Accounts Payable Process (APP) is the management, communication, and delivery of a company’s payment duties to its vendors or suppliers. The capture of invoice data all the way through payment approval, the APP cycle consists of carefully thought-out steps specifically designed to ensure a seamless cash flow between the parties involved. Such a cycle is an essential part of the overall Procure-to-Pay (P2P) process, which is dedicated to covering all areas relative to procurement to invoice processing and transfers.
What is the Accounts Payable Process?
On the surface, the Accounts Payable work can look like the simple process of completing a purchase upon payment request. In reality, it consists of a meticulous step-by-step procedure that is specifically tailored to the needs of an individual enterprise. Most organizations will codify and automate each step in an effort to make the process as swift and cost-effective as possible.
The scale of the APP will depend on a series of factors involving the number of service providers involved, the number of payments needing to be delivered in the short term, and the paperwork involved with the procedure. These factors will vary depending on a business’s size and levels of activity.
How AP process works
As a whole, the basic AP workflow process will generally look like this:
- The invoice is received from the service provider or vendor
- The data on the invoice is verified
- Payment records are updated
- Payment is sent within the timeframe requested on the invoice
- The ledger account for the transaction is closed
AP procedures can be manual or automated, and are carried out over four main steps:
Step 1: Accounting Systems
Manual: In this scenario, the accounting system is the primary system of record for all AP processing. This approach fails to take into consideration the Enterprise Resource Planning ( ERP), where most of the recording, storing, and reporting of financial activity takes place.
Automated: Software is leveraged to automate all AP processes, in turn facilitating the seamless function of accounts payable processes.
Step 2: Invoice Data Capture and Coding
Manual: Manual data capturing and coding requires hiring an accountant to handle all invoice data and physically type it into the system. Along with resulting in higher costs, this approach also creates more opportunity for errors and omissions – which in turn can further be detrimental to a business.
Automated: Data capture is automized, reducing the need for human brainwork and minimizing the risk for potentially costly mistakes.
Step 3: Invoice Approvals
Manual: Once again, letting staff handle invoice approval manually will result in time-consuming back-and-forth messaging with all parties involved. Important information can slip through the cracks, resulting in problems with the vendor/service provider or even the taxman.
Automated: In this scenario, the person responsible for invoice approval is automatically notified and prompted to electronically sign-off on the the documents at the click of a mouse, triggering automated payment. Tracking of all activity remains available so as to ensure everything is proceeding smoothly.
Step 4: Payment Authorization
Manual: Manual payment authorization is not a realistic option for medium-to-large businesses. Signing significant amounts of checks by hand can be exhausting and take up all the brainwork required for equally compelling tasks. Moreover, manual payments are not as easy to track as automated ones, and can potentially be forged.
Automated: Along with providing a sound tracking for any audits that may occur, automated payment authorization is quick, encrypted, and designed to be easily accessible to the designated department.
How to Streamline the Account Payable Cycle
The Accounts Payment cycle is rarely considered among the more pressing issues of business management. This is a common and potentially costly mistake. Along with ensuring better vendor/service provider relationships, optimizing the account payable cycle reduces the risk of incurring late-payment fees whilst also allowing to take advantage of early-payment discounts.
Streamlining a company’s AP cycle will involve three central steps:
- Assessing current basic AP operations: To know where a business is headed, it is important to see where it is currently at. If an organization is struggling to keep up with payment requests and missing deadlines, chances are the current approach is not working.
- Setting a standard for AP processes: Businesses of all sizes can have trouble staying on top of all the bills/invoices received if they solely rely on the company e-mail address. To avoid bills ending up lost or misplaced, companies should invest in systems designed to centralize the reception of all payment requests, as well as organize them by due date, amount, and urgency. Having a system in place for all invoice activity will spare affected business departments the chore of manually handling every single payment request.
- Relying on Electronic Invoices and AP Automation: In spite of the undeniable fast-tracking of digitalization of recent years, many organizations still heavily rely on manual operations when it comes to invoicing and account payments activity. Relying on electronic invoices, though, offers countless benefits. Beside ridding staff of unnecessary papers that can easily be lost, misplaced, or forged, electronic invoices offer an easy template that takes only a few seconds to be customized for each individual payment.
