Finance is the base of any business no matter the size or industry. Managing cash flow tends to be a laborious function and it requires a lot of precision. But there is a huge difference between financial processes that are done manually and which are automated.
For any business, expenditures must be meticulously tracked as they affect your liquidity due to the lack of control. Many risks are associated with financial matters. Hence, there is a necessity to reduce human intervention that could induce the possibility of error. As a solution to this, accounts payable process automation is adopted.
An automated accounts payable process ensures the smooth transmission of money and caters to the streamlining of all the processes that happen within it. We are here to offer you some basic and necessary information regarding accounts payable process automation and how you can effectively automate accounts payable.
What is the Accounts Payable Process?
Accounts payable deals with all of the financial processing of an organization. Any organizational cash engagements that are responsible for business functioning can be categorized as accounts payable. These include the current liabilities, order payments, etc, which is the money owed by your business. This is a systematic way where any business’ expenses are monitored to spot areas of overspending.
Generally, these money dealings can be classified into these three categories:
All of the internal expenses of your organization are grouped as internal payments. These may include the payments made for office supplies, lunch, and other miscellaneous allowances, and requirements are all met with the internal payments.
These are the expenses that arise from the procurement process. Payment after the purchase is one of the expenses of your business.
Business Travel Expenses:
Any business-related travel expenses are the organization’s responsibility. Expenses like flight tickets, room rentals, transportation booking, etc, have to be taken care of by the business officials.
Steps in the Accounts Payable Process
Outwardly, the process might seem straightforward and includes just placing an order, making the payment, and receiving the delivery. But in an organization, especially medium and large ones, multiple financial transactions come in simultaneously. This can increase the possibility of confusion and error. Multiple departments are involved in the process of financial transactions.
For instance, several departments initiate a purchase/payment request, and the procurement department will be involved and necessitates the requisition by moving forward the request to the finance department. Hence, to avoid any manual-induced mistakes, this process has multiple steps to ensure an errorless cash flow. The accounts payable process includes the following steps:
Initiating a Purchase Order (PO):
When the organization decides to purchase any requirements for the business, they create a purchase requisition. This is later reviewed, cross-checked, and approved by the procurement department, finally ending in a Purchase Order (PO).
Recording of the PO:
From the Procurement department, the purchase order is forwarded to the accounts payable department, and they record the PO. In the recording of the PO, they enter the data of the purchase initiated like the quantity, the type, grade, delivery dates, and other parameters that have been specified in the request.
Creating a Receiving Receipt:
The business that is at the receiving end collates the purchase order with the deliverable items to finalize the quantity and quality.
Getting Vendor Invoice:
The invoice becomes the official document that carries details like the product costs, quantity, total order price, etc.
Reviewing and matching of the invoice:
This is where the three-way match is done. Here, the original purchase order, the vendor invoice, and the receiving receipt is matched and checked for discrepancies. This will make sure all the payment details are correct and will be moved further for the final payment.
Approval of the Invoice:
Once the details are correlated and matched through the three-way matching process, the accounts payable department will approve the invoice for payment.
Capturing the Invoice:
In this step the registering of the expenses on the general ledger of the company. Most often this recording of the details is done manually where the vendor details, the ordered goods, their prices, and all other details are entered.
In the final step, the accounts payable department closes the order-payment pathway. This is done by making the final payment using any mode.
As you can see, there are certainly some steps that can be automated to avoid unnecessary delays in the process of payment. To automate accounts payable, you need to have an idea about what the accounts payable automation process is.
What is Automated Accounts Payable Processing?
The accounts payable process can be fully automated. According to the report “Accounts Payable Automation Market Research, 2031” by Allied Market Research, it is estimated that the global accounts payable automation market will be valued at $8.3 billion by the year 2031. A CAGR of 12.3% is expected from the year 2022 to 2031. This estimation foreshadows the incoming increase in the implementation of automation in the accounts payable process.
One of the major reasons could be the adoption of work-from-home mode by most businesses. This created a necessity for the tasks to be carried out by software/machines. Hence, this modernity brought in by automation gained its current utility. Let us have a look at what role automation plays when it comes to finance.
Also Read: What is a workflow in accounts payable
How Can You Automate the Accounts Payable Process?
Financing can be the most hectic when paperwork is involved. Even though paper documentation looks professional, most often it can be a lot to maintain and deal with. Here we have listed out some possible and effective ways in which automation can save a lot of trouble for you.
Invoices are a necessary part of any business cash transaction. So, with Accounts payable automation the receiving and the recording of the invoices is automated making it free of errors and erasing any unwanted issues with the delivery. Some important pros of automating invoices are:
- Minimized paper usage
- Significant reduction in manual labour.
