Accounts payable (AP) is an exigent function in any organization. Ensuring timely payments to suppliers and vendors, and maintaining healthy cash flow, is essential for maintaining strong vendor relationships. As per an article in Forbes, Companies that use little to no automation when processing invoices typically spend more than $10 per invoice, while companies that have few to no manual steps in their AP process spend $2 or less per invoice. However, managing AP can become cumbersome and error-prone if done manually without any effective processes and the right tools. It has become really important for businesses to leverage the modern software solutions that can significantly ease this burden and provide greater efficiency in the everyday processes.
Understanding Accounts Payable: The Core of Financial Operations
At its core, accounts payable refers to the money a business owes to suppliers for goods and services purchased on credit. Timely and accurate management of AP is essential to avoid any miscommunication, late payments, maintain supplier trust, and ensure smoother operations. The manual AP handling piles up various complexities such as tracking invoices, managing payments, and ensuring compliance with tax regulations. These highlight the need for a structured approach to AP management.
Challenges of Manual Accounts Payable Processes
Manually managing accounts payable comes with its fair share of challenges that can hinder efficiency and accuracy. Paper-based processes are prone to errors, and most commonly misplaced invoices often lead to tracking issues and delayed approvals. Inefficient workflows create bottlenecks, and the lack of a centralized system and restricted visibility into payments increases the risk of fraud and compliance failures. Manual systems also struggle with audit readiness, as they lack a clear trail for regulators. Additionally, an evident drawback is the lack of scope for integration with other financial tools, which makes data handling and transfer time-consuming and error-prone. These inefficiencies often result in delayed payments which in turn post a negative impact on vendor relationships and cash flow.
Best Practices for Managing Accounts Payable
1. Digitize and Automate AP Processes
Automating the AP functions, including invoice capture, approval workflows, and payment processing, can enhance accuracy, reduce processing times, and maintain a clear audit-ready trail for compliance.
2. Implement Standardized Workflows
The benefit of a standardized workflow is that it ensures consistency while processing invoices and payments. This reduces discrepancies and confirms adherence to policies by applying clear policies for invoice approval, setting thresholds for approvals, and using centralized platforms for all AP-related activities.
3. Leverage Early Payment Discounts
Many suppliers offer discounts for early payments. Monitoring these opportunities and scheduling payments accordingly can result in significant cost savings. Using a software that automatically tracks and prioritizes such payments can optimize the workflow.
4. Regularly Reconcile Accounts
Reconciling accounts payable with vendor statements ensures there are no discrepancies, such as missing payments or incorrect charges. This regular check helps avoid disputes and strengthens vendor relationships.
5. Maintain Strong Vendor Communication
Effective communication with vendors regarding payment schedules, invoice discrepancies, and contract terms is essential. Clear and open communication is an underrated quality that avoids misunderstandings and builds trust.
6. Strict Security Measures
Accounts payable is susceptible to fraud, such as phishing attacks or unauthorized transactions. Implementing stringent security measures, including multi-factor authentication, user access controls, and real-time payment monitoring, can help mitigate risks.
Industry-leading Features and Tools that Simplify Accounts Payable Management
Modern AP software solutions that leverage technology come equipped with advanced features designed to streamline processes and eliminate inefficiencies. Notable tools include Sage Intact, SutiSoft (SutiAP), NetSuite, and AvidXchange. These solutions, along with others like SAP’s AP Automation tools and Stampli, provide key functionalities that drive efficiency in AP management. Highlighted features include
- Automated Invoice Processing: Through pre-defined workflows, and AI, automated invoice processing streamlines the purchase-to-pay process by automating the scanning, extraction, and population of invoice data along with duplicate invoice verification.
- Approval Workflows: Automates the approval process with notifications and real-time tracking.
- Optical character recognition (OCR): OCR converts text-based images, into machine-encoded text, typically from a scanned document.
- Dashboards and Reporting: Offers insights into AP performance, cash flow, and outstanding liabilities.
- Compliance Management: Helps organizations adhere to tax regulations and reporting requirements.
- ERP Integration: Seamless compatibility with ERP systems to centralize financial data and processes.
- Real-Time Fraud Detection: Uses AI to identify unusual patterns and prevent fraudulent activities.
All these features help businesses run smoothly, process payments on time, and automate redundant manual processes. There are many Accounts payable software solutions which are credible and trusted among the businesses like SutiSoft’s SutiAP, NetSuite, and Sage Intact which feature some highly valued features that can help businesses automate their Accounts payable process.
But, modern software solutions like SutiSoft’s Accounts Payable Software stands out as it is tailored to meet modern business needs. With automation at its core, the software reduces payment processing time and costs by over 80%. The software stands out with some advanced features such as automated invoice data capture, customizable approval, and payment workflows, ensuring remarkable accuracy and seamless collaboration, keeping stakeholders informed throughout the source-to-pay cycle.
While most solutions feature up-to 3-way matching, SutiSoft’s intelligent matching process enables effortless matching of invoices, purchase orders, and receipts, with flexible 2-way, 3-way, and N-way matching mechanisms configurable to each business requirement. All this bundled with customizable approval workflows allows businesses to create role-based, parallel, or sequential approval workflows with automated notifications to prevent delays. Payment processing through Corpay ensures secure ACH, credit card, or check transactions, while real-time reconciliation guarantees data accuracy. Reports and analytical capabilities offer actionable insights, and seamless integration with external accounting applications eliminates the need for manual data entry, promoting greater efficiency.
Benefits of leveraging AP Automation Tools
- Increased Accuracy: Automation minimizes human errors, which ensures accurate data entry and processing.
- Time Savings: By automating various processes businesses can eliminate manual tasks and save resource time.
- Improved Cash Flow Management: Real-time tracking and prioritization of payments optimize cash utilization.
- Stronger Vendor Relationships: Timely payments and clear communication foster trust with suppliers.
- Scalability: Modern tools can handle growing invoice volumes, making them suitable for businesses of all sizes.
Key Takeaways
Accounts payable management is more than just processing invoices and making payments. It is a critical function in a business’s operations and if not done strategically it can significantly impact cash flow, vendor relationships, and overall financial health of the organization. By adopting the best practices such as automating invoice processes and standardizing workflows organizations can instill greater efficiency in their AP management.