What is Your Accounts Payable Process Costing You?
Are you aware that inefficiencies can cost your company 20 to 30 percent in revenue each year? One of the main departments riddled with such inefficiencies and in need of optimization in almost any organization is the finance department. This is especially so when it comes to handling accounts payable. Traditional accounts payable processes are laced with challenges such as data entry errors, ineffective fraud prevention, lost cash, inefficient storage, and worst of all, slow processing.
To eliminate redundancies and improve efficiency, companies are now turning to automated accounts payable procedures. As of 2019, the accounts payable automation market was worth $1.9 billion. However, thanks to a compound annual growth rate (CAGR) of 11%, the sector is projected to reach a valuation of $3.1 billion by 2024.
Controlled user access, which helps reduce payment-related fraud, is one of the primary catalysts for this growth. However, the sector faces challenges such as a lack of awareness of AP process automation and digital literacy skills.
In this article, you will learn about:
- What a traditional accounts payable process looks like
- What an automated accounts payable process looks like
- The benefits of accounts payable automation
What is the Accounts Payable Process?
Across the globe, business operations are based on expenditure and revenue cycles. Accounts payable procedures fall under the expenditure and purchasing cycle. Their primary function is to ensure that a company’s expenses are paid. The process involves capturing data on invoices (such as the invoice number), ensuring invoices are coded with the right account and cost, matching invoices to purchase orders, and processing the payments.
In a traditional accounts payable process, everything is done manually, thus increasing the risk of human errors, redundancies, and time waste. Due to such inefficiencies, the entire cycle can take anywhere between one and three months. Other challenges of manual accounts payable processes include:
- Susceptibility to fraud
- Requiring a large team
- Information about invoices is not easily accessible
- Delayed communication between team members
- Tracking accounts payable metrics is not easy
- Preparing financial reports is challenging
- Misplaced purchase receipts
- Payment errors
The consequences of an unorganized accounts payable process
What’s worse, delayed payments can also have a negative effect, especially on a small business. Some of the downsides include:
- Strained relations with vendors
- Unhappy employees
- Delays in supply in future
- Disruption of manufacturing and shipping schedules
- Damaged credit rating
- Cash flow challenges
What Are the Benefits of Accounts Payable Process Automation?
The accounts payable team is responsible for handling tasks such as getting invoices in and moving purchase orders out. Due to the number of people involved, the cycle times are usually long, and there are many challenges.
However, your organization can automate the accounts payable processes, eliminating such bottlenecks. Through automation, your accounts payable department will benefit from increased efficiency and accuracy. Instead of manual delivery of paper invoices, like in a traditional setup, the voucher is uploaded on an invoicing platform such as Order. Before payments are released on the due dates, the invoice is processed, and the approval process also happens within the platform.
Change can be hard, but it’s also inevitable. In a period where the entrepreneurial landscape is highly competitive, enhancing efficiency in your accounts payable procedures will play a crucial role in your company’s growth. Here are eight key benefits:
8 major benefits of automating your AP process
1. It Saves Time
The time you save by automating the AP process is one of the benefits you will first notice. Such systems achieve this by:
- Scanning vendor invoice headers and line-item data using character recognition software
- Routing payables through predetermined business processes
- Handling two- and three-way matching with no human involvement
By relying on Order for automating accounts payable processes, Zenergy, a fitness company with 12 vendors, was able to reduce purchasing time from 8 hours to 20 minutes.
Zenergy, a fitness company with 12 vendors, was able to reduce purchasing time from 8 hours to 20 minutes.
2. Invoice Processing Becomes Streamlined and Accurate
Approximately 3.6% of all invoices entered manually have errors. Through automation, the payable department can set internal controls that make its accounts payable processes streamlined and accurate, requiring minimal oversight while offering:
- A process with next to zero human errors
- Ease of budgeting, sending and receiving reports, and auditing and preparing financial statements (like balance sheets, ledger accounts, general ledger, and more)
- Reduced risk of overpayment and duplicated payments
- Automatic flagging of exceptions for review by your approvers
According to Benjamin Miller-Jones, the operations manager of The Yard, their company has greatly benefited from a streamlined vendor purchasing and negotiation process via Order.
