HomeAccount PayableAccounts Payable Workflow Automation: The Ultimate Guide to Team Efficiency

Accounts Payable Workflow Automation: The Ultimate Guide to Team Efficiency

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.

Meaning of Workflow in Accounts Payable

In accounts payable, “workflow” refers to the sequence of steps or processes involved in handling and managing the company’s short-term payment obligations 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:

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.

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.

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.

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.

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.

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.

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.

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.

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.

Reconciliation

Periodic reconciliation of accounts payable records with general ledger accounts ensures accuracy and identifies any discrepancies that need to be addressed.

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.

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. Manual processing often involves a series of steps, including invoice receipt, data entry, approval routing, and payment issuance. This manual approach is prone to errors, delays, and inefficiencies. 

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.

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 in reconciling accounts.

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.

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.

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.

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.

Ensuring Timely Payments

Automation minimizes human errors by centralizing the process, ensuring invoices are matched, verified, and approved before timely payments are made.

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.

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.

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.

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 Accounts Payable Workflow

Manual vs automated accounts payable workflow

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: Begin by identifying 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 portal, 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.

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