How to Improve Accounts Payable Process (Hint: AP Software)

There are dozens of strategies to improve accounts payable workflows, so you have to consider your current processes and “state of operations” to determine where to start. Are you using spreadsheets for invoice management and having trouble with disorganization? Are you still hassling with paper invoices from vendors?  

In our experience, we’ve found many teams, particularly small businesses or companies that don’t do a ton of spending, use manual AP processes and spreadsheets to reconcile invoices and pay vendors. That’s because most of us are familiar with these tools, and they can be free to use. 

While we’ve seen this work for teams that only handle a limited number of invoices each month, we’ve also seen that this approach becomes difficult (impossible) to maintain as you scale. Most AP teams eventually reach a point of disarray where they require AP software to keep invoices organized and support approval workflows. 

AP software solves the headaches of manual processes by: 

• Providing various tools (e.g., e-invoicing, vendor portals, email integrations) to manage the process of receiving invoices so you can accept all new invoices directly through the system. 

• Identifying and eliminating duplicate invoices so you don’t have to review each invoice manually or risk duplicate payments.

• Automating invoice matching (by sourcing the right POs and receipts) so you only need to prepare approved invoices for payment or troubleshoot invoices with discrepancies.  

However, this is only the beginning when we think of improving AP processes. 

Yes, you want methods to process invoices faster and save time on tedious tasks, but you should also consider improving your processes for better cash flow visibility and savings.  

Even the most efficient invoice approval processes hold little value if your company is chronically overspending. 

Manual AP processes and spreadsheets don’t let you anticipate costs or implement proactive spend controls: you see expenses after you get the bill. You’re more or less operating in the dark, which makes it challenging to reign in spending or implement cost savings strategies. 

AP software lets you consolidate vendor invoices and credit card expense reports to see a comprehensive view of company spending. This is helpful in one regard, as you can report on spending and develop strategies to improve savings.

However, some software solutions let you merge AP workflows with the PO process; this lets you control spending before it happens and gives you a clear view of expenses to expect.   

We’re a procure-to-pay (P2P) software brand — which means our solution supports purchasing and accounts payable workflows — with five years of experience consulting with growing businesses. So, we put together this guide to explain how AP software can improve your processes and the benefits teams see after making the switch. 

We’ll also talk about how to upgrade from manual methods and get started with these software solutions. 

Three Steps to Process Invoices Faster   

1. Centralize Vendor Invoices to Improve Invoice Management 

In our conversations with accounting managers and team leads, we’ve learned the first problem most teams look to solve is poor invoice management — particularly problems with duplicate invoices slipping through the cracks. 

It’s not uncommon for vendors to send invoices multiple times through multiple methods — for example, vendors might email an invoice but also send a physical copy to ensure it was received. 

Then, teams receive each invoice twice; they have to review every new invoice and make sure it doesn’t match one they already have. If they miss an invoice, they risk paying invoices twice. 

This process wastes time and is prone to error; not to mention, paper invoices can be a pain, generally, because they’re easily misplaced and can be difficult to locate if not stored in the right spot. 

AP software “modernizes” this process by allowing you to receive and manage all invoices in a central hub. These software have tools like e-invoicing and vendor portals so suppliers can drop invoices directly into the system for you. 

They also connect with email accounts and have tools to upload paper invoices so you can organize all invoices in one dashboard and go entirely paperless. 

After switching to AP software, you can talk with vendors about how you prefer to receive invoices. If paper invoices are only clunking up your workflows, ask vendors if they offer e-invoicing or create a portal through your AP software and show them how to attach invoices.   

After invoices are dropped in the system, AP software can automatically detect duplicates so they don’t clutter the dashboard. 

All team members (you grant access) can view invoices as they’re received. You can search and filter invoices by supplier name, date, amount, and other custom fields. No more scrolling through spreadsheets to find the right info!  

2. Create a Process for Logging Receipt Details to Easily Reconcile Invoices

In addition to hassling with duplicate invoices, accounts payable departments also note challenges with receipt management. Even with methods to organize invoices, teams still need ways to save time tracking down POs and receipt details to reconcile invoices and prepare them for payment. 

In many cases, they have to work with procurement teams to gather POs and follow up with purchasers to verify their orders were received and correct. Imagine this process when you have 50+ invoices to clear before the end of the month. 

Some teams try to troubleshoot this with surveys — they’ll create a custom form, share it with employees, and ask them to complete the form when they receive a new purchase. However, employees can forget to fill these out, and organizing survey answers is a whole task in and of itself. 

That’s why most AP systems (like ProcureDesk) offer native receipt management; employees can upload photos and receipt details to save them in the platform for easy reference. 

These software solutions also avoid bottlenecks by sending reminders to employees if they don’t upload receipts. 

