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7 Ways to Save Your Accounts Payable Process

April 19, 2018
professional male looking at laptop screen holding financial papers

Without even realizing it, many businesses are driving up costs in the very department that impacts their bottom line the most—finance. In the accounts payable process, payment cycles are plagued with inefficiencies and challenges. Printed checks and paper invoices often drive up the time and money spent to process supplier payments.

Late payments, a lack of centralized processes, and poor vendor relationships are just a few of the pain points finance departments experience during the payment cycle. But a few best practices can alleviate the havoc and headaches of the accounts payable process.

Automate as Much of the Accounts Payable Process as Possible

Dealing with repetitive, paper-based processes can eat up an entire workday. It can take hours to manually code an invoice, chase down managers for approval, and generate a printed check. There’s no time left to assess performance, data, or processes to save time and money. Even though finance departments have full-time AP staff to handle the manual payment process, valuable time is wasted on accounts payable processes that technology could handle.

To reduce overall costs, finance departments are investing in accounts payable (AP) automation software. AP automation software is a cloud-based solution that streamlines the accounts payable process from invoice to payment distribution electronically. As a best practice, automate as much of your accounts payable process as possible.

Accounts payable automation software streamlines invoice, approval, and payments based on your business’ current rules and processes. How does it work best? Once invoice information is electronically entered, the invoice is automatically routed for approval. After the invoice is approved, information is entered into the ERP or accounting system for payment electronically.

Businesses that implement AP automation software often see improvements in spend visibility, the auditing process, and cash flow. They find more time in the day to focus on the details that matter most, such as evaluating effective spend and negotiating vendor contracts.

Of course, there will always be invoices that have exceptions. Maybe they exceed a certain amount threshold or must be approved by another department. Without slowing down the process, AP automation software allows you to create rules for special invoices, so they’re automatically routed to the next step needed for payment.

Businesses that are on the fence about AP automation software are skeptical for a few reasons, one of the biggest being that they’re afraid the finance department will no longer have control and visibility into transactions. But the opposite is true; AP automation software gives finance departments easy access to historical payment and invoice records within the AP solution portal.

Let Your Invoices Live in the Cloud

For most accounts payable departments, the invoice process starts with opening the paper invoice, then creating a purchase order. After routing the invoice to the right person, it must be manually coded and approved before payment. The invoice entry process looks different depending on how the supplier sends the invoice. Most of the time, businesses receive either printed or emailed invoices. Some may be faxed. The most efficient way to handle invoices is through an invoice management system, otherwise known as e-Invoicing.

With e-Invoicing, all invoices land in a centralized hub, regardless of how they’re received. Importing your invoices into your AP automation software cuts the invoice entry time by automatically extracting the invoice data needed for approvals and auditing. Once all the invoice details have been gathered electronically, the invoice is automatically sent to the approver for authorization.

Other key invoice processing best practices include developing standard procedures for exceptions and avoiding paying invoices when they’re due.

Electronic invoicing is proven to improve overall organization, control, and efficiency for a better payment process.

Eliminate Payment Chaos with Internal Controls

At the beginning of the accounts payable process, your finance department should have a record of every invoice sent to your business, regardless of which department it’s sent to. When your finance department keeps a log of all invoices, there’s transparency and less chance of an invoice slipping through the cracks. They’ll have the perfect audit trail and data to efficiently manage budget and vendor relationships.

Creating a standardized invoice entry process improves control and visibility at the start of the AP cycle.

Plenty of duplicate payments originate from duplicate vendors. As a best practice, make sure the supplier name on invoices and payment records matches the W-9. Having an entry format for all vendors, without abbreviations, reduces the number of duplicate payments.

Lastly, all invoice information should match in order to process payments. To avoid wasting time down the road, make sure all checks and payments have the same invoice number format. Matching invoices to payments ahead of time saves the headache of wondering which payment matches which invoice.

Time to Tidy Up Your Master Vendor File

Keeping a clean, up-to-date electronic master vendor file saves your finance department from the hassles associated with year-end closing and tax preparation.

As an AP best practice, create a clean master vendor file free from errors or abbreviations to make it easier for the accounts payable department to obtain the right vendor records. Fill in any missing data gaps. At the beginning of the vendor verification process, gathering W9s and TINs (Tax Identification Number) into one place prevents mistakes and duplicate entries. During this process, enter the vendor’s name exactly as it appears on tax documents to prevent duplicate vendors in the file. During vendor verification, think beyond the name and address. Adding phone numbers, contact names and email addresses further validates each vendor.

