One of the crucial parts of running a business is making sure your general ledgers are well maintained – every purchase order, receiving report, and vendor invoice all check out and reconcile with one another as part of their Accounts Payable process.
However, for the majority of small to mid-sized businesses, managing their Accounts Payables can prove to be a taxing endeavor especially if they are still using manual means to handle their invoices and expenses. With that said, here are some ways to streamline, simplify, and improve the Accounts Payable Process.
A typical Accounts Payable workflow begins when the Accounts Payable (AP) Department receives an invoice. Then the AP Manager processes, records, then files the invoice in the accounting system (either automated or otherwise). Afterward, the processed invoice will be approved by the authorized person for their signoff.
Now, between the receiving of a purchase order, processing, and the authorizing of the invoice, if it is done manually, there is a high risk of human error. For instance, the one who did the purchase order might have accidentally misspelled the vendor’s name or miscounted the number of items needed, or some other mishap. If such order manages to pass through and gets approved, it could have disastrous consequences on the company’s budget.
There is also the part of validating the invoice and whether to approve it or not. The authorized officer or signer must identify who created the purchase order, and if it was approved by their respective supervisor or manager, taking note of the order’s accuracy every step of the way.
After assessing the PO, next is determining what kind of payment is needed – is it via check, cash on demand, credit card, or does the vendor have other preferences such as using payment portals such as PayPal, Amazon Payments, or Dwolla?
Once the invoice has been reviewed, the AP Officer would then need to accomplish the necessary paper trail in order to have the invoice properly approved, audited, and recorded onto the general ledger. In mid-sized businesses, this means asking approval from all the persons needed and making sure that it is correctly filed once it has been properly signed off.
Conducting the validation of the invoice, working on the approval, and filing of the paperwork manually takes time. For example, the payment for business-related purchases such as office supplies, software and hardware, Software as a Service (SaaS) products and the like should be organized and sorted accordingly; if you can’t come up readily with a report on your business’ current expenses and payment standings for a certain period, or if you’re having trouble keeping track of where your company’s funds are being allocated, it is best to have your AP system updated as soon as possible.
Automating the Workflow
Ideally, an automated AP system has minimal manual steps. This way, it lessens the chance of human error and efficiently processes accounts payable for companies. Once an ERP system is put in place, it can automate the creation of a Purchase Order. After the creation of a PO, an invoice matching the PO will be created, and both will automatically be entered into an accounting system.
Other ERPs can also process invoices that are sent via email (provided they are attached and have a compatible file format that the ERP system can read such as PDF, XPS, etc.). For invoices that were sent via mail, it’s just a matter of scanning the invoice and converting it into the proper file format so that it can also be uploaded to the ERP.
Once the ERP has created a digital version of the PO and invoice, it can immediately check if there are any irregularities and flag them for an AP officer who will then do the necessary manual review. Compared to the manual process, the automated ERP process allows the AP officer to pinpoint the reason for the mismatch or where in the PO or invoice had a missing or incomplete component faster. From here, the officer will then do the appropriate solution, usually by using a web-based interface or program, then send it back to the ERP to finish the process.
Throughout the processing, higher management can track the progress of the said invoice using their desktop or mobile device. After the invoice has been successfully processed, the ERP will then notify the necessary officers who can then send it to higher management for their approval or have it sent to their supervisor for their signoff.
ERPs also automatically include the completed invoice to the uploaded general ledger and is properly organized. This allows higher management to conduct faster checks for financial and expense reports.
Benefits of Automating the AP Process
Implementing a good automated AP system assists in streamlining a company’s payment cycle (or improving an already existing payment processes), cutting costs in terms of filing and bookkeeping – opting for a paperless workflow will greatly help companies from physically filing invoices. Employing a paperless workflow also positively affects the environment since you’ll limit your paper usage.
An automated AP process also grants you with faster procure-to-pay cycles which means you can get early payment discounts and avoid getting late fees. This also allow you to optimize your cashflow, depending on your cash management strategy and funds.
Having smooth payment transactions with vendors also improves your business’ image and reputation; other vendors might get wind of how your company is quick to process invoices and other business transactions and be enticed to do more business with your company down the line. A company with a credible reputation is essential to foster a good working relationship with potential vendors and creditors.
Having an automated AP system is an especially valuable tool for businesses that handle multiple invoices. From an employee standpoint, streamlining your AP process via automation allows your AP officers to focus other accounting tasks, look to further improve the ERP if they notice areas for improvement, and other tasks that would help the company instead of being bogged down by manually processing PO’s and invoices. Down the line, your business can opt to hire fewer staff for AP, or you can have some of your AP staff laterally transfer from one department to another, if they are willing to.
It also provides account managers and higher management transparency, allowing them to trace any and every transaction their company has done. Furthermore, it gives higher management better control and access to the company’s AP data, as well as a full audit trail for every payment the company has sent.
Businesses that aim to maximize their funds should highly consider automating their AP processes with an ERP system since its benefits all aim to help their daily, weekly, and monthly operations. Having a system that can simultaneously create, reconcile, and file PO’s and invoices save companies and their employees more time which they can allot for other priorities and tasks.
Managing your business’ books and general ledgers can prove to be a time-consuming and laborious task. Thankfully, advancements in technology has given us tools to help with bookkeeping and accounting; now it’s just the matter of finding the right ERP system for your business.
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