3. Have Greater Operational Control
Your CFO must always be aware of where each cent is and the accounts payable due. With the traditional AP process, it is easy to lose track of invoices as people can misplace documents. With such limited operational control, business owners will pay late fees repeatedly for late payments.
Automating accounts payable procedures eliminates such risks. Since everything takes place in the system, there is little risk of invoices getting lost. Even better, the system will handle them in the order your team uploads them. You can channel the time savings to other activities to increase organizational efficiency further.
Also, automating the accounts payable system makes it easy to monitor the payment cycle. Personnel with access to the system can look at the status of an invoice and identify workflow delays.
Before an invoice is paid, many processes take place that involve different members of your AP department. Unlike the manual method, where an invoice has to be taken from one office to the next, there are no such delays with an automated process. Information can easily be shared between different departments and staff, facilitating real-time collaboration.
With the process improvement that comes with automation, resolving errors with vendor payments is easy and fast. If there is a problem with a particular invoice, then the system will automatically flag and reroute it to the appropriate person immediately.
One of the main risks of manual payment processes is fraud. Not only is it easy for fraud to take place, but exposing it is also quite challenging. It is also difficult to conduct thorough audits when following a paper trail. In an automated accounting system, all the necessary invoice data is in one place. If there are any inexplicable payments, then it’s easy to identify the individuals responsible.
4. Enjoy Customization
The accounts payable process varies from one industry and business to the next. Intuitive accounts payable tools such as Order understand this and offer customized solutions. As such, your team can set the accounts payable procedures in a manner that suits the company. You will have control of each step, who the supplier invoices go to, and what order they move in.
Also, to prevent processing delays, you can set invoice approval timers and set up alerts.
5. Get Discounts on Early Payments
As you scale your company, each cent matters. Delays in the accounts payable process often lead to fines from suppliers. At the same time, early payment can earn you discounts. However, a Levvel study indicates that only half of institutions sometimes earn such discounts, whereas 16% never do.
An automated AP process streamlines invoice processing, allowing you to take full advantage of early payment discounts. Data suggests that such savings can be as high as 20%, which can significantly impact your growth if channeled to other areas.
6. The Solution Can Integrate With Existing Finance Systems
The benefits of an automated accounts payable process hinge on the operational efficiency it offers. If you have existing systems, then you will not need to repeat tasks. It is easy to integrate Order with your existing accounting software, enterprise resource planning system, and databases.
7. Get the Most Out of Your Employees
Today, talent plays a more significant role in the success of a company. Organizations look beyond credentials to pursue innovative personnel with leadership qualities that can help steer the business forward.
As you build such a team, you must create an environment that maximizes each member’s potential. AP automation will help you achieve this. Instead of spending a lot of time with redundant processes, team members will be able to focus on core business functions that can increase revenue.
8. Improve Vendor Relationships
If payments to suppliers are delayed regularly, then tensions may ensue, resulting in delays in fulfilling your orders. An automated accounts payable process will help you improve relations with suppliers because:
- You can more easily honor payment terms.
- It allows suppliers to upload documents in different formats.
- You will get alerts for crucial things such as pending contract renewals.
Next Steps to Automating Your Accounts Payable Process
An automated AP process benefits you and your suppliers. On your part, the process is fast and accurate, thus saving you time and potential losses from fraud or duplicate payments. For your suppliers, such efficiency means that there are no delays with their accounts receivable. Consequentially, it will ensure that your relationship with vendors remains healthy.
However, automating your accounts payable procedures is not just about getting software but also about finding one that can meet your company’s needs. In this regard, Order is the ideal accounts payable process automation tool. It offers customization and exceptional visibility and control. Reach out to us today to get a live demo.