- Faster recording and faster approval
2. Streamlining the Approval Process:
Getting an invoice approved is one of the most delayed tasks in this workflow. Most often the officials/managers might be overwhelmed with the simultaneous lining up of approval requests. Therefore, a systematic system is required where the person in charge can effectively handle many at a time.
Accounts payable process automation will offer flexibility to the employees. It is a system where both the employee and the employer can access and assess the status of any initiated requests or processes. There is also the provision to set reminders and the necessary notifications regarding it to ensure a continuous flow of work.
With the automation, the approver in charge has the option to carry out the following actions:
- Approve the expense- When the expense report is validated and the expenses seem legitimate, the approver can go ahead and approve the request.
- Edit the expense report- Here the approver is provided with the option to edit the expense report and should also be accountable for it when auditing is done.
- Return the report- the approver can revert the report in instances where any clarification is needed.
- Reject the expense request- If the expense report does not fit within the expense budget, or in case of any fraud, the approver can reject the expense report.
3. Cancel Manual Data Entry:
Manual data entry is highly error-prone. You will be risking your business’s efficiency if you continue to endure the lack of a standardized system. The accounts payable process is also an authentic way to find profit opportunities.
Therefore, this profit-making should begin within the internal duties of your organization itself. With a deep analysis of your organizational processes, you can detect the activities that have been unnecessarily given manual attention. Jobs like data entry can be completely automated. Documents can be made digital and a cloud-based storage would be apt for easy access and sharing. Some perks that you acquire are:
- Reduction in the time and cost of processing
- Employees become more flexible
- No errors and no inaccurate audits
4. Develop Compliance Guidelines:
Policies are an important part of any business. Even with expenses, the policies stand as a guide to making legitimate expenditures according to your organization’s values and culture. In traditional ways, these policies and regulations are simply documented which the employers can refer to. In this arrangement, the approver will find it difficult to constantly check the document for any violations.
Most of the time, there is a higher probability of non-compliance and might often go unnoticed without a proper system in place. With accounts payable process automation, it aids confirm tax compliance and any industry regulatory compliance. The policies and regulations can be added to the rules in the software. This will eventually point out any violation that has occurred. The added advantage is that:
- It helps detect fraud
- Reduces invalid/error transactions
- Keeps compliance in check
5. Automated General Ledger Coding:
General ledger coding can be automated easily using automation software. The GL coding and the classification of the entries is an essential part of the accounts payable process but it is also complex in nature. The higher the number of general ledger codes the higher the maintenance, and the higher the mistakes.
On top of all this, these mistakes are left unnoticed until it is time to audit. Therefore, larger businesses can avoid these situations by opting for automation software. When automated, the AP invoices are coded and categorized according to some specific values like department, product, country, vendor, price, etc.
6. Automatic Three-way Matching:
A manual three-way match can make the process slower and inaccurate if not properly scrutinized. In place of this, an Optical Character Recognition technology will scan the order, invoice, and the receiving receipt. It also matches the amount, the keywords, and the categories and cross-checks whether you have received the right product that you have paid for. The advantages of this three-way matching are:
- Easy to track approved documents
- Reduced time consumption
- No human errors
Benefits of Accounts Payable Automation
Empowering your finance department with automation will help your organization to summon the best results possible. A standardized control is brought over the process of accounts payable, bringing in uncomplicated cash management. Automate accounts payable process to avail the following benefits.
Invoice Approvals are made Faster:
The entangled process of getting the invoice approved is made much simpler. The automation system will automatically trigger the needed reminders by sending notifications. Even the errors caused by humans can be detected and rectified before falsely approving.
Payments without Delay:
At the end of the day, the complete automated accounts payable process is performed without causing any delay. Invoices are generated, matched, and edited easily so that approvals are garnered quickly. With this, all the payments and liabilities can be met at the right time which will strengthen your relationship with vendors or sellers.
Not only within the employees in the organization but the vendors or sellers have visibility into the process. Both ends can track the status of the invoice or the payment in the process.
Exceptional Working Capital Management:
This automation system will be a good framework for the expenses that are made. It will monitor the spending of money and will effectively manage the cash flow. This system also allows you to time your payments, at the same time detect possible payment discounts and areas of profit.
Automation’s stand-out quality is its ability to ensure accuracy in the process. Most businesses even today rely on the use of spreadsheets as a means to manage all the accounts and transaction details. In such a scenario, there is always a risk of entering incorrect data leading to false payment, and this can go undetected. Therefore, the use of an automated accounts payable tool will help you reduce such chances.