By the same token, AP automation can make the storing and managing of vendor/service provider information easy, as well as track the cash flow between both parties.
Challenges of the AP Process
Companies that are still relying on brick-and-mortar approaches to the accounts payable cycle will often face a few of the following challenges:
Slow processing: It should go without saying that heavily relying on paperwork and manual signatures inevitably gets in the way of a functional and seamless workflow. Along with affecting credit and increasing the risk of fines, flaws in invoice processing can affect the relationship with suppliers.
Unauthorized purchases: One of the many potential risks of relying on manual processes is the increased risk of unauthorized purchases. These can be related to credit card activity, or to buying items from suppliers who are not on the authorized list.
Risk of fraud: Because so many organizations still rely on paper-based payments, check fraud is stll a major problem inside and outside of the United States. Moreover, even those organizations that have made the shift to digital can still be vulnerable to fraud over e-mail as threats become more believable and sophisticated.
Duplicate payments: Unless payment records are digestible and religiously kept, there is a risk for duplicate payments happening. Along with potentially harming a business, reversing charges risk being a time-consuming and complicated process.
Lost invoices: It is not unusual for bills or invoices to fall through the cracks and be misplaced or lost altogether. This can lead to miscalculations in regards to budget, as well as being potentially detrimental to supplier relationships.
Supplier relationships: When partnering with a business, suppliers will value effective communication and on-time payments. When these are lacking as a consequence of a subpar AP process, it can result in the termination of an otherwise mutually beneficial partnership.
How Can Software Solutions Help with the AP Process?
By now, it should be clear that optimizing the AP process can boost the performance of business operations in ways that were unthinkable not so long ago. Choosing the right software for AP management consolidates all aspects of payment approval and cash flow all the while unlocking valuable time and brainwork that can be better spent in other areas of the business.
Leveraging the right software solution for the management of AP processes allows for the automation of most AP-related operations. These have the following benefits:
Automatic payments: When relying on scheduled automated payments, the risk of missing or duplicating a money transfer becomes close to zero. In this scenario, automation has a two-fold approach: on one hand, it takes the worry out of delivering on-time payments, on the other, it helps foster good relationships with vendors as deadlines are seamlessly met.
Vendor management: By providing a well-organized, user-friendly dashboard, software solutions make managing vendors easy. Businesses can access all relevant supplier information and payment history at the click of a button – saving precious time whilst minimizing the risk of all payment-related mishaps.
Time-effectiveness: Through automation, invoices can be promptly processed so the transfer can quickly reach the vendor/service provider’s account. Moreover, centralization means that all operations relative to a specific account can be easily tracked an managed from the dashboard.
Lower costs: Automation can lower labor costs all the while tasking employees with more rewarding and higer-stake projects. Moreover, postage and hard supplies such as paper, envelope, and the like will not need to be stocked up as frequently.
Seamless integration: Rather that building an entire landscape from scratch, AP software can be added to a company’s existing infrastructure and will only require a few tweaks and routine, low-effort maintenance to continue to deliver quality results.
Absolute transparency: From the dashboard, users can easily access information relative to all individual accounts at every stage of the payment cycle. Along with offering a clear view into the ins and outs of all major payment operations, dashboards also offer the possibility to make amends on the go and interact with vendors or suppliers as needed.
Enhanced security: Automating payment processes can sound a little scary. In reality, though, AP software are dedicated to making this procedure as safe as possible. From allowing only trustworthy employees to manage payment to setting up approval workflows, AP tools can maximize not only time and efficiency but also the security of payment-related operations.
Boosted trackability: Software help you consolidate all relevant vendor/service provider information into the same account folder. This system allows all crucial information to remain in one place, minimizing the risk of missed or mistaken information. The double-fold effect of this approach benefits the company’s private records whilst also allowing it to be audit-ready.
Choosing the Right Software to Improve your Company’s AP Cycle
Making the best out of your company’s accounts payable process requires the development and application of a solid plan. Leaving time-consuming and wasteful manual approaches behind is the first step towards a seamless cash flow, improved productivity, and better relationships with your service providers.
At Rewardworks, we are committed to offering the best resources for every step of your accounts payable cycle – from onboarding your vendors and taking over all aspects of management to dealing directly with them. This in turn, allows you and your staff to focus on other aspects of your business.