The accounts payable AP department is responsible for paying suppliers for goods and services purchased by an organization. AP departments typically manage incoming invoices and bills but may serve additional functions depending on the nature and size of the business.
The accounts payable process can be broken down into four steps, although the scope and complexity of the AP process may differ from one company to another. The steps involved in the AP process include:
- Receiving the supplier’s invoice
- Reviewing the supplier’s invoice
- Approving the invoice
- Paying the supplier
The accounts payable department matches the supplier’s invoice with the purchase order – and the goods received notes or the receiving report and makes a payment after ensuring these documentations match.
The Importance of Accounts Payable Management
Accounts payable is a critical business function despite falling under the back-office category. The productivity and efficiency of the AP process are dependent on how employees can manage the procure-to-pay cycle promptly.
AP department ensures:
- Strong supplier relationships that benefit the enterprise in the long run
- Uninterrupted delivery of goods and services that keeps operations running smoothly
- No overdue payments which may potentially incur extra costs and penalties
- Systematic invoice tracking to avoid duplicate payments or overpayments
- Better cash flow management
- Reduced fraud and reduced cases of unethical sourcing practices.
Efficient management of AP processes ensures timely payments and secure storage and tracking of invoices during audit trials.
Problems Faced by the Accounts Payable
Despite the significance of the accounts payable in the procurement process and the supply chain cycle, AP departments face mounting challenges that prevent them from optimizing their invoicing processes. AP managers are also under pressure to do more with less. They’re forced to optimize the AP process in transforming their organizations from cost to profit centers.
The challenges commonly experienced by AP departments include:
- Paperwork. AP is a paper-intense department with half of the invoices received as paper documents. Sorting, arranging, and managing paper files steals time from employees that could be spent on mission-critical activities.
- Manual data entry. AP professionals spend valuable time keying in data in different formats and from different sources. Manual data entry causes human errors and leads to misplaced documents.
- Lengthy approval process. There are several stages and levels of approval depending on the payment amount. Most invoices require approval from stakeholders outside the AP department. Lengthy approval processes may occur when approvers cannot access approval workflows.
- Lack of visibility. Manual paper processes create a blind spot that prevents the AP departments from efficiently tracking the cash flows. Failure to know what stage the invoice is in the procurement process increases the chances of late or missed payments, making it difficult to evaluate a company’s financial health.
Manual AP processes are lengthy, costly, and prone to human error. This is why organizations and enterprises are adopting AP automation in invoice processing.
So, what benefits do AP automation offer in invoice processing?
Benefits of AP Automation in Invoice Processing
Time-Saving
AP automation software makes invoice processing and handling faster and more efficient. By eliminating manual stages, automation reduces the number of human touches – thus reducing the time employees spend on this task.
Improved Efficiency
Automation streamlines invoicing and payment processes, reducing approval time and improving efficiency. AP automation can be integrated with existing financial systems, making the process more efficient while ensuring the seamless flow of information.
Increased Accuracy
AP automation increases the accuracy of payment information by eliminating human error and reducing payment errors, such as fraudulent and duplicate payments. Erroneous payments can be flagged earlier by automatically identifying and validating invoice details against ERP information.
Reduced Costs
AP automation reduces processing costs, saving the business money, time, and resources. Automation reduces labor costs by reducing the data entry workload and eliminating storage and invoice processing costs. The fact that AP departments can collect, arrange, and track invoices mean huge cost savings in routine invoice processing activities.
Compliance
Compliance rules are automatically embedded in the system when AP processes are automated. This makes the procurement process fully transparent such that instances of fraud and common risks are easily detected and prevented. For instance, AP automation flags duplicate and missing invoices, suspicious activity, and additional charges.
What is the ROI of AP Automation?
When deciding whether it’s appropriate to deploy an AP automation system, it’s vital to consider several factors, including the ROI. In reality, calculating the return on investment of an automation system is not a straightforward process.
That is because AP automation impacts many different areas and savings increase with corresponding increases in volume. When calculating the return on investment of AP automation, consider financial and non-financial benefits.
Financial ROI
The factors to consider include:
- Reduced invoice processing costs
- Reduced costs as a result of human errors
- Fewer inquiries into payment statuses
- Increases in on-time payments
- Time savings
- Increased early payment discounts
- Reduced personnel costs or staffing costs
Non-Financial ROI
In addition to financial returns, you must consider the non-financial benefits of AP automation, including:
- Streamlined processes
- Increased control
- Easy, faster, and efficient auditing
- Optimized business relationships
- Employee satisfaction
By considering these factors, you can calculate the potential returns on investment AP automation could offer your organization.
ProcurePort – Injecting Automation into Your Manual AP Processes
ProcurePort offers cutting-edge software that makes procurement planning and management processes a breeze. With ProcurePort’s automation software, you can simplify your purchases, analyze spending, and focus on higher-value tasks. A powerful, intuitive digital platform streamlines your procurement processes, improving operational efficiency and productivity.
Contact ProcurePort for timely solutions in AP automation in invoice processing.