There’s a simple solution to cut down the time your AP staff spends managing vendors. Implementing a vendor portal with AP automation software requires each business to go through a standardized vendor set-up process. For example, AvidXchange will contact all your vendors to verify information and manage any updates including payment methods and outstanding payments. With AP automation software, vendors have access to a vendor portal that gives them the power to update their information, leaving less room for errors and missing details.

Automate the Approvals Process for Flexibility

Surprisingly, businesses are still wasting time waiting on approvers for pen-to-paper signatures and authorization. After invoice details are extracted, AP staff often spend hours hunting for approvers. When AP specialists aren’t knocking on office doors, they’re sending invoices via email.

According to PayStream Advisors, 47% of survey respondents blame lengthy approval cycles as the number one reason for late payments and missed discounts. Granted, many approval processes aren’t as simple as sending the invoice to one approver. They may require multiple approvers, complex procedures, or reviews. Delayed manual approvals put the business’ cash flow at stake with less flexibility regarding the preferred payment date.

PayStream Advisors notes that a little over half of the respondents are using an invoice workflow automation tool to route invoices to the approver. AP automation software allows businesses to set up the approval routing process to match your business’ standard approval process electronically.

After invoice information is electronically entered, approvers can log in to the cloud-based portal to review and approve invoices on the go for ease and flexibility. And there’s less worry about slowing down the payment pipeline because approvals can be rerouted when approvers are out of the office.

Give Suppliers Power Over Their Receivables

The AP staff spends countless hours responding to phone calls and emails from suppliers checking on payment statuses. Why? Without AP automation software, suppliers lack visibility into the buyer’s payment process. They’re not sure if the invoice has been approved or if payment has been disbursed. Therefore, the AP specialists spend time providing payment updates that could be automatically available.

Investing in a self-service supplier portal reduces the number of phone calls and emails between suppliers and buyers every day. Implementing a cloud-based AP solution gives vendors access anytime to check payment status and update their information. Giving suppliers control and visibility into their receivables builds transparency and trust for a robust and collaborative relationship.

Vendor partial payments need their standardized process, too. For example, if your business only receives part of the purchase order, you’ll most likely only pay for the goods you’ve received. The best way to do this is to enter the total invoice amount into your accounting or ERP system before making the partial payment. That way, your finance department knows you’ve only paid for part of the purchase. There’s less worry about errors or duplicate payments. Also, make a note in your accounting system that only a portion of the invoice was paid.

Cut Down the Problems That Stem from Paper

Paper-based processes are challenges in the accounts payable process because they’re at the root of most problems. Manual entry, lost files, and piles of paper often result in errors and wasted time. Despite the high costs and risks, businesses are still clinging to paper, especially paper checks.
PYMNTS.com findings show that processing one paper check can cost your business almost $10. Checks are also known to increase the accounts payable processing time and the risk of fraud.

In a recent CFO.com survey, Cyber and Data Security in the Middle Market, 72% of executive-level respondents admitted to using paper checks “frequently” or “very frequently.”

Sixty-four percent of respondents are using ACH (Automated Clearing House) or EFT (Electronic Funds Transfer) as primary payment methods. The plan for frequent-check-using respondents is to move to ePayments. Why? For starters, ePayment software saves finance departments nearly 83% of the processing cost. In a recent article, the Association of Certified Fraud Examiners (ACFE) pointed out that almost 70% of corporate respondents fell victim to check fraud. Not to mention the time it takes to process paper checks. Opening mail, making trips to the bank, storing, and manually entering payment information into the accounting system for each payment can be time-intensive. Paper check processes also leave room for lost checks and manual errors.

To avoid fraud risks, businesses are considering ePayments to electronically and securely pay vendors quickly. Integrating AP automation software with your current accounting system streamlines ePayments and provides protection for suppliers that still prefer paper checks. For example, with Positive Pay, a report is generated for each payment made via paper check. Pairing ePayments with an AP automation software gives buyers and suppliers improved cash flow, fraud control, and efficient reconciliation without paper.

AP automation software allows finance departments to archive historic payment information electronically. Having cloud-based storage makes an immediate recall and auditing simple with 24/7 access. Businesses also have full control with streamlined workflows that are based on your company’s current rules. In fact, top performing businesses that implement automation solutions often notice a reduction in manual mistakes.

Adopting an electronic payment solution also improves supplier relationships. When businesses streamline accounts payable processes, there’s a greater chance of early payment discounts. Your business also has insight into processes to reduce the time it takes to process and pay invoices with historical payment and invoice records.

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