Challenges faced by the accounts payable department
Although the accounts payable procedures seem straightforward, there are some inherent challenges that prevent the team from optimizing their operations. Accounts payable managers often face the challenge of having to do more with fewer resources to transform their team/departments from cost centers to profit centers.
The common challenges faced by the accounts payable team are:
- Excessive paperwork – the accounts payable function is among the most paper-intense departments. More than half of the invoices received are in the form of paper documents. Missing or damaged invoices is another challenge of paperwork-driven processes.
- Time delays – the AP processing involves several review and approval steps. This causes delays in processing the invoice and paying the vendor.
- Matching errors – the 3-way matching process in AP processing identifies any discrepancies between invoices, POs, and GRN data. Identifying the source of the error and fixing it is a time-consuming task.
- Lack of visibility – paperwork and manual steps in the AP processing creates blind spots that prevent the team from tracking the company’s cash flow efficiently. Lack of visibility into the status of the invoice increases the risk of late payments and makes it difficult to analyze the financial health of the company.
- Exception management – handling exceptions such as incomplete or mismatching information on invoices is a challenge for the AP team. Exception management requires a lot of time and effort.
- Unnecessary purchases – the absence of proper checkpoints and adequate controls over the AP processing steps results in unnecessary or unauthorized purchases.
All the above challenges faced by the Ap processing team are mainly due to outdated manual processes. These challenges can be overcome by automating the AP process with the help of workflow automation tools like Cflow.
Ways to streamline the Accounts Payable Process
Most of the challenges faced by following manual accounts payable processes can be eliminated by streamlining the process following the below steps:
Centralizing all critical AP documents and automating processes on a single platform – centralizing all the processes in the accounts payable workflow enables end-to-end automation. Automation brings the ability to capture, integrate, measure, process, store, and access critical AP information.
Minimize paper-based transactions – guidelines for vendor management must be set to submit digital invoices and leverage invoice capture software for automatic capture of information required by ERP systems.
Setting up payment reminders – delayed or missed payments can be avoided by setting up automated payment reminders.
Generate monthly reports – finance managers need to stay informed on the cash flow and always prepare for audits and information. Preparing monthly reconciliation, voucher activity, and payment history reports helps them stay updated and prepared.
Automating the Accounts Payable Workflow
Enhancing the accounts payable process through digital technology began as early as 1978 with Viscal, the first spreadsheet software that was used for accounts management. From then to the current scenario where most of the accounts payable procedures are automated, Ap processing has come a long way. Modern accounts payable workflows are capable of invoice data capture, coding invoices with the right account and cost center, matching invoices and POs, and approving invoices.
New technologies like workflow automation now provide businesses opportunities to derive more value out of their accounts payable processing. Automating accounts payable procedures like invoice data capture, 3-way matching, invoice approvals, etc. helps save time and costs significantly. With advancements in technology, accounts payable processing has improved by leaps and bounds.
Some of the latest advances in AP automation include:
- Accounts payable automation covers automatic invoice data capture and de-siloing data through ERP integration.
- Intelligent invoice automation technologies like AI-based classification and data extraction
- PO automation for keeping business well-stocked and devoid of shortages due to human error.
Automating the accounts payable workflow centralizes all the operations and access to documents. There are several benefits of automating the accounts payable process.
- Eliminates paper clutter, which in turn reduces processing rates and error rates
- Enables better vendor management and prevents fraudulent practices
- Links POs and invoices with electronic payments, providing a complete view of the accounts payable cycle
- Enables seamless 3-way matching
- Integrates the accounts payable process with other core business systems like ERP and CRM
- Eliminates the need for multiple checkpoints in the accounting cycle, which helps avoid unnecessary purchases and overspending
- Issues automatic alerts and notifications that are triggered when discrepancies are detected and for payment deadlines
- Generates periodic reports and analytics that help managers understand the spending patterns in the organization and prepare for audits and taxation
Accounts payable workflow automation has increased substantially over the past decade. Here are some of the most popular ways of automating the accounts payable workflow.
Switching to e-invoicing – invoicing is the first step in the accounts payable process in which vendor invoices are received for payment. This is a critical point in the accounts payable process which sets the tone for the rest of the process. It is a complex process that lacks standardization for invoice capture. Since invoices come in different formats, consolidating, sorting, and scanning them is challenging. Shifting to e-invoicing sets a standard way to work with vendors and clients. It also eliminates the paper clutter in the office.
Seamless payment approvals – invoice approvals often create significant snags and errors in the accounts payable process. However, approvals are key for verifying expenses and budget management. Automated AP workflow seamlessly routes each invoice to the appropriate person for approval. Automated alerts are also sent to the approver for approaching approval deadlines. Automation ensures that no time is lost, and no paperwork is lost.
Do away with manual data entry – data entry is a critical part of the accounts payable process. Data entry enables accounts personnel to spot trends and ways to increase profits. Automation can capture data by loading invoice data to the OCR system. Automating data capture and storing it in a centrally accessible medium enables easy, error-free data capture.
Automate the matching process – 3-way matching is a critical part of the accounts payable process. Inconsistencies in invoice data and discrepancies between invoice data and PO data or goods received note data can be effectively identified during the 3-way matching process. Manual 3-way matching can be tedious and prone to error. Automating the 3-way matching process improves the accuracy of matching and speeds up the process.
Automating complex invoice coding – coding and classification of invoices is the next most complex process to data entry. All payables go through a classification step called General Ledger (GL) coding. GL coding is an exhaustive process that helps identify a broad range of values for each invoice. Some of the details included in the GL coding are amount, vendor=or name, invoice category, product line, freight details, country code, business unit, department, and warehouse. Larger business units receive more invoices, and more voluminous will be the GL coding. Therefore, automating the complex GL coding process relieves the accounting team from tedious and time-consuming work.
Transform ACH spend to smart cards – moving their AP spend to a card is a transition that many AP managers are not comfortable with as it does not allow auto-categorization. However, transactions done via smart cards can be effectively auto categorized based on the virtual card built for the vendor. For organizations paying their vendors via ACH, wire, or cheque expense management and tracking can be cumbersome. Using smart or virtual cards allows them to float payments so that money does not actually leave their account until the payment is done.
Modern AP processes are being automated by AI-based and Machine learning software. A variety of software like optical character recognition and intelligent data capture is being used to capture key bits of data like the PO number, amount, date, etc. Workflow automation software also uses pre-set templates to convert all documents associated with AP management into digital versions. Machine learning allows the AP system to learn from the main elements of the process and provide meaningful suggestions for the efficient handling of these elements. Such automation of the accounts payable procedures allows the AP team to devote more time to analytical and administrative functions that benefit the company.