by martieLast Updated : Aug-27-2023
Do you worry a lot about making timely payments to your vendors, reducing your business risk of fraud, and improving your cash flow?
You need to streamline your accounts payable process to achieve all of these.
This blog will uncover what it means to have a streamlined accounts payable process for your business and how it can help you maintain good relationships with your vendor and even have a better cash flow!
Through this resource, our goal is for you to achieve the following:
An accounts payable (AP) process refers to a set of procedures and practices that involves paying goods and services to your vendors.
A streamlined AP process is integral to your company’s financial management system. This helps your organization pay your bills on time and accurately. As a result, you maintain better relationships with your vendors.
Generally, the steps involved in an AP process may vary depending on the complexity of your company. Small businesses may have a simpler AP process than large corporations.
In the next sections, we’ll share the common steps to all AP processes.
The accounts payable process of your company plays a pivotal role in maintaining the financial health of your business, ensuring that you meet your financial obligations accurately and efficiently.
The main goal of the AP process revolves around safeguarding the integrity of payments and capitalizing on opportunities for cost savings.
Let’s deep dive into some of the important goals of the Accounts Payable Process:
One of the primary goals of the AP process is to ensure that every payment your organization makes is legitimate and accurate. This involves thorough verification of invoices, purchase orders, and receipts to confirm that the goods and services were received as stated and at the agreed-upon terms.
Oftentimes, many suppliers offer incentives for prompt payments. This can translate into substantial cost savings for your business. Your AP team can take advantage of these discounts by efficiently processing your invoices and managing your payment timelines on time.
Effective AP management can contribute to cultivating a strong relationship with your vendors. Accurate payments show that your company is committed to honoring your financial obligations, which fosters reliability within your business ecosystem. Positive vendor relationships can lead to favorable terms, improved service, and even potential collaborations, which can benefit your company.
Did you know that streamlining your AP process directly impacts your operational efficiency> By implementing an efficient digital workflow, automation tools, and document management systems, your business can accelerate the processing of invoices, reduce manual errors, and boost overall productivity.
Maintaining compliance with relevant financial regulations is an important aspect of your AP process. It is important to maintain accurate record-keeping, adherence to tax codes, and compliance with industry standards to avoid legal and financial repercussions.
The Accounts Payable (AP) process involves several steps to help your organization manage its financial obligations. As a result, you ensure accurate payments for your business and maintain strong relationships with your vendors.
Here are the common steps involved in an accounts payable process:
Your vendors will invoice your organization for the goods and services provided. The invoice contains details such as the description of the products/services, quantities, prices, and payment terms.
Through electronic invoices, you can completely do away with regular paper invoices. Your suppliers don’t even need to email invoices to you anymore. ProcureDesk, as automation software, will automatically generate invoices for your vendors.
ProcureDesk is linked to over 50 vendors who can work with electronic invoices.
Here’s an example of an electronic invoice ProcureDesk can create:
Your AP team verifies the accuracy and legitimacy of the invoice your company receives. This involves invoice matching to ensure that the details on the invoice correspond with the purchase orders, delivery receipts, and contracts. This ensures that the goods and services stated on the invoice were received.
With Optical Character Recognition (OCR), ProcureDesk can interpret invoice documents and extract important data embedded within them.
As a result, your Accounts Payable (AP) team is relieved from manually inputting invoice data into the system. ProcureDesk’s advanced technology eradicates the potential for human error, thus contributing to a seamless workflow for your company.
Your AP team compares the invoice details with the corresponding purchase order to ensure that quantities, prices, and other terms align. Any discrepancies will be flagged.
Upon implementing a three-way match, the Accounts Payable (AP) team may need to manually match vendor invoices and corresponding purchase orders.
This manual matching process is time-intensive and requires extensive communication with various stakeholders.
The AP team is tasked with resolving the following inquiries before approving invoice payment:
Through the utilization of automated three-way matching, ProcureDesk seamlessly compares the three pertinent documents—purchase order, receipt, and invoice (thus the “3-way” match)—and promptly identifies any inconsistencies or discrepancies.
Invoices require approval from relevant departments or individuals before payment can be processed. This ensures that your expenses are authorized and fall within budget.
The validated and approved invoices are then coded with relevant account codes or categories. Your company’s data entry personnel then enters the invoice details into the organization’s accounting system.
The recorded invoices are posted to your company’s accounts payable ledger, which tracks the outstanding payments due to your vendors.
