Struggling with Accounts payable automation in QuickBooks?
Do you feel that you have outgrown the QuickBooks system and need to upgrade to a better system for Accounts payables? Don’t change the system yet!
Read on for a step by step process on how to automate accounts payable process in QuickBooks using a Accounts Payable automation software that works with your current environment.
In our experience working with 100’s of companies using QuickBooks (Online or Enterprise), CFO’s or Controllers struggle with the following when it comes to Accounts Payable processes in QuickBooks
Though QuickBooks has improved the access management in the newer version, it still lacks the controls you would need to ensure that there is segregation of duty.
For example, you want to segregate paying vendor bills vs. entering the bills. That is currently not possible so by default, the person entering the bill and can also pay it.
That leads to fraud and compliance risk.
Second, there is no workflow in the QuickBooks system to route bills for approval before they can be marked as approved.
In terms of compliance, there is no way to know who approved the bills unless you are attaching email logs with the bill.
If you are looking to scale the company or raise funding, these are the basic controls you would need to have in place.
Chief Financial Officers (CFO”s) care about the productivity across the board so no wonder they are frustrated with the inefficient processes in AP that are sucking up invaluable resources.
Here are some of the symptoms that you have inefficient Accounts Payable processes.
1. Your team is spending too much time entering invoices across multiple systems, chasing people for approvals. We call this Invoice maze.
2. The supplier bills are not in one single place. There is no central place to capture supplier bills.
3. You are spending a lot of time answering vendor queries on when their bills would be paid.
4. The purchase authorization process/purchase approval process starts after the invoice is received from the suppliers and not before the order is placed.
5. There is no cost control and you continuously struggling to keep purchases under Budget.
Do you see any of the above challenges in your AP process?
If you answered yes, then read on to find out how to reduce the time spent on invoices through accounts payable automation.
Let’s first list down the key steps in the accounts payable process so that we can look at automating them.
A common theme we see with our customers is that they have tried to automate the AP process in the past but have not been successful.
They look at individual pieces of the AP workflow and then try to automate it with point solutions. Instead of looking at how the end to end process works.
For example, you don’t have a scanning solution, so you purchase an app that will scan the invoices for you.
But now you have that, what happens to approvals of invoices?
Well, you guessed it, there is another app for that.
What you have then are siloed components that don’t talk to each other.
What is required is to look at the end to end process and understand what is being used today and what gaps need to be closed.
A typical process flow for AP
1. Invoice capture
2. Matching with a Purchase order
3. Invoice approval
4. Exception management
5. Vendor Payments.
When you look at AP automation software, your goal should be to streamline the end to end process and that starts with understanding what you currently have.
All you need to do is to a simple audit to understand the current state.
Here is a template you can use, below is s sample
|Process step||How it is done today?|
|Invoice Capture||For example, manual data entry|
|Matching with a purchase order||Manual or no match at this time|
|Invoice approval||Email approvals|
|Exception management||Email approvals|
|Vendor Payments||Checks, manual payments|
You can find many articles on the web that talk about the benefits of AP automation like reduced invoice cost but you already knew that.
What we trying to do here is to assess objectives and how automation is going to help you scale the company and reduce risk.
Quantification is important for two reasons
1. It helps you identify the key objectives for the investment.
2. It helps you justify the business case for the investment.
So let’s look at some not so obvious benefits of the automation and more so how to quantify the benefits.
One of the main issues with small to mid-sized companies is that their processes are very people-driven and not system driven.
What do we mean by that?
QuickBooks is very limited in access controls. You can do everything or you can do nothing. For example, if you can pay bills, you can create bills too without any approval.
That increases the risk of fraud.
To avoid the risk, companies limit access to QBO to ensure that only trusted people have access to that information.
Now if you only have one person, that doesn’t help because when the person is on vacation or out sick, you can’t do anything in the system.
Even worst, if that person quits, your entire knowledge base just walked out of the door!
So how does AP automation helps this?
Automation transforms your AP department from people driven to a system driven process. The knowledge about how to process bills, exceptions, etc. are coded in the system process rather than with an individual.
So when you need to scale the department or if you lose the headcount, retraining the new resources is a breeze or almost simplified!
When you have a small team, segregation of duties becomes an issue because the same person might be doing multiple steps in the process.
For example, a best practice for procurement compliance is that the person approving the purchase requisition should not be approving the supplier bill otherwise it increases the chance of fraud.
Now if you only have one bookkeeper, then that person might be entering the purchase orders and entering the invoices.
To avoid fraud, you should segregate controls on who can create invoices and who can approve invoices.
