CFOs, controllers, and outsourced accountants are natural control freaks. They are the people who want to know where each and every penny, obligation, asset, and receivables stand in any given time. After all, it’s their job, and that’s exactly what we expect from them to do. We also expect them to keep the business profitable and healthy. Therefore, any tool that will give these professionals more control, such as the AP (Accounts Payable) Automation Software, will definitely be a good thing.
Here are some of the reasons why you should outsource your accounts payable:
- Saves Time
Using business process automation in managing accounts payable could significantly reduce the time needed to process an invoice. The payables will be instantly routed depending upon the prescribed processes that you will identify. Implementing the Accounts Payable automation system means that none in your organization will have to spend a lot of time having to look for an invoice or to hunt it down in the approval process. By using the AP automation software, there won’t be another lost or misplaced invoice.
- Saves Money
If you’re going to automate your process of accounts payable, then you can avoid the possibility of mistakenly paying for an invoice twice or overpaying it. Furthermore, you’ll also be protected from the danger of late payments just in case one of your staffs overlooks a particular invoice due date. The AP automation system is going to alert you in the event of overpayments, duplicates, and will remind you about any due invoices that are pending.
- Collaboration
The invoice system will allow as many people as possible to collaborate with a particular payable in real time. Regardless of where they will be, anyone who as a stake or interest in a particular invoice will have access to it and can dispute or confirm any charges. He or she can also seek clarifications about a particular invoice or explain any discrepancies with only a few clicks.
- Follows the Money
An automated invoicing system is really the winner when it comes to auditing. Electronic audit trails are available using the invoice software, which makes tracking an invoice so much easier, from payments to receipts. Detecting any accounts payable fraud will also be easier using the automated system.
- Personalized Process
With the use of the invoice system, you’ll be able to customize the accounts payable workflow depending on your company’s needs. It also allows you to route invoices more than the prescribed amount for as long as there’s proper authorization. Furthermore, the system allows you to create and maintain approval timers, validate and cross check payables, and balance the workloads of the Accounts Payable staffs.
- Holds the Line for Headcount
Most controllers tend to dislike adding headcount most especially in their department. The AP software can help to significantly improve the productivity of staff, allowing the same staff to handle the increasing volume of payables while minimizing the need to hire more staff for as long as possible.
- Accounts Payable That Are Cloud-Based
Using the SaaS model for your Accounts Payable means that there will no longer be a need to install any software or hardware. It also doesn’t require an IT team to maintain it. This also means having predictable IT costs for your Accounts Payable and no surprises for any system failure that may require replacing, upgrades, consultants, etc.
- Controlling Interest with AP Invoices
The automated AP system offers a sense of control that wouldn’t be possible when using paper-based invoices. Immediately, the invoice system will let you know where each and every invoice is and how productive are the people managing them. It will basically inform you of everything that “control-freaks” may want to know regarding their payables.
Recording Accounts Payable
When recording accounts payable, the bookkeeper or accountant will have to credit the accounts payable account as soon as he/she receives the invoice or bill. And after he/she pays for the bill, they will immediately debit the accounts payable.
For instance, a business will receive a $500 invoice from office supplies. If the AP department receives the invoice, it will enter a $500 debit on the accounts payable and then a $500 credit on the office supply. So when someone checks the balance from the accounts payable category, they are going to see the total amount that the business owes its short-term lenders and vendors. The company will then write a check to pay for the bill and the accountant will key-in a $500 debit to the checking account while entering a $500 credit under the column for accounts payable.
Long-Term Debts and Accounts Payable
Accounts payable is considered a short-term debt. Some other short-term debts are payroll costs, expenses, income taxes, and short-term loans. Conversely, long-term debts refer to lease payments, individual notes payable, retirement benefits, and a wide range of other debts repaid in the long run.
Accounts Payable vs. Trade Payables
Although some people interchangeably use the term “trades payables” and “accounts payable,” these phrases are quite similar although they are slightly different in some things. Trade payables refer to the money that a company owes its vendors for any inventory-related products, including business materials or supplies, which are a part of their inventory. Furthermore, accounts payable refer to short-term obligations or debts.
For instance, if a particular restaurant needs to pay a beverage company, the items they acquired are going to be part of the inventory, and therefore, they will be part of the trade payables. In the meantime, obligations for other companies, such as those companies that are tasked with cleaning the uniforms of the staffs, belong under the category of Accounts Payable. Some other accounting methods will roll both these categories into the AP category.
Accounts Receivable vs. Accounts Payable
Accounts payable and accounts receivable are technically opposites. Accounts payable refers to the money that the company has to pay to its vendors. On the other hand, accounts receivable are money that the company is due to collect. If there’s a bill in the accounts payable department of the company, then the company to which it owes the money to will categorize such bill on their accounts receivable category.
