Chapter 2:
The Accounts Payable Process

How The Manual Accounts Payable Process Works

There’s no definitive process for a lot of companies, and that’s part of the problem.

Most small to midsize business leaders are very familiar with manual accounts payable processes. To better understand the benefits of automated accounts payable solutions, it is important to look at the similarities and the differences of the two methods for handling AP. This can also help you identify bottlenecks in your own process that can be solved with automation.

  1. The accounts payable process begins when your invoice is received by the AP department. Invoices can arrive through many different methods, including electronically through email, fax, snail mail, inter-office deliveries, or maybe a colleague dropping paperwork in an inbox or on your desk. When AP processes are not centralized, handling and processing each new invoice is essentially an ad hoc adventure.
  2. Once invoices are received, they are either physically handed to an AP manager or team member, or forwarded if they came in via email.
  3. Next, the invoices are manually typed into an accounting system, and may be scanned in as well to create a digital record.

This is the best-case scenario and assumes an ERP (enterprise resource planning) system is in place. However, it still offers plenty of opportunity for manual errors and typos.

In some cases, the invoice is approved for payment by default and the cash goes out the door. This is a huge risk to the company, because any invoice that shows up can get paid whether it is accurate and approved or not. In the event that approval is mandated by the company, then that is the next step in the workflow. It is important to validate that each invoice is genuine and approved by someone with the right authorization level before it is paid. If you don’t have those processes in place, manually entering an invoice is mostly a waste of time, as it will be paid either way. The AP team should have a clear set of guidelines as to who is authorized to approve invoices by dollar amount and purchase type. If this does not exist, the process can be confusing for everyone involved.

In the event that you do have a defined structure, then you have to handle approvals, or an entire approval hierarchy, electronically via email or with hard copies to create a written approval paper trail.

If there is a payment authorization system in place, then that is the next step after entry. This requires a human AP worker to figure out who has to approve what, and in what order. Sometimes this is easy enough if the invoice came right from an authorized approver.

However, if an invoice for 25 widgets just shows up at your desk, then you have some detective work to do. First, you have to figure out who at the company would be ordering widgets. Second, you have to find out if they made the order. Then, you have to determine if the order is accurate and track down the manager or approver for sign off.

This is a lot of work for one check to go out the door.

In the event that you do have a defined structure, then you have to handle approvals, or an entire approval hierarchy, electronically via email or with hard copies to create a written approval papertrail. This can mean lots of emails asking for approval, getting approval, and then sending to the next person. If someone shouts over your cubicle wall, “It’s approved!” is that enough of an audit trail for the payment? Probably not, but in many small to midsize businesses, and even some large companies, this is how payments are handled.

Once the invoice is approved, more manual steps lie ahead including check printing, envelope stuffing, adding stamps or running it through a postage meter, and a physical signature or two on the check before it goes to the mail room.

And that’s just for check payments. You may also need to use a company credit card, where repetitive information is entered for various payments, making card information public and not secure. Or maybe there is a payment portal with PayPal, Venmo, Dwolla, or another payment processor that requires authorization forms, faxes, emails, and other headaches. There is no system in place to capture vendor payment preferences. The capture tools may not be talking to the ERP and accounting systems.

You might not have the ability to tell the difference between a payment for office supplies, computer equipment, or online software as a service (SaaS) products. It is all a jumble that takes even more manual work to understand and sort out.

If you can’t trust that an invoice from a preferred vendor that your company has a strong relationship with will be paid on your agreed upon terms, then your AP system is broken. If you cannot quickly run a report that shows your current payments outstanding and expenses over a specific time period by category, then you are due for some upgrades.

In an ideal AP workflow there are very few manual steps.

With a lack of systems and planning, AP can be disorganized and error-ridden, raising the vital question … what can AP automation help solve? In an ideal world, the workflow would look like this.

Standard AP Process

How The Automated Accounts Payable Process Works

It’s a lot simpler than you think.

Modern, automated accounts payable workflows make the entire process easier, more accurate, and efficient. Through a combination of shorter payment cycles and improved processes, automated accounts payable provides solutions that can help cut clutter and paper. It even helps the environment, as the entire workflow can go paperless with a modern system.

With an ERP system in place, the whole system can be automated once the purchase order (PO) is created. Invoices can be automatically matched to existing POs and automatically entered into the accounting system without anyone lifting a finger. Some electronic invoices can be loaded directly into the ERP system through a fully automated computer process.

Invoices that come via fax can be read right into the system. Emailed invoices that arrive as a PDF, XPS, or other file types can be quickly uploaded to the ERP. In the worst-case scenario, when you get a paper invoice by mail dropped on your desk, then you can just scan and upload to the ERP and the automated process begins from there.

From this point, every invoice is an e-invoice. There is no need for paper moving forward, and much of the work can be done electronically from a computer, or even a mobile device. When your AP is fully automated, accounting doesn’t ever have to look at any invoices outside of the account reconciliations.

If something doesn’t match between a PO and an invoice, then the ERP will find any anomalies and flag them for manual review. The reviews are typically faster and more accurate with automation in place, as it is quick to identify where the mismatch occurred for an easy fix using a web-based interface, similar to checking email with Gmail or other popular web-based programs.

Leaders have better control, reporting, and access to AP data and a full audit trail for each payment sent.

AP Automation with AvidXchange

Chapter 1:
What Is Accounts Payable?

Chapter 3:
How AP Solutions Integrate Into Your Existing Business Processes

Ready to Liberate Your Accounts Payable?

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