By automation of the accounts payable process, you can implement better controls and segregate the purchasing process from the billing and payment process and hence reducing the compliance risk.
Many AP teams struggle to close books on time because they are missing invoices and there are invoices that show up at the last minute and need to be indexed.
The side effect of this problem is that it leads to poor working capital management.
For better working capital management, you need advanced purchase visibility. If you are currently relying on invoices to shows up before you know what you owe, you know what are talking about.
So by having an integrated purchasing and invoicing process, you would know exactly how much cash you need to settle the outstanding AP balance.
Would you like to review purchases before the vendor ships the product for you?
Would it helps the capital allocation process if you knew how much you are spending where and with whom?
If you answer yes to these questions, then that is what Accounts payable automation is going to deliver for you.
You would have granular visibility into what you are purchasing and more important a cost control framework that allows you to reduce cost.
Let’s look at the different pieces of technology you would need to automate the AP process in QuickBooks.
You could put together a solution by simpling picking different technologies for each of these areas or you could just implement a solution with integrated purchasing and AP automation capabilities.
Accounts payable teams workflow starts when an invoice shows up. Depending upon the volume and the process, the invoices might be coming to one single place or it is all over the place.
So the first step to ensure that the suppliers are sending the invoices the way you want it to be sent. What do we mean by that?
By channel, we mean ways in which a supplier can send an invoice to you. Our approach is that there is no single channel that can work for all suppliers.
So you need to assess the capabilities of your suppliers and match them with an efficient channel.
Some of the most common channels are described here
This channel allows suppliers to send invoices electronically using methods like EDI or cXML. You can read more about the supplier invoice channels here. The idea is that the invoice data is transferred from machine to machine without the need for manual intervention.
The supplier portal allows a supplier to log in to a website and submits the invoice against a purchase order. For small suppliers or where the volume is low, this is a good option. To ensure higher adoption, make sure that the solution you choose doesn’t charge suppliers anything for using the portal. Otherwise, that could lead to lower adoption.
Suppliers can send you invoices electronically by sending an invoice to a common email. For example email@example.com. That is the path of least resistance for your suppliers but does increase work for your team since they now have to index the invoices in the system.
This is the least desirable option from a company perspective because that includes scanning of invoices by your team. This method should only be used where you don’t have the option to choose another supplier. For example utility companies. Otherwise, your suppliers must use one of the above-mentioned channels.
One the invoice is captured, you would need to match the invoice with an existing purchase order. There are generally two possible outcomes
In case you use a purchase order approval process then you are authorizing purchases before the vendor ships the product and then sends you an invoice.
If you do use a purchase order, do make sure that your vendors are adding a purchase order # on the invoice.
In case of a lower adoption of the Purchase order process, you could always implement a no PO No Pay policy. In other words, an invoice must have matching purchase order # for it to be paid.
Once you have the purchase order number, you can match the invoice with the purchase order.
If it aligns with the purchase order, then no further action is required and the invoice is approved payment.
We recommend an integrated purchasing and invoicing system, so the teams don’t have to spend time locating purchase orders in another system. Also by having the data in one system, it is much easier to do the matching.
In case there is on matching purchase order, then the invoice needs to be routed for approval.
The invoice should be approved using your regular authorization matrix because it is no different from a request for purchase.
For that, you would need a workflow engine which is the subject of the next section.
In a perfect world, your invoices match the purchase orders or there is always a purchase order for every invoice.
In reality, that is not always going to be that way, so you would need a workflow engine to route the exceptions and non-PO invoices for approval.
Let’s take a few examples
Let’s say you placed an order for 10 widgets for $10 each, the vendor sends an invoice with an $11 unit price.
This is what is called an invoice exception and it needs to be resolved before the invoice can be paid.
With the help you an approval engine, you can upfront define how an exception should be resolved and the workflow engine can do the rest for you.
Let’s say you want the original buyer to review the pricing with the vendor or the vendor might have already communicated the new price but the buyer forgot to change it on the purchase order.
Some companies have dedicated buyers to review these exceptions by working with vendors and internal stakeholders.
The second case is where you don’t have a matching invoice. It is not uncommon to see invoices for services where there is no purchase order, for example – legal fees.
In such a case, just define the workflow in the system and let the system route such invoices for approval.
Once the invoices are approved, it is approved for payment.
Having an integrated purchasing and invoicing system is of no use if the data is not automatically transferred to QuickBooks (Online or Enterprise).
So your AP automation should also include the capability to automatically send the data to the QuickBooks system. Following are some of the integration touchpoints
This includes pulling the master data to be used in transactions. For example, chart of accounts, suppliers, payment terms and classes, etc from your QuickBooks company. This could be a one way (Quickbooks -> System) or another way around. You can read more about the QuickBooks interfaces here.
