Accounts payable is all about paying the bills. But as you know, it is a lot more complicated than just paying a bill. It also includes issuing and matching to purchase orders, approvals, GL coding, discounts, payment terms, and the list goes on. Luckily the accounts payable process has been undergoing a revolution in recent years, revealing many opportunities for your company to save money, time, and effort.
This transformation of AP best practices has evolved with the help of automation and the introduction of new technologies and processes. Intelligent data capture software, optical character recognition (OCR), workflow automation, technologically-advanced ERP systems, e-Invoicing and cloud-based systems are all distinct and modern facets of AP automation that a business can employ. This highly technical world offers the opportunity for significant improvements, but it's the accounts payable department's job to get it right. That is where the skills of the AP staff and management come into play.
Staying educated and up-to-date on the transformation of accounts payable is crucial to finding and maintaining success in today’s market. Here are three areas that will drive significant improvements in your accounts payable processing.
1. Automate to Accelerate Invoice Processing
The time required for a business to process invoices is a key indicator of a company’s accounts payable efficiency. Until recent years, the methodology behind invoice processing was notoriously time-intensive and tedious. This is because accounts payable procedures – and namely, the manual processing of invoices – comprised of human-run, hands-on practices. Manual invoicing required heavy data entry, and was error-prone, laborious, and time-consuming.
Best-in-class benchmarks for invoicing suggest that vendor invoices should take less than 3 days of processing in high performance units, while the average company should strive to process invoices in less than 7 days.
The reality is that data entry is cumbersome and ineffective when it comes to invoice processing. Manual invoice systems that rely heavily on human processes are only as quick as the slowest professional doing your data entry. Far too much time is wasted by having an accounts payable professional record your invoices, convert paper data into an electronic format, and match invoices to requisitions and purchase orders. Your business will benefit by utilizing that employee’s skills elsewhere. Meanwhile, implementing an automated invoice processing system will accomplish all of the tasks instantaneously,and can deliver electronic invoice records to your departments’ financial system in a pre-approved, cleared for payment state. Once the invoice is electronic, it can be automatically routed through workflow and staged for payment.
Reducing the amount of time it takes to process an invoice results in numerous benefits. These include maintaining better control over the payment process, eliminating late payments, taking advantage of early payment discounts, and improving the relationship between your business and its vendors. By eliminating paper and manual processes, executing invoice automation, and implementing a dynamic workflow, your accounts payable process is guaranteed to accelerate, thus greatly improving your business.
2. Clean Up Your Error-Prone Processes
The heavy data entry required in manual invoice processing and unpredictable exceptions introduced by OCR and new capture technologies also leads to substantial errors in AP processes. These errors are a major source of costs in accounts payable, and occur in abundance; many AP departments are shocked to realize how much time is spent on resolving exceptions and discrepancies! In fact, a recent report from PayStream Advisors shows that a high number of discrepancies and exceptions is a major challenge in the invoice management process. Further, inaccurate data is woeful on all fronts. Errors can lead not only to payment mistakes, but also to account delinquencies, mismanagement of cash flow, squandered time and energy, and disruptions in supply.
There are a few ways that errors in accounts payable can be drastically reduced:
- Set up supplier portals so that they can electronically track the status of orders, schedules, shortages, and payments.
- Switch to e-Invoicing to automatically capture, extract, validate, and enter invoice data so that human error and OCR misreads may be eradicated altogether.
- Apply dynamic workflow software to your accounts payable processes, which will instantly resolve discrepancies.
AP automation considerably improves accuracy in invoicing. When your business’s accounts payable system is properly optimized and error-free, it becomes much more transparent and easier to manage. In addition, reducing errors in your accounts payable processes goes hand-in-hand with accelerating invoice processing time! Improved accuracy in your AP system naturally speeds up the time it takes to process each invoice, which leads to increased productivity.
3. The Bottom Line for Your Bottom Line
If your business wants to improve, lowering the cost to process an invoice is arguably the most essential enhancement you can make. But you can’t lower your spending without knowing how much your current AP system costs.
The first place to examine your spending is within your invoice processing. Admittedly, this cost can be tough to nail down; if your business still relies heavily on a manual accounts payable system, it will be anywhere between difficult and downright impossible to figure out conclusively. This is because tracking costs is problematic when relying on paper-intensive processes. Your billing system could easily be costing you hundreds of thousands of dollars per year!
In today’s market, nailing down your average invoice price depends largely on how your business goes about that processing. Recent data from Aberdeen Group suggests that the average cost to process an invoice from receipt through settlement is anywhere between $4.34 and $21.31, depending on a variety of factors. These include the size of your company – and thus the volume of invoices processed, economies of scale, resources, and manpower that your business can commit to invoicing– and the level of automation your business utilizes in its AP system.
We encourage businesses to rate their AP process and be wary of complacency. Even if your invoicing system seems to be working well, we strongly recommend striving for continual improvement. As AP automation continues to transform, many leaders expect that the average cost of processing an invoice will continue to decrease dramatically.
The Power to Improve Your Accounts Payable Process is in Your Hands
Taking control of your accounts payable process by adopting AP automation and best practices will accelerate the time it takes you to process an invoice, substantially reduce billing errors, and save your business a great amount of money. Transforming your processes brings great value, and leads to a smooth-running and effective AP system.
It’s up to you to adapt, grow, and continually improve your AP process and systems. IPS can help you implement accounts payable automation with 5 simple steps:
- Transform AP to a paperless, electronic invoicing system
- Centralize invoice processing and eliminate tedious data entry
- Embrace workflow automation
- Simplify and standardize
- Provide an end-to-end audit trail and archive your data
At the same time, perfecting your invoice management and AP process cannot be realized without recognizing that there is no “one size fits all” approach to accounts payable automation. Your business’s hurdles are unique, and so your solutions must be individualized! A personalized approach to AP automation is vital for success. You must work alongside a knowledgeable partner who will provide you with customizability, a speedy integration process, and integrate with whatever ERP system your business currently uses. Total optimization of your accounts payable procedures is only fully realized if your business – and your business’s hurdles – are being treated as uniquely as they are.
While each business must adopt a customized approach to AP automation, using best practices to guide the way is an intelligent improvement strategy. With this approach, IPS has dramatically lowered the cost of accounts payable processes for our clients by over 40%, and can typically bring down your cost per invoice to under $1.00.
Interested in improving your accounts payable process? Contact IPS today!
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