These systems can flag orders with discrepancies, so AP teams can see the details and address issues with vendors before sending payment. 

3. Use Automation Tools to Match Invoices & Prepare Them for Payment

The last step to improve invoice processing is automating the matching process so you don’t have to source each receipt and purchase order manually. You can save all documents in one system; the software uses optical character recognition (OCR) to extract invoice data and take care of the rest. 

AP automation software streamlines the matching process, reduces processing costs, prevents inefficiencies and human error, and improves compliance. 

This process can look different depending on your AP software and the method of receiving invoices. For example: 

• Some AP software only offers two-way matching to match the invoice and PO (perhaps they only let you store POs in the system or integrate with specific software). We suggest skipping these because you still have to source the receipt to complete the match. 

• Most high-quality AP software offers three-way matching to match the invoice, PO, and receipt. 

• Some systems even offer touchless invoice processing for digital invoices (received through e-invoicing or vendor portals) to automate processes completely. 

After invoices are matched with the right POs and receipts, AP software can add accounting codes, push reconciled invoices to your ERP or accounting system, and initiate the payment process. (Alternatively, it can flag invoices that require a second look and route them to the right person before pushing invoice data for payment.) 

Accounts payable automation software can save hours each week; AP departments can send timely payments and use their time on more productive tasks. On that note… 

Best Practices to Improve Spend Visibility, Analyze Budgets & Improve Cost Control 

The next piece of the puzzle is implementing methods to optimize budgets and avoid frivolous or wasteful spending. 

Teams almost require AP software to do this efficiently because analyzing spreadsheet data can be time-consuming and headache-inducing. Plus, as mentioned before, manual data entry is error-prone, so you could spend time analyzing data that isn’t entirely accurate. 

AP software often has reporting dashboards to break down spending in an easy-to-digest way. They offer dashboards so you can get a birds-eye-view of real-time spending across the organization, and then you can dig into spending by supplier, department, individual, date range, and more.  

This data is beneficial in two significant ways: 

• AP teams can collaborate with procurement teams (or other departments managing purchasing) to optimize budgets. AP software gives you visibility into what teams are spending money on so you can understand what each team requires and where you can shave costs. 

• You can pinpoint opportunities to negotiate (or renegotiate) contracts with key suppliers. Working directly with vendors can earn you better rates and flexible payment terms. Some vendors even dish out discounts for early payments. 

Not only can AP software help you course-correct overspending and dig out of debt, but it can also help you increase savings and grow your bottom line. And while improved efficiency is a first stepping stone, this is what CFOs really care about. 

Collaborate with Procurement Teams (+ Other Departments) to Plan Budgets & Anticipate Costs

Working directly with the teams who manage purchasing is the only way to proactively control costs and know what expenses to expect. 

Part of this collaboration should involve brainstorming to understand what each department requires — 

• What type of spending can we expect each month? 

• Is there any unnecessary spending? 

• Do we have issues with overlap (aka accidentally ordering two of the same item)?

Then, you can more strategically budget for what’s needed. For example, you can reallocate budgets if one department frequently underspends and another overspends; you can look to establish contracts with vendors employees commonly shop with (more on that below).  

Now, establishing budgets and merely asking employees not to exceed what’s allotted is risky; orders that exceed budgets can slip by if you don’t have a system to track or enforce budgets.  

If purchases exceed planned budgets, you may not have sufficient funds to cover payments. In this case, you have to dip into credit lines or make a late payment (often with interest). Both of these options add unnecessary costs.

P2P software like ProcureDesk has features to create a controlled purchasing flow, limiting where employees can shop and what they can spend. You’ll have to talk to procurement teams about the systems they use to manage purchasing and find solutions to enforce budgets (and stop unauthorized spending before it’s too late).

Establish Contracts with Vendors to Negotiate Better Rates & Payment Terms 

In our experience, detailed spending information can also be used to negotiate favorable contracts with preferred vendors, helping you save money, improve supplier relationships, and bring more flexibility to the AP process.

For starters, establishing contracts with vendors means you can receive discounted rates on the products you purchase most frequently. If you work in a research lab and order most of your equipment through Thermo Fisher Scientific, you could establish a contract that says you’ll exclusively purchase your incubators (or beakers, hot plates, gloves, safety glasses, etc.) for a 10% discount. 

You can also negotiate longer payment terms, so you have 45 or 60 days (sometimes even longer) to issue invoice payments. This gives you more wiggle room than putting everything on a credit card, where you only have 30 days to pay, or you risk late fees and interest. 

Not only can you avoid unnecessary (frustrating) interest costs, but some vendors will even grant early payment discounts if you send payments before the due date. 

Then, you can earn more favorable perks as you build vendor relationships. Suppliers may offer greater discounts or longer payment