Top Accounts Payable Processes to Automate
Although business rules vary from one organization to another, some of the processes in accounts payable are pretty much the same. We’re going to discuss these processes, where, if automated, should give you a high ROI. Not only that but it can also help reduce your operating costs, save you both money and time while increasing the overall efficiency of your company.
- Invoice Arrival and Categorization
Receiving incoming vendor invoices is one of the most complex processes that a company has to deal with.
Most vendors will send invoices in varying mediums and formats, either through fax or email. It can also be received in different formats, either in DOCX, PDF, JPG, etc. Sometimes, vendors may send the invoice in a conventional paper.
Regardless of the method, the process is a bit complicated for most companies.
The issue is even more complicated when these invoices are sent in different mediums and formats. In this case, they have to be classified and sorted into different categories. If you value the time of your employees, then you shouldn’t have to make them take these steps manually, especially if they are going to process a huge number of invoices.
Automating the arrival of invoices and sorting and categorizing them automatically can greatly help to simplify the workflow in your accounts payable department.
You can get started by asking your vendors to send invoices to you electronically. This can eliminate the need to use paper from the process and will significantly cut back on the amount of time that you would have otherwise spent to sort invoices of different formats.
Unlike the paper invoices, the electronic invoice, also known as e-invoicing, will make it possible for you to automate the workflow of your account payable at the early stage of the process, which includes categorizing and sorting out invoices.
This means that you will no longer need to put in extra time in scanning and trying to get the OCR system to comprehend a scanned paper document.
- Routing and Approval
Before the invoice is posted for payment, it needs to undergo a series of approvals for authorization and exception handling. The invoice’s accuracy and validity will also need to be ascertained. Without these assurances, the invoices cannot be paid.
All these approvals will normally occur at varying stages and have to be dealt with by different kinds of people. For example, the purchasing department or the staff who has placed the order may have to approve the transaction and confirm if the billing of the vendor is correct. Just before the payment is made, someone from the management team may need to do a final approval to ensure that the right amount is being paid to the right account.
For the invoice to be approved, it needs to be routed. This means that it has to go from one approver to another. If the company chooses to process the invoice manually, then this could mean that the paper invoice will have to travel from one desk to another for the process of approval. This process is just time-consuming and is often one of the major reasons for the delay in payment that will eventually lead to penalties.
Automation of the accounts payable workflow can help simplify these steps, which will make your team more productive. This automation will only require a few clicks, and it will immediately route the invoices in mere seconds to the authorized approver.
- Data Capture and Validation
Manual data entry is one of the most tedious tasks in the accounts payable department. This process is not only time-consuming, but it’s also costly and prone to error.
The workflow automation software includes a feature that has handwriting recognition systems like the intelligent character recognition and optical character reader, allowing users to easily and immediately capture data instead of having to waste precious time inputting them by hand.
Automatic validation and data entry will not only improve your workflow, but it can also help improve faster output. Since the repetitive task will be fully automated, any potential errors will be avoided, and data consistency will be maintained.
- Invoice Matching and Verification
Before an invoice for services and goods is paid, the invoice will have to be matched against the other relevant documents. These include receiving reports and purchase orders to ensure that the right invoice is paid. This process helps to minimize the inefficiencies associated with manually matching invoices.
When it comes to automating the invoice matching, the document management system of the workflow automation software will store the necessary documentation electronically. These include receiving reports, purchase orders, acceptance notes, and several other supporting documents. Once the invoice arrives, the OCR tool can be used to capture and digitize the data from the invoice. The AP workflow automation tool will then extract the required information from the documentation to verify it based on the predefined rules. This could mean matching GL codes, numbers, line item information, amounts, terms, etc.
This system certainly helps speed up the Accounts Payable process and minimizes any mistakes that humans are prone to commit. It also saves your staff some precious time, which they can use for more worthwhile tasks.
- General Ledger Coding
During the process of identifying payables before they are posted, a GL code is required based on different things such as invoice category, amount, vendor, etc.
Depending on the business rules of the organization, the process of GL coding might need to refer to certain numbers that will point towards a country code, product line, freight direction, warehouse, business unit, etc.
If the organization needs to process an overwhelming number of invoices, then this means that there will be many numbers to code. This can make the GL coding process very cumbersome and can be potentially automated.
Manual GL coding is definitely time-consuming, and utmost attention is required to properly set some rules, most especially during ERP entry, to avoid committing mistakes such as making duplicate payments.
Using reliable workflow automation software can help auto code invoices for proper accounts based on a certain set of rules.
Conclusion
If fully implemented, the AP workflow automation software should be able to cover each, and every step involved in the invoice processing, from the arrival up until the payment is made. The five steps discussed above should give you an idea as to which type of work you should automate more in your business.
Remember that if you stick with processing your accounts payable manually, this could potentially lead to longer processing time, human errors, lost invoices, incorrect payments, etc. All these problems could cost you money and time and might eventually lead to an even bigger issue. Investing in a fully automated AP system will not only solve these problems but will also allow you to process invoices swiftly.