If you are using an integrated purchase order and invoicing solution, then it makes sense to integrate the purchase order data with QuickBooks Online. That way, the data is available for you to view even when the vendor has not submitted the Bill.
When the Bill is matched with the purchase order and it is approved for payment, it needs to be posted to QuickBooks. Otherwise, you need to manually enter the Bill and that defeats the purpose of AP automation!
AP automation is not complete without automating the payment process. If you are already using a payment gateway, then that needs to be integrated with the rest of the pieces. The idea is to automate the payment process so that you can issues payments electronically (ACH). If the vendor accepts checks only, then some of the payment platforms handle that too.
Most of our costumers use one of the following options for paying their vendors.
Bill.com is a widely used payment gateway for sending as well as receiving payments. The Bill.com team works with the vendors to set them up for ACH payments and that takes away the extra burden on your team to follow up with the vendors.
Bill.com is also integrated with the QuickBooks platform, so when your invoices are ready for payment, they can be automatically picked up by the payment gateway, and then payment is made as per defined schedule or terms.
ProcureDesk integrates with Bill.com to receive the payment information or alternatively we can pull the information from QuickBooks once the payment is made.
Intuit recently released a new feature for bill payments. It is an embedded solution but is only available in QuickBooks Online.
It allows vendors to choose the preferred payment method, for example, check or ACH.
You can read more about it here. QuickBooks payment platform
So how do you know if the automation process is increasing the efficiency of your AP team?
Here are some Key Performance Indicators (KPI’s) you should track to measure the ROI of AP automation in QuickBooks.
If everything is working smoothly in the AP automation workflow, you would see a reduction in following metrics
As the name suggests, this is the complete cycle time for processing the invoice.
The lifecycle of an invoice starts from when it is submitted and when it is paid.
In this case, let’s ignore payment for now because that is dependent on the cash flow situation of the company.
Sometimes companies might intentionally pay early because they want to avail early payment discounts. In some cases, you pay late because of the cash flow situation.
So what should be the cycle time then?
The cycle time for processing the invoice is the time difference between when the invoice was keyed in the system and when the invoice is sent for payment. In other words, the invoice is approved and ready to pay.
If you didn’t have a Purchase order process and you implemented that along with the invoice automation, you should see a significant decrease in the average cycle time.
The factors which drive the decrease in cycle time are
1. No need to key in invoice data as it is done electronically or by the suppliers.
2. Invoices are automatically matched with the purchase orders.
3. Discrepancies between PO and invoice are automatically identified and approval workflow triggered for exception review.
One of the main reasons why it takes time for A/P teams to close books on time is the number of manual journal entries they have to do to accrue expenses.
There are mainly three reasons for that
1. The product/services have been ordered but not received yet.
2. The product/services have been received but the invoice has not been received yet.
3. The invoice has been received but it awaits approval before the bill can be entered in QuickBooks.
With AP automation for QuickBooks, you should see a reduction in the above-mentioned issues due to the following factors
1. With a purchase order system, the vendors get better visibility into the purchase orders. Also with the catalogs, you can ensure that the correct lead times are set up.
With the supplier portal, suppliers can acknowledge the orders.
You are not waiting on the delivery date to pass and then realize that the vendor never got the order.
2. With the invoice capture process in AP automation, you are centralizing the way invoices are sent to you. That reduces the chances of invoices being lost or a stakeholder sitting on them for a long time.
3. With AP automation, you now have an integrated purchasing and invoicing process. So the time it takes to review invoices should drastically go down. The system should take care of the matching process for you.
With a manual AP process, the chances are the vendor invoices were never received even though the vendor sent it to someone in the business.
That leads to delay in processing invoices and of course delay in payment to the vendor. That of course leads to unhappy vendors.
Now, in reality, you might say, I don’t care about all the vendors.
But you do care about strategic vendors and you don’t want to set up different processes for strategic and non-strategic vendors.
With centralizing and automating the invoicing process, you certainly reduce these errors.
The invoices get processed on time and the vendors are paid on time.
To get AP automation right, you have to make sure that you look at the end to end process.
So rather than automating the invoice capture process, look at the end to end purchase to pay cycle and select a technology that can help you automate the whole process.
You gain efficiencies of an integrated purchasing and invoicing process and of course, the solution is much cheaper.
The second area to focus on is to ensure that the selected technology piece is integrated with your QuickBooks environment, so you are avoiding redundant data entry.
And that’s all you need to get started with AP automation in QuickBooks.