Everything You Need to Know About Accounts Payable

Everything You Need to Know About Accounts Payable

 

What does accounts payable mean?

Accounts payable (AP), according to Oxford Languages Dictionary, means money owed by a business to its creditors. AP is among the most complicated business processes for any company, and yet, it seldom gets its due in terms of attention or investment in process transformation.

 

What is an accounts payable process?

If cash flow is the lifeblood of your business, your accounts payable process is its beating heart. A typical AP process can be broken down into four steps after the procurement is made:

  1. Invoice delivered to AP
  2. Invoice review
  3. Invoice approval
  4. Payment issued to suppliers or vendors

However, do keep in mind that the complexity and length of each company’s AP process will be different from organization to organization.

 

What are some top challenges for accounts payable teams?

Traditional methods are cumbersome and inefficient. A survey of 420 businesses across five countries found that finance decision-makers rated various pain points related to manual invoice management.  Problems commonly encountered by AP professionals include:

  • Too many manual processes. In a manual environment, paper, faxes, and e-mails, are the basic building blocks. Most respondents (69%) were put off by the general inefficiency and laborious nature of manual solutions. This was at the top of the list of challenges for nearly every industry tracked.
  • Incomplete documentation. Many organizations (56%) reported missing paperwork as a key challenge. Moving away from manual processes can eliminate the issue of missing documentation and the need for paper-based filing.
  • Difficulty tracking spending trends and behaviors. Being able to track spending is an important part of corporate accounting. Small companies can also miss cash flow issues if spending is not tracked easily.

Build a Case for AP Automation

Our guide will help you lay the groundwork to plan, write, and present a business case that you can sell into your business leaders.

 

Manual tasks and inefficient processes can bog down AP employees’ days and lead to errors, inaccurate financial data, and late payment fees. Wondering what the effect is on your business? Our AP process assessment quiz will give you a breakdown of your potential risks.

 

What is accounts payable automation?

Automation is a different way to approach AP. AP automation means using software to digitize the vendor invoicing process and create faster, leaner, more cost-effective AP workflows. These days, if you want to encourage business growth, it is inevitable to make a choice about your AP processes. Just ask yourself a simple question: Do you want you and your team to work harder or smarter?

Automating AP process provides businesses a single system to capture and route invoices digitally from approval to payment, regardless of format. It also increases visibility into spend and helps control costs accurately.

 

What are the benefits of accounts payable automation?

Before listing out the benefits you’ll get with an automated AP process, let’s do some simple math first.

Automation delivers an average reduction in invoice processing costs of 29.2%, according to research from the Association for Image and Information Management (AIIM). For a business that processes 10,000 invoices per month at an average cost of $10 per invoice, an average 29% reduction in invoice processing costs equals to savings of around $300,000 per year. However, AIIM found that nearly one-third of the businesses surveyed reduced their invoice processing cost by 50% or more because of AP automation, which would save them $600,000 a year.

Now, here are some top benefits automation can provide, regardless of your business size and industry:

  • Control costs and reduce unnecessary spending
  • Reduce errors and duplications that come from manual data entry
  • Uncover data that helps you make informed decisions
  • Increase policy compliance and strengthen vendor relationships
  • Boost employee morale and give staff more time or strategic tasks
  • Attract and retain top AP talent

 

8 tips to implement accounts payable automation software

To support business growth, especially for SMBs, you will need a more scalable way of working with larger ecosystems of partners and suppliers. Intelligent process automation in AP changes everything. Here are some helpful tips we’ve compiled from other companies that have already completed the journey:

  1. Investigate your processes. As you begin your shift to automation, take time to evaluate your current processes and start instituting meaning changes. Some simple ways to start with are asking your AP employees what obstacles they face and how you can help them overcome their issues.  
  2. Continue making improvements. Since your business needs are changing constantly, your AP processes should evolve with them. Create a change management document at the onset of your automation solution implementation so new hires can quickly learn your processes.
  3. Capitalize on improved reporting. Make sure to take advantage of the reporting capabilities automation provides. With improved data insight, your company will be better equipped to proactively course-correct any inefficiencies or bottlenecks.
  4. Discuss your integration options. Before deploying your automated invoice solution, give some thought to the current state of your systems and your future needs. Think about things such as what resources you have internally, how you’re integrated with other systems, and how frequently you need AP data flowing back and forth.
  5. Create an AP policy. Having a policy in place helps educate employees on buying policies and procedures, provides a framework for implementation configuration, and identifies where user education or policy reinforcement may be needed. We have a handy template to get you started.
  6. Align with others. A software implementation is likely to impact multiple groups inside and outside your company. It is important to make sure all interested parties are on the same page.
  7. Take the next step. Today’s most successful organizations are going beyond mere AP automation. They are looking to achieve AP optimization.
  8. Kick-start your transformation. The sooner you implement automated AP software, the better you can start benefiting from a comprehensive spend management platform that empowers you to save more time and money.

If you're ready to make some changes, check out our guide How to Make the Business Case for AP Automation, or contact us today.

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