Procuring goods and services is the backbone of every business, and obtaining these essentials from reliable sources is key to smooth operations. Timely payments to vendors are essential for nurturing strong, mutually beneficial relationships. For accounts payable teams, managing and executing the company’s short-term payment obligations to suppliers is a crucial responsibility. A well-organized accounts payable workflow enhances transparency and accuracy in transactions between buyers and suppliers, playing a pivotal role in the procure-to-pay process.
Dive into the details to understand the accounts payable cycle and discover effective ways to streamline the process, tailored for AP teams.
What is Accounts Payable Workflow?
Accounts payable workflow refers to the sequence of processes involved in the management, validation, and payment of the company’s short-term debts to vendors and suppliers. It encompasses the entire journey of an invoice or payment from initiation to completion.
The accounts payable workflow typically includes receiving and validating invoices, obtaining necessary approvals, processing payments, and maintaining accurate records. Automation tools are often used to streamline these processes, improving efficiency, reducing errors, and enhancing transparency in buyer-supplier transactions.
In essence, the accounts payable workflow ensures a systematic and organized approach to managing financial obligations, contributing to the overall effectiveness of the procure-to-pay process within an organization.
Steps of Accounts Payable Workflow
The accounts payable workflow involves a series of steps that organizations follow to process and manage invoices, from receipt to payment processing and reporting. The steps may vary slightly depending on the specific processes and systems a company uses, but the following is a general outline of the typical accounts payable workflow:
1. Invoice Receipt
For paper-based systems, invoices are physically received by the accounts payable department. In a digital environment, invoices are received through email, electronic data interchange (EDI), or other electronic means.
2. Invoice Capture and Data Entry
In traditional workflows, the AP team manually enters invoice data into the accounting system. In automated workflows, optical character recognition (OCR) technology is often employed to capture and extract data from invoices, reducing the need for manual data entry.
3. Invoice Verification
Invoices are verified for accuracy, completeness, and adherence to company policies and procedures. Any discrepancies or errors are identified and addressed during this stage.
4. Approval Workflow
Invoices are sent through an approval process to ensure that they meet budgetary and policy requirements. Approvers are notified electronically, and the workflow may include multiple levels of approval based on the invoice amount or other criteria.
5. Exception Handling
If an invoice requires additional information or if there are discrepancies, it may be routed to exception handling. AP team or designated individuals resolve any issues, such as missing approvals or incorrect invoice details.
6. General Ledger Coding
Invoices are coded to specific general ledger accounts, cost centers, or departments to ensure accurate accounting and financial reporting. This step is crucial for maintaining transparency and tracking expenses by category.
7. Payment Authorization
Once invoices are approved and coded, they are ready for payment. Depending on the payment terms and company policies, invoices may be scheduled for payment on specific dates.
8. Payment Processing
Payments can be processed through various methods, including checks, electronic funds transfer (EFT), or virtual credit cards. Automation is often used to streamline the payment process and reduce manual intervention.
9. Record Keeping
All relevant information, including invoices, approvals, and payment details, is recorded and stored for auditing purposes. Document management systems or digital archives may be used to organize and retrieve this information.
10. Reconciliation
Periodic reconciliation of accounts payable records with general ledger accounts ensures accuracy and identifies any discrepancies that need to be addressed.
11. Reporting and Analysis
AP teams generate reports to analyze AP performance, track spending, and identify opportunities for process improvement. Use specific metrics to evaluate the efficiency and effectiveness of the accounts payable workflow.
Other Functions of Accounts Payable to Consider in Workflow Planning
When discussing “accounts payable processes,” many people focus on handling incoming invoices. However, these tasks are just a part of the broader operations involved in the purchasing and payment process.
Accounts payable staff manage more than just payment workflows. Their responsibilities include:
- Managing relationships with vendors
- Setting up and overseeing vendor accounts
- Negotiating quotes
- Creating, validating, and monitoring purchase orders
- Keeping records of outstanding short-term debts
- Scanning and storing related documents
- Monitoring and controlling cash flow
Accounts payable managers should consider all these processes when planning their team’s work.
Why is the Accounts Payable Workflow Management Important?
Issues like roadblocks, bottlenecks, and errors in the accounts payable process can cause overdue payments, duplicate payments, extra costs, and wasted time. These problems directly affect an organization’s finances, supply chain efficiency, and supplier relationships.
To address these challenges, many organizations are turning to automation and digitization for their accounts payable workflow. This helps them handle growing invoice volumes more easily, take advantage of early payment discounts, improve efficiency in the finance department, and reduce the risk of fraud.
Challenges Faced by AP Teams Due to Traditional Processes
Before delving into the advantages of accounts payable workflow automation, it’s important to understand the challenges associated with traditional, manual AP processes. Let’s take a look:
Data Entry Errors
Manual data entry is susceptible to human errors, such as typos, misinterpretation of information, and incorrect data input. These errors can lead to discrepancies in financial records and strained vendor relationships. Moreover, You might receive duplicate invoices before you can make a payment, causing errors and cash flow issues that need to be fixed.
Inefficiency and Delays
Traditional AP processes are time-consuming, involving the physical movement of paper documents and manual approval workflows. This can result in delays in invoice processing and payment, negatively impacting relationships with suppliers and causing missed early payment discounts.
Lack of Visibility
Without a centralized system, it becomes challenging to track the status of invoices, approvals, and payments. This lack of visibility can lead to misunderstandings, duplicate payments, and difficulties reconciling accounts.
Problems with Scaling
Some organizations receive a steady number of invoices each month. Others see significant fluctuations, making it hard to process when the number of invoices spikes. Some companies are growing and need to handle an increasing volume of invoices. If your processes don’t scale well, you could face serious difficulties.
