With the new year upon us, it’s time for leaders in the construction industry to think of new strategic initiatives. Here’s one to consider: whether now is the right time for your company to start automating accounts payable (AP) processes.
There are many questions to answer. Will this shift save your company money and generate a compelling return on your investment? Will it accelerate payments?
Here are five key considerations to help you answer these questions. We also shared a five-step plan to get started on the road to automating accounting processes.
Automating Accounts Payable: Factors for Construction Leaders to Consider
1. Purchase-to-pay services
There are several different ways to automate your accounts payable processes. You could choose software that automates invoice processing only or payments only. Or you could choose an all-encompassing purchase-to-pay service.
Designed to harmonize transactions between buyers and sellers, purchase-to-pay consists of an all-in-one cyclical purchase system for businesses. It automates the entire business process of buying, receiving and paying for products.
This system leverages what’s often referred to as “straight-through processing” where incoming invoices are handled without manual intervention.
Why should you consider a purchase-to-pay system when automating accounts payable?
You want to consider a purchase-to-pay system because it’s a totally integrated set of capabilities for accessing requisition, purchase order, invoice and payment information in a single location. You won’t have to chase down paper checks and invoices scattered in various places around your office.
This consolidated system communicates with your company’s accounting system. It sends notifications about payments that the buyer needs to approve. The system “talks to” various computer systems in your company’s supply chain and main computer engine, the Enterprise Resource Planning (ERP) system.
2. Integration of AP, accounting and ERP systems
For this system to help you, all the invoice and payment data and transactions need to be sent back and forth quickly, easily, accurately and securely through these systems.
You’ll need to consider application programming interfaces (APIs). APIs are software instructions that unlock data and make these systems “talk” to each other.
APIs will convert your accounting system into a financial management platform and help your business grow.
Why? Because they’re the connective tissue you need to generate more business, drive productivity, deliver faster payments and improve customer experiences.
As important bridges to more business, APIs make data exchange and functions, such as payment and invoice transfers between businesses, easier, faster, smoother and more reliable.
Financial applications are built in hours vs. months
There are many reasons why APIs are vital for finance pros in the construction industry now and in the next several years.
But one stands out. They make it possible for applications that once took months or years to be built in weeks or even hours. Why? Because rather than having to write millions of lines of code to create applications, they can be built with as few as 10 lines of code.
As a result, more financial software, applications, machines and computers can communicate with each other much faster. Data exchange between AP and accounting software accelerates.
You want to consider the workflow improvements you believe an accounts payable automation software will provide. For instance, do you want to set up an automatic system where invoices above $10,000 get sent to the CEO for approval? Maybe invoices below $2,500 only need to be approved by an AP manager?
These are workflow issues you want to think about. Workflows are how you want the payment and invoice process to progress sequentially, so you encourage faster payments or more visibility into cashflows.
You’ll need to consider how you want to set up workflows and decide which service best delivers what you want most. Think about how you want the automated system to move invoice, purchase order and payment data between the AP software system and the accounting software and ERP systems.
These systems encompass the workflows and should be carefully evaluated. You want to be sure there’s a consistent and reliable workflow between all the systems because they all have to operate harmoniously.
4. Electronic Payments
Electronic payment means you’re routing payments through an electronic “superhighway.” That system ultimately delivers the payment into the account of the person or business to be paid.
“When it comes to payment options, nothing is more convenient than electronic payment,” notes an article in How Stuff Works. “You don’t have to write a check or handle any paper money. All you have to do is enter some information into your Web browser and click your mouse. It’s no wonder that more and more people are turning to electronic payment – or e-payment – as an alternative to sending checks through the mail.”
5. Archive and Retrieval
If you’re still using paper to process invoices and payments, you’re well aware of how easy it is to lose track of paper.
If this resonates with you, it’s worth considering AP automation systems. They make it faster and easier for you to find the information you stored on your computers.
Accelerating the archival and retrieval process is especially valuable when auditors decide to investigate your company’s finances.
You can give them fast and easy access to the data and systems they want to check. That’s so much more efficient than the hassle of using paper processes.
Another benefit: You can set up your automated system so auditors access only the specific data they need to see rather than allowing them to go through all your company’s finance data. Archived storage also costs less and you won’t have to keep that data on your main and more expensive primary storage databases.
Next Steps for Automating Accounts Payable
So where should go from here? We suggest creating a plan beginning with these five steps:
Step One: Make a well-informed decision on what type of system you want, whether that’s a complete purchase-to-pay service or a more-focused AP software solely for handling invoices or payments.
Step Two: Figure out what type of integration your system will need.
- How do you want the automated AP software to connect to the accounting system and ERP?
- In what time frame do you want this integration to occur?
- What APIs do you think you need and from whom?
- How involved do you want your team to be in this AP integration stage?
- Do they have the expertise to help with this integration?
Step Three: Prioritize which workflows benefit your business the most.
- Are you most concerned with workflows that send payments over $10,000 to the CEO?
- Is your biggest need to make sure the workflows control which types of invoice and payments information are accessible by which employees?
- Is there something else that’s most important?
Step Four: Understand the wide range of electronic payment options ranging from virtual credit cards to e-wallets to Automated Clearing House (ACH) payments. Decide if this is something you want to take on yourself or have a payments automation provider solve for you in collaboration with the desires of your vendors and suppliers. Determine if there are certain types of payments you may continue to keep in-house.
Step Five: Appreciate and explore the value of the archiving and retrieval capabilities of your AP automation system. You’ll find this function especially efficient and economical when auditors want to review your financial documents and you need to hold onto documents for regulatory compliance reasons.