Based on the payment terms and your organization’s payment schedule, your AP team prepares a list of invoices due for payment. This step involves calculating the total amount payable to your vendors.
Payment lists or batches are then reviewed by authorized personnel from your company to ensure accuracy in the transaction.
In this step, payments will be made. Payments can be done through various methods, including checks, electronic fund transfers (EFT), or online payment platforms. Your organization will initiate the payment process and transfers to your vendors.
After making the payments, your AP team will reconcile the accounts payable ledger with the bank statement. This ensures all your payments are correctly processed and accounted for.
Invoices, receipts, and payment records must be stored and archived for future reference, audit purposes, and compliance with regulatory requirements.
As part of your AP process, you must generate reports to provide insights into your cash flow, outstanding liabilities, and vendor performance. This will aid you in budgeting, forecasting, and decision-making.
Through ProcureDesk’s dashboard and reporting, you gain a clear view of your expenses and cash flow that your business needs.
For instance, you can quickly understand your purchases and their sources and identify the top spenders within your company.
ProcureDesk offers more than 30 reports that offer in-depth transaction summaries.
This automation software makes it easier for you to track invoices lacking receipts. This helps your AP team follow up and ensure your stakeholders confirm product delivery.
Here’s a sample report generated by ProcureDesk:
Let’s discuss the different types of accounts payable processes:
This accounts payable process is traditional, where employees manually process invoices. This process can be time-consuming and error-prone but is also the most affordable option.
This approach uses software to automate the accounts payable process, such as invoice matching and payment processing. This can save your business time and money and help reduce errors.
This approach uses cloud-based software to process accounts payable. This can be a very good option if your organization needs to process accounts payable from multiple locations.
This table summarizes the key difference between the 3 types of accounts payable processes:
|Type of Accounts Payable||Process||Pros||Cons|
|Manual Accounts Payable||Manually processed by employees||Affordable||Time consuming and prone to human error|
|Automated Accounts Payable||A software automates the accounts payable process||Saves time & money||It can be quite complex to set up and maintain|
|Cloud-based Accounts Payable||Uses a cloud-based software to process the accounts payable||Scalable and can be accessed from anywhere||Expensive|
Remember that the type of accounts payable process your business will choose will depend upon your business’s specific needs and requirements.
Let’s briefly discuss the four functions of the accounts payable processes: invoice receipt & review, invoice approval, payment processing, and vendor statement reconciliation.
The full cycle accounts payable process is the complete process of paying for goods or services your organization has purchased from suppliers or vendors.
This can be divided into two main phases: the upstream and the downstream.
This refers to the process before your company receives goods or services. This includes activities such as procurement and receiving.
This refers to the process after your company receives the goods or services from your suppliers. This includes invoice processing, payment, and reconciling accounts payable.
Accounts payable management is a crucial aspect of your organization’s financial operation. It involves carefully handling and monitoring all your outgoing payments to suppliers, vendors, and other creditors.
While it may seem mundane, having effective accounts payable management boosts your company’s overall financial health and success.
Here are some of the benefits brought by effective accounts payable management:
Timely payments help your organization maintain a strong vendor relationship and impact your organization’s overall financial health.
By promptly settling your invoices, your company shows your commitment and reliability. This fosters trust within your vendors. The responsible approach of your company to paying vendors accurately reflects your company’s reputation and overall financial stability.
Prompt payment is important for your business to avoid overdue charges and maintain a healthy financial position.
Late payments can lead to additional costs, penalties, and even strained vendor relationships. By implementing an effective accounts payable process and utilizing payment tools, your business can ensure timely payments and avoid unnecessary expenses.
One of the biggest challenges businesses face when managing finances is keeping overspending in check.
Overspending harms organizations’ financial health and stability, leading to cash flow issues, increased debt, and hindered growth opportunities. One effective way to keep overspending in check is through a budgeting system to help set clear financial goals and allocate your resources accordingly.
A comprehensive budget outlining expected revenues and expenses lets your business track your actual spending, stay within your limits, and implement spending controls.
By closely monitoring what your business requires and the purchases made, your organization can ensure you spend your resources wisely and efficiently.
Tracking your company’s needs involves identifying and prioritizing the necessary items and services your business requires to operate smoothly. This could include everything from office supplies and equipment to software subscriptions and maintenance services.
Maintaining a comprehensive list of your needs lets your business plan and budget your expenses.
One of the common challenges that your business can face when tracking your needs and purchases is the difficulty of retrieving relevant information when needed.
