Accounts Payable (AP) departments are typically seen as essential back-office functions requiring minimal adjustment. Yet, Accounts Payable optimization presents a growing opportunity to boost cash flow, accelerate payments, and free up employees for higher-value tasks.
Advanced AP automation technology supports business leaders interested in reaping sustainable profits from optimizing their AP processes.
The Accounts Payable Process
To fully understand how effective AP optimization can be, let’s first look at how the process works with paper invoices:
Receiving the invoice
Suppliers submit their invoices via postal mail or email. Your AP staff opens the attachment and prints it to review its contents.
Invoice verification
The AP staff member reviews the invoice to ensure the information is correct and where applicable, matches against an existing purchase order.
Coding the invoice
The paper invoice is manually coded and entered into the ERP system.
Approval workflow
The paper invoice is forwarded for review and approval by management. In many cases, several sign-offs are needed before payment can be processed, so the invoice can spend days in the internal mail system or sitting on someone’s desk before it’s reviewed and sent on to the next person in the chain.
Payment processing
Once final approval is received, the invoice is ready for payment according to the terms established with the vendor.
Record keeping
The payment is logged in the ERP system, and the paper invoice is stored in a filing cabinet, ending the process.
On the surface, this system appears completely straightforward. However, there are many risks and time-wasting steps involved in the process, such as incorrect data entry, invoices becoming lost during the approval workflow, payment delays, and much more. The consequences of these inefficiencies can impact a company’s bottom line and vendor relationships.
Optimizing your AP processes by eliminating paper and adopting a secure, cloud-based system can help mitigate these serious risks to your operations.
Best Practices for Accounts Payable Optimization
Streamlining invoice processing
In most cases, streamlining a system makes everything simpler. Manual paper-based processes are often subject to redundancies and bottlenecks that hamper progress and lead to late payments, which can cost your company money if late payment fees are applied.
Transitioning to an automated system that uses digital invoices delivered electronically through the approval chain ensures that no invoices are lost or misplaced along the way. Additionally, stakeholders can review and approve electronic invoices remotely online, eliminating the risk of an invoice going untouched on their desk for days, or even weeks if they’re out of the office.
Invoices can also be prioritized based on payment due dates and vendor criticality to help ensure that payments are always made on time based on the relationship with specific vendors at any given time.
Duplicate payments are a frustrating occurrence typically resulting from human error. As part of your accounts payable process, ensure that checking on duplicates for both received invoices and payments is built into how you operate. Doing so ensures that your books are accurate and potentially costly leaks in your cash flow that may otherwise go unnoticed are plugged.
Improving vendor management
Keeping your vendors happy is critical to the sustainable success of your business, and few things can damage a relationship more than consistent late payments. Automated AP systems move invoices more efficiently and promote early or on-time payments. Some vendors offer early payment discounts and may agree to better payment terms with customers with a proven track record of timely payments.
Automated AP systems also keep records of vendor disputes and resolutions to help you better manage your relationships. The system’s available Vendor Invoice Portal (VIP) provides complete transparency into their history with your company, along with self-service functionality that supports your internal automated AP architecture.
Enhancing security and compliance
Fraud prevention is a genuine concern within AP departments, and paper-based AP systems simply don’t provide enough protection against the financial and reputational damage that can be caused.
Automated AP systems limit access to individual invoices with fraud prevention measures such as multi-factor authentication, helping to protect data integrity and safeguard your system from bad actors. Additionally, you can perform daily reconciliation of accounts to catch and solve any discrepancies early before they grow into a bigger problem. These systems also provide a more robust approval tracking system that organically creates a clear and readily accessible audit trail.
Optimizing human resources
Processing paper invoices is a repetitive task that doesn’t fully utilize the abilities of your AP team. By reassigning tasks such as keying invoices, three-way matching, and ledger entries to your automated system, you can cross-train your AP employees to take on more meaningful tasks that can build your business.
These tasks can include reviewing vendor contracts for cost-saving opportunities, analyzing departmental stats to recommend improvements to efficiencies, and collaborating with personnel in other departments on business-building opportunities.
Measuring AP Performance
Once you’ve optimized your AP system, how do you measure its success? Key performance indicators (KPIs) help you determine the success of your optimization strategy, giving you solid evidence on whether you’ll achieve your goals.
Some sample KPIs of your automated AP system can include:
- Processing cost per invoice
- Invoice processing time
- Invoice error rate
- Early payment discounts captured
- Days payable outstanding (DPO)
Keeping track of these metrics is ideal for creating benchmarks that indicate whether or not your optimized AP processes are improving over time.When you’re ready to explore a customized technology that will bring your company increased efficiencies, streamlined processes and bigger profits, call Ash Conversions International (ACI) for a free demonstration of our automated AP solution.
Reap the benefits of accounts payable optimization with an automated AP solution
For over 40 years, ACI has specialized in transforming how companies manage their daily business processes. We offer efficient, cost-effective, and environmentally conscious accounts payable solutions that streamline processes, improve efficiencies, and boost profits.
Our tech-based systems can be completely customized to meet your unique requirements, integrate seamlessly with your existing tech infrastructure, and are supported by our team of experts during and after implementation.
For more information on how your company can benefit from a digital document management system, call us at 800-719-9621 or click the button below.