Risk of Overpayment
The possibility of overpayments arises when organizations lack effective controls and clear insight into their accounts payable processes. Without proper checks and balances, the risk of unintentionally making excessive payments increases, highlighting the importance of implementing robust systems to prevent such financial errors.
Transformative Power of Accounts Payable Workflow Automation
Accounts payable workflow automation involves leveraging technology to streamline and optimize the entire accounts payable process. Here are some key benefits that businesses can reap from embracing AP automation.
1. Preventing Financial Fraud
Automation solutions prevent fraud by mitigating the risk of wrong data entry or false billing. With features like matching purchase orders to invoices and automated approvals, these solutions act as a safeguard. It also establishes a clear audit trail, reducing the risk of fraudulent activities.
2. Avoiding Overpayments
Accounts payable workflow automation eliminates errors leading to over by checking for duplicate invoices and data entry errors. A centralized solution helps AP teams avoid wrong payments, preserving cash flow for daily operations.
3. Streamlining Audit Processes
Automated AP solutions organize and store audit data in one place, simplifying and expediting the audit process. This efficient approach contrasts with the lengthy manual audits that involve sifting through extensive paperwork.
4. Ensuring Timely Payments
Automation minimizes human errors by centralizing the process, and ensuring invoices are matched, verified, and approved before timely payments are made.
5. Increasing Profitability
AP automation facilitates on-time payments, fostering positive vendor relationships. This can result in potential discounts on future orders, directly contributing to cost savings and increased profitability. Additionally, automation prevents payment fraud, directing revenue toward core business objectives.
6. Providing a Single Source of Truth
AP automation centralizes invoice information, simplifying access to data for AP teams. The centralized database streamlines the search for relevant paperwork, saving time and making it easy for anyone in the company to check invoice/payment statuses.
7. Optimizing Invoice Approvals
Accounts payable workflow automation allows for a customizable approval process, routing invoices digitally to the appropriate department. This eliminates the need to chase down signatures, reduces paperwork, and saves time while minimizing the risk of lost approvals.
8. Eliminating Data Entry Needs
AP automation, using OCR technology, eliminates the tedious task of manual data entry. The software extracts data from invoices in various formats, reducing human error, saving time, and expediting payment processing.
Manual Vs Automated AP Workflow
Manual accounts payable workflow involves a series of labor-intensive tasks, such as receiving and sorting invoices, manually entering data into accounting systems, obtaining approvals through physical signatures or email exchanges, and meticulously checking for errors. These processes can be time-consuming and prone to mistakes, leading to delayed payments, missed discounts, and strained supplier relationships. The need for multiple staff members to manage these tasks also increases operational costs and reduces overall productivity.
In contrast, automated AP workflows streamline these processes through technology. Automation software can capture invoice data electronically, reducing the need for manual data entry and minimizing errors. Automated systems can also route invoices to the appropriate approvers instantly, facilitating quicker decision-making and approvals. Additionally, automated workflows can integrate with other financial systems, providing real-time visibility into outstanding invoices and cash flow, and enhancing financial control and planning. By reducing the reliance on manual processes, companies can significantly cut down on processing times and administrative costs, allowing staff to focus on more strategic activities.
Moreover, automated accounts payable workflow improves compliance and audit readiness by maintaining detailed, easily accessible records of all transactions and approvals. This transparency helps in meeting regulatory requirements and identifying potential issues.
How to Choose the Right Accounts Payable Workflow Automation Solution?
Choosing the right accounts payable workflow automation solution is a crucial decision that can significantly impact AP teams’ efficiency. Here are key considerations to help you select the most suitable AP automation solution:
Assess Your Business Needs: Identify the specific pain points and challenges in your current AP processes. Understand the unique requirements of your business, such as the volume of invoices, types of transactions, and integration needs with existing systems.
Define Clear Objectives: Establish clear objectives for implementing AP automation. Whether you aim to reduce processing time, minimize errors, enhance visibility, or achieve other specific goals, having a well-defined purpose will guide your selection process.
Compatibility and Integration: Ensure that the AP automation solution seamlessly integrates with your existing accounting and ERP solution. Compatibility is essential for a smooth workflow and accurate data synchronization.
Scalability: Choose a solution that offers customization options to adapt to your organization’s unique requirements. Ensure that the chosen AP automation solution can handle increasing transaction volumes, additional users, and growing business needs.
Automation Features: Evaluate the automation features offered by the solution. Look for capabilities such as OCR for data extraction, automated invoice approvals, vendor portals, and customizable workflows. These features can significantly streamline your AP processes.
Selecting the correct workflow automation software is crucial for a successful implementation. Peakflo’s Accounts Payable solution efficiently automates essential workflows for AP teams. This solution ensures a smooth transition with minimal disruptions to your current operations, delivering immediate positive effects on your financial outcomes.
FAQ
Who manages the accounts payable workflow?
The accounts payable workflow can be either automated or manual. Manual processes require more staff to handle payments, as tasks like approvals, data entry, and checking invoices for errors are time-consuming. For companies using AP software, the automation platform primarily manages the payment process, making invoice approvals and payment execution much easier.
What is the process flow of accounts payable?
The full cycle of the accounts payable process includes receiving the purchase order from the procurement team, receiving the vendor’s invoice, cross-referencing the PO with the invoice, and finally authorizing the payment to the supplier.
What are the best practice in accounts payable?
Some best practices for managing the accounts payable process include simplifying the workflow with effective use of technology. Establishing controls and limiting access to financial systems keeps sensitive data secure but accessible to those who need it. Reducing verification steps and signature approval responsibilities can significantly shorten the procure-to-payment time.
