The accounts payable (AP) process in an organization is often viewed as a necessary evil. After all, what firm truly enjoys paying bills? Effectively managed, however, accounts payable can be the source of tremendous value to a business, providing competitive advantages through better financial management and process cost savings. Here are some of the benefits of a well-managed accounts payable process and some key steps to optimizing that process and receiving big returns.
The supply management research and advisory firm Ardent Partners finds that 60% of businesses feel AP invoice and payment approvals that take too long was the top challenge they face. Not making efforts to address the invoice to payment cycle can strain supplier and creditor relationships, lead to lost early payment discounts, and mask costs associated with inefficiencies. Benefits of optimizing the AP process and reducing the time it takes to pay an invoice include:
Here are three key steps to take to optimize the AP process and begin receiving some or all the benefits listed above:
Accounts payable begins with purchasing or procuring the merchandise, supplies, or services a firm requires to conduct its business. In most cases, after reviewing and approving a vendor and their order process and terms and conditions, a purchasing function issues a purchase order (P.O.) to initiate the order and delivery of items. When the items and invoice arrive, the AP function confirms the correct items have been received from the proper vendor, the invoice and terms match the P.O. and ultimately pays the invoice. Unfortunately, in 41% of organizations today, integration between the procurement function and the AP function doesn’t exist, so the verification and payment process can be labor-intensive, time-consuming, and error-prone. This ultimately causes higher invoice processing costs, lost early payment discounts, or worse. Integrating and automating end-to-end procure-to-pay processes streamlines the invoice payment process, avoiding these costs and leading to the benefits of an optimized AP process.
Integrating procurement and AP processes is a way to begin standardizing the processes used when purchasing and paying for merchandise, supplies, or services. Best practices should also be standardized, detailing what each employee involved in the steps of the processes is expected to follow. From data entry, data validation, approval steps, and payment steps to final P.O. closure, the establishment of standard practices will help eliminate ad hoc procedures that can cause unauthorized purchases, duplicate or erroneous payments, errors that cause incomplete records, and outright fraud.
The biggest barriers to optimizing the AP process and gaining the resulting cash flow and cost reduction benefits are paper-based and manual processes. Staff’s time can be consumed quickly by several manual steps including shuffling paper invoices, chasing down approvers for signatures, and waiting for final approval of payment. Adding to this is the increasing use of electronic invoice formats such as e-invoices, EDI, XML, portals, or invoices created using web forms. Solutions that digitize invoice information and automate the process based on that information can eliminate most, if not all, manual steps and speed up the overall process. Using a scanner or multifunctional device (MFD), an employee can scan a paper invoice into an intelligent capture solution that extracts the necessary information to validate and match the invoice to the proper P.O., then kicks off an approval workflow for final payment of the invoice. These types of intelligent capture solutions can also handle the receipt of electronic format invoices to do the same thing and can be configured to automate the specific workflows an organization may have across their entire procure-to-pay processes.
The digital transformation experts at Centric Business Systems can help you optimize your entire AP process from procurement to payment. They can work with you to map out the flow of work specific to your organization and, using the variety of tools, solutions, and services they provide, can help you move toward obtaining the benefits of an optimized AP process. To schedule an appointment for a workflow analysis and resulting recommendations contact us at (877) 902-3301 or visit www.centricbiz.com.