Best practices to optimize the accounts payable process
Account payable (AP) is a vital function in any organisation. It is essentially the amount a business owes its vendors and suppliers for the goods and services provided by them. AP appears on the liability section of the balance sheet of a company. Hence, it directly impacts the financial health of a business. Therefore, it is essential that a business optimises its AP process for a faster and more effective process.
Let’s quickly take a look at the typical AP process.
The AP process goes through the following steps:
- Receiving invoices from vendors/suppliers. Upon receipt, the invoices are coded according to the cost centre and the accounts data.
- The invoices are reviewed and they pass through 2-step/3-step Purchase Order (PO) matching. They are also matched against the receiving orders.
- Invoices are then sent to the concerned members for approval.
- On approval, payment is released to vendors/suppliers.
Although AP is a back-office function, it is an important function that directly impacts the cash flow of the company. An efficient procure-to-pay cycle improves relationships with vendors/suppliers and lays the foundation for long-term relationships. It enables the business to function smoothly by ensuring uninterrupted delivery of goods/services. It reduces the instances of delayed payments. Besides, monitoring the AP process avoids duplicate payments and reduces the risk of fraud.
However, the AP process is not simple as it appears. There are several challenges that businesses face in the AP process:
- AP process entails extensive documentation since there are multiple paper-based invoices to be sorted and organised.
- In legacy systems, data entry and review of invoices are manual processes. These processes are prone to human errors and are time-consuming.
- The Account Payable process has to deal with a lengthy approval cycle time. This is especially true when the invoices need to pass through different stakeholders for approval.
- Manual processes have limited visibility which makes it difficult for the AP team to keep track of the company’s cash flow.
How to Enhance the Efficiency of the Account Payable Process?
- Identify Bottlenecks
- Establish Goals
- Go Paperless
- Prioritise Invoices
- Avoid Duplication
- Payment Alerts
- Monthly Reports
- Prevent Fraud
Your first step should be to review the existing process and identify shortcomings in the process. This will provide inputs on the areas to focus on to optimise the process.
You need to establish your goals and identify the KPIs to measure the success of your optimisation initiatives. Some examples of KPIs are the number of invoices paid on time, cost per invoice, etc.
Extensive paperwork is one of the deterrents to the efficiency of an AP process. Hence, it is a good idea to go digital. Encourage your vendors/suppliers to send digital invoices that can be integrated with your ERP systems. Reducing paperwork saves time and simplifies the process.
Organising and prioritising invoices enhances the efficiency of the AP process. It reduces time and costs.
The detailed AP process is vulnerable to duplication of data. Duplicate invoices can prove to be a costly mistake and can lead to losses. Hence, it is recommended that you review the invoices and check for duplicate entries in both received invoices and payments made.
Setting up payment reminders ensures that you get timely notifications and can make payments on time.
Monthly reconciliation reports help keep track of the cash flow. They also help you prepare for audits and information requests.
The AP process is vulnerable to fraud from a variety of sources. Frauds might be due to cybersecurity issues, employees generating fraudulent invoices, and more. You can protect your process from fraud by establishing a rigorous tracking system for approvals.
These are some areas to focus on to optimise the Accounts Payable process. However, the most effective way to resolve all issues with the AP process and enhance efficiency is by automating the process.
Automation bots streamline the end-to-end AP process. Their use of Robotic Process Automation (RPA) helps reduce manual errors by automating repetitive processes like manual data entry, reviewing, etc. RPA also increases the speed of repetitive processes. Besides, it relieves the staff from performing monotonous tasks. The employees are available for more skilled jobs. It enhances productivity. Technologies like Machine Learning (ML) and Artificial Intelligence (AI) take continuous inputs from ongoing processes and provide valuable insights to the AP teams.
Automation software can reduce delays at different stages of the process and speed up the entire process. Intelligent automation provides an additional layer of security and prevents fraud. It also helps track the process and measure its performance.
*For organizations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organizational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organizations that are innovating collaboratively for the future.