also check who is working on these tasks. Say, for instance, you found out that the problem is invoicing and approval.
In that case, you need to check what’s taking too long for the invoicing team to make the invoice. You also need to check the reason for its late approval. Also, look for other loopholes that might be contributing to the problem. Once you identify the problem, check how you can introduce APA.
Organise and Prioritise Invoices
Your priorities as a business depend on the invoice volume you receive. You need to keep track of your payables, manage your cash flow, and avoid late payments. This is especially true as your business grows. How you fare in all these aspects will dictate if you can build a good relationship with your suppliers. If you make payments faster, you can improve vendor relationships.
It’s necessary to compare and match the invoice against the proof of receipt and sale order. Why? Because you don’t want to pay an invoice before checking if you received the product. You also want to ensure that the product matches the invoice. While you want to pay on time, you don’t want to make duplicate payments. Finally, you want to check if the seller has performed the charged service.
When you organise and rank invoices, you become aware of early payment discount opportunities. AP automation will speed up the invoice approval process. Hence, you will capture and identify these early payment discounts. If your suppliers don’t offer discounts, paying the invoices on time is still advisable. You may choose not to pay before it falls due, but paying on time helps manage your cash flow.
Instead of operating a çlean desk policy, make it a habit to pay invoices as soon as you receive them. For example, one of your suppliers agrees to net-15 payment terms while the other agrees to net-30. In that case, use these as opportunities to pay both invoices on time.
Paying invoices in time won’t strain your companies cash flow, and cash management would be much easier. This is better than exhausting the 15 days and 30 days grace period to pay each invoice. You also won’t give headaches to your payable team.
It’s also best to rank bills payment according to bill and not only by the due date. Segregate your payables by interest expense and pay bills with the highest interest first. After which, you can start working your way down. Doing so makes payment processes more streamlined.
Streamline Your Workflow
Manual processes can slow down invoice processing but, electronic payments and automation can hasten it. On top of that, it can also ensure the timing and accuracy of payments. However, complex systems can still result in late and erroneous payments. Your AP team must have invoicing policies in place to ensure seamless payments even without automation.
If you use your AP automation software well, you get rid of time-consuming tasks. Apart from that, you also lessen the room for human error.
Eliminate AP Fraud
Fraud will always be a possibility if you deal with money. Many people can commit fraud against you. It could be a cybercriminal, your employee, or your supplier. In fact, issuing paper checks can increase this riskThe the CFO should put rules and procedures to mitigate the risk.
Cybercriminals can hack your system or mimic a supplier’s email address. They can also ask you to route payment into their account. Employers can also make a dummy account for suppliers; employees of the supplier can also do the same—the more complex the business processes, the more chances of encountering fraud.
If you automate your AP system, you can remedy this problem. You can set up a more comprehensive invoice approval tracking system. After which, you can also set up an extensive audit trail.
Being transparent with the status of invoice payments can prevent fraud from happening. The same is true if you set up a three-way automated matching system that captures outright errors. The system should also catch discrepancies before flagging the same for further investigation.
If you want to get rid of AP frauds, it’s best to separate your team members’ duties. For example, one takes care of invoice preparation, check writing, and payments processing. In that case, it would be easy to tamper with checks or fake them within your accounts.
A study on public sector fraud showed that over 60% of business frauds happen in a particular department. One of these departments is purchasing. If you separate personnel duties, you can help your AP process become efficient.
Even if one person goes on a vacation or gets sick, you can still make invoices if you delegate tasks. You can still pay your accounts payables. As a result, there would be no repercussions on your cash flow.
Store Digital Records
Paper records can eat up your storage space. Aside from that, it also makes information finding time-consuming and challenging. If water leaks or fire breaks, you can lose your files instantly. But, if you digitise your records, you can keep them safe, secure, and far from damage. You can also retrieve them right away.
An AP automation software can help you scan all your paper invoices into your system. After which, it will process the same before storing and backing up. If you have old paper files, you can also scan the same to manage your records. Most AP systems come with document imaging services to help complete this task.