Your purchase documents and records are often scattered across different departments or stored in multiple systems. This makes it time-consuming to access information.
To overcome this challenge, your business must implement a robust purchasing software or system to easily retrieve your purchase records, invoices, receipts, and other relevant documents.
Fraudulent invoices and payment schemes are very common in the business world, which leads to substantial financial losses and damages a company’s reputation. However, by implementing the correct processes and leveraging technology, your business can reduce the risk of fraud in your accounts payable department.
Automating your accounts payable process can eliminate potential vulnerabilities associated with manual processes. Invoice data is easily captured and processed electronically, reducing human errors and intentional manipulation.
By streamlining and expediting invoice processing and payment approvals, your business can ensure timely payments to your vendors.
An efficient accounts payable management streamlines and expedites invoice processing and payment approvals, avoiding late payment penalties.
Manual processes can be challenging to track and forecast cash flow accurately. The reliance on paper documents and manual data entry increases the risk of errors, resulting in delayed or duplicate payments.
These errors not only disrupt the cash flow but also affect the overall financial health of the organization.
By implementing accounts payable automation, your business can significantly reduce entry errors and ensure accurate and timely payments.
Automation software that seamlessly integrates with your company’s software and other systems eliminates the need for manual data and reduces processing time.
This streamlining of the payable process allows for more accurate tracking of incoming bills and payment due dates, facilitating proactive cash flow management.
Automation provides businesses with valuable insights into payment trends and patterns.
Your organizations can accurately forecast future payment obligations by analyzing historical data and trends.
This information allows you to plan and allocate resources effectively, ensuring that there is always enough cash on hand to meet payment obligations without causing any cash flow strain.
Automation also allows for the easy monitoring of your payment terms. Aside from that, it also gives you the advantage of early payment discounts!
With automated reminders and alerts, your business can stay on top of payment deadlines and negotiate favorable terms with suppliers.
This proactive approach not only improves your cash flow but also positions your company as a reliable and trustworthy partner in the eyes of the vendors.
The accounts payable team in your company ensures a smooth operation for your financial transactions. Your AP department is responsible for managing your vendor invoice, processing payments, and maintaining accurate financial records for your company.
One of the primary responsibilities of your accounts payable team is to receive and review vendor invoices. Your AP team carefully reviews each invoice, ensuring that it is accurate and matches the products or services you receive.
After verifying the invoice, your AP team processes the payments. This involves scheduling and issuing payments within a specified period, ensuring accurate payment to all suppliers.
Overall, your accounts payable team diligently works to manage your vendor invoices, process your payments and maintain accurate financial records. These actions contribute to the efficient operation of your company’s payable processes and ensure your company’s financial stability.
Navigating through the Accounts Payable (AP) landscape is not easy. It has several challenges that your organization must be aware of so you can fully maintain your financial accuracy and operational efficiency.
Let’s briefly discuss some of the common challenges faced by accounts payable.
Here are some of the ways you can streamline your accounts payable software:
Automation can play a significant role in streamlining the accounts payable process.
By automating tasks such as invoice processing, approval, and payment, businesses can save time and money and reduce the risk of errors.
Additionally, automation can help improve visibility into the AP process, making tracking and managing invoices easier.
Accounts payable (AP) is money a company owes to its vendors for goods or services it has purchased. On the other hand, Accounts receivable (AR) is money that a company is owed by its customers for goods or services that it has sold.
Accounts payable is a debit account. This is because it represents a liability for the company. Liabilities are debts that the company owes to others.
Yes, accounts payable is a current liability. This means that it is a debt that is due within one year.
The accounts payable turnover ratio measures how quickly a company pays its bills. It is calculated by dividing the total purchase amount by the average accounts payable balance.
A higher accounts payable turnover ratio means a company pays its bills more quickly. This can be a sign of good financial health, as the company is not accumulating too much debt.
Here are some of the common accounts payable job titles:
Cash flow is the movement of money into and out of a business. Accounts payable is a liability, which means that it is a debt that the company owes.
When a company pays its accounts payable, it decreases its cash flow. However, if the company can negotiate favorable terms with its vendors, it may be able to delay payments and improve its cash flow.
Accounts payable is listed on the balance sheet as a current liability. This means that it is a debt that is due within one year. The accounts payable balance is listed on the right side of the balance sheet in the liabilities section.
Your company’s accounts payable process is important in your financial management system. By understanding the different aspects of your accounts payable system, your business can successfully streamline your process and improve your financial health.
What you should do now
Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.