With the error detection feature, as discussed in the previous point, it picks out such wrongly entered data, so that it does not lead to any mistranslations, and does not encourage fraudulent activities. A report by AFP, released in 2022, revealed that 65% of business organizations were trapped under fraudulent attacks in the year 2022.
To save yourselves from this pothole, automate accounts payable processes which will send you constant alerts on the transactions made. The software can detect alert activities like fraudulent transactions, unapproved sellers, inflated charges, phishing frauds, duplicate transactions, etc.
With automation’s tracking ability, it will enable you to constantly watch over the status of the invoice and track for any misleading information or transactions at any point in time. Additionally, in this workflow, each task is assigned to respective employees, and they are responsible and accountable for it. This makes the insulation of fraud much easier.
Improved Efficiency and Productivity:
There is an overall increase in the efficiency of the financial handle of your business. The processes within it are streamlined effectively making it seamless to work. This in turn also increases the productivity of your organization. Automation lets you integrate with other existing tools letting you work without any confusion.
Costs Cut Down:
A huge amount of cash can be saved in the processing of invoices. Automation also cuts down on other resources like labor costs. It also considerably reduces the costs that go into documentation, storage, invoice production, etc.
As discussed earlier, the compliance rules can be incorporated into the automation software. This enables the members of the organization to easily access and abide by the policies and regulations. The workflow automation tool makes it transparent, which reduces the chances of risks/fraud.
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AP Automation Software – How to Choose the Right Tool?
It is always necessary to do a detailed analysis before you choose an AP Automation software for your business. You need to understand the set goals and objectives of your business and implement a software tool that will catalyze your organizational process.
Finance is one such sector that demands utmost clarity when entering data, invoice generating, processing payments, and also when auditing. Therefore, supervision and caution are required while dealing with them.
Here are some steps that you can follow when you decide to automate your accounts payable process.
1. Identifying Challenges in the Process:
A deep analysis of the accounts payable process is the first step that you can take. Identify the problems/challenges that your organization faces in this process. Certain parameters like the number of resources, time, and the nature of the task need to be considered in this evaluation. This approach lets you understand the problems in general.
2. Comparison of Prices:
With varying prices, the features of the software vary. For example, some software tools will restrict you to having only one payment method, while in some others the generation of invoices would be limited to a certain number. You might want to go for a cheaper tool but it is always a best practice to push the price parameter to the end. The features that the tool offers should be your priority and decide if it is worth the money.
3. Ease of Implementation:
Without disturbing the current system, your automation tool must be able to align itself in the process. There are a lot of such tools with the ability to integrate with other applications. This will enable you to work in the same environment but with increased efficiency.
4. Additional Features:
When the above-mentioned criteria are met, you can evaluate secondary features like control access, tracking, visibility, customization, etc.
This might seem like a weighing task, but it is essential to have your research done before you choose one. This will help you land on the right one that will be the driving force to reach the desired productivity.
Cflow- The Best Automation Platform for Managing your Finance
Cflow is the perfect tool for you to manage your finance most efficiently through incredible workflow creation. It is the top no code automation tool available with business-friendly features that will make your processes seamless. It is simple to use and enables you to manage and log all the transactions in one place.
For finance especially, Cflow gives a deep sense of clarity with its zero-coding nature. Without leaving the interface, it lets you work with 1000+ other applications simultaneously. Hence, our platforms promise fluidity to the process. Some notable features of Cflow include:
- Payment approvals are made easier with simple invoice generation and sanction of requests.
- It enables you to create, store, and review receipts whenever and wherever you wish to.
- You can simultaneously keep track of all your transactions, dealers/vendors, and payment receipts.
- Guarantees a seamless review and approval of purchase orders without any delays.
- Lets you integrate with other platforms to effectively bring out the expected outcome.
- Generate invoices without errors and make payments with systematic and easy functions.
- Complete removal of fraud and duplication from invoice approvals.
- Maintain a rapport with vendors and suppliers, with automated features like contract negotiation, cost control, and mitigating vendor risks
The finance department dictates the strength of any business. It is the backbone and is responsible for the growth of your organization. If not properly managed then it can lead to the downfall of all your efforts.
Finance is a very challenging area, it is most important to make it less viable to mistakes and losses. It becomes necessary to make use of technology that will take your business to the next level.
Accounts payable process automation lets your business workforce feel empowered and effectively bring profit to your organization. Cflow is a trustworthy and cost-effective tool that you can rely on with your finances.
Get a deeper knowledge of how Cflow streamlines accounts payable. Click Here
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