Integrate Your Systems
What tools are your finance team currently using? If you choose to automate your accounts payable system, go for one that can integrate. If not, at the very least, go for one that is integrable with your current accounts payable system. Also, factor in customer relationship management, finance systems, and enterprise resource planning (ERP).
It’s beneficial if your team doesn’t have to re-enter login information more than once. If you integrate tools already in your system, you can lessen the users’ learning curve. On top of that, you also open end-to-end data capable of turning into informative reports.
Enter New Invoices ASAP
A report sites that payments automation reduces your days payable outstanding (DPO) by 5.5 days. This reduction depends on when you enter an invoice into your system. If you’re still working with paper invoices, you need to scan them right away. Hence, the need for a team to enter invoices into the system as soon as they’re received. Through this, you can track your transactions as you maximise your DPO benefits.
If your team develops a habit of inputting invoices as soon as they arrive, you won’t lose track of them. With this, you can also get a more precise insight into your AP department’s workload.
If you have a high-quality AP automation system, you can spare your team of manual tasks. The only manual thing left to do is scan all the paper invoices. If you don’t have the staffing to complete this task, you can even outsource it. Find a payment automation software equipped optical character recognition or OCR to help scan and input invoice data into your system as soon as you receive them.
Apart from entering new invoices ASAP, you also need to follow up on your uncashed checks. For example, you paid a vendor two weeks ago, but they haven’t cashed it yet. In that case, make a follow-up to ensure that it gets deposited. Once you also standardise your follow-up process, you can avoid late fees and cash flow issues.
Set up KPIs
You can’t improve or manage something you can’t measure. If you want to improve your processes, you need to have Key Performance Indicators (KPIs), which will assess how your team adheres to the revised or new working methods.
To do this, you need to start your department’s current status based on the following metrics:
- capture rate of supplier early payment discounts
- invoices paid on schedule
- per invoice cost
- payment correctness rate
- time allocated for supplier dispute handling
Ensure that you exclude automation value on your ongoing metrics. You need to assess your AP team’s improvement to benchmark their performance.
In setting KPIs, ensure that your metrics are specific, measurable, achievable, and relevant. It should be time-bound. Otherwise, you won’t be able to quantify them. An example of a quantifiable KPI is the number of invoices paid per pay cycle. You could also include the number of follow-ups on issued checks made.
|Success Factors in Invoice Automation|
|Lesser manual errors||When you automate, ensure that your team pays the right invoice amount on time. You also have to ensure that you ordered the right product and the supplier gave the correct quote.|
|Control and visibility||If your invoice processing gets shorter, you lessen its accompanying financial risk. In the same vein, you also shift your team’s focus away from low-value tasks. With AP, you improved your team’s visibility. As a result, you can track payment terms and billing errors. With this, you can also enjoy supplier discounts and avoid late fees.|
|Optimized cash flow management||If your payables are visible, you have greater control over them. This can improve reporting accuracy while also improving business cash flow. With AP, you streamline complex workflows to shorten payment cycles.|
Automating Your Accounts Payable
Automating your AP system offers a lot of benefits. For one, you won’t miss any invoices sent by your suppliers. By paying them on time, you avoid late fees and other penalties. You can also enjoy rebates from your suppliers while increasing your cost savings. On top of that, you can also nurture your good working relationship.
With the right AP solution, you can also spare your business from fraudulent activities. In the end, you enjoy an optimised and streamlined operation.
Speed up your invoice processing with automation software from Spenmo. Book a demo today!
Frequently Asked Questions
What are the benefits of accounts payable automation?
If you pay your invoices on time, you also improve supplier relationships. You can do this while saving on late fees.
How do you run an effective accounts payable department?
You have to have good people and an efficient automated AP system to run an effective AP department. Delegate tasks according to skills and competency. Never give one person the sole power to check invoices, approve payments, and write checks. There must be a check and balance between functions.
An empowered workforce must complement the working automated AP system.
What is the three-way match process in accounts payable?
Three-way matching in AP is the process of matching the supplier's invoice, goods receipt note, and purchase orders. AP professionals do this to keep enough audit trail records, save money, and end fraud. AP professionals do this before the company issues payment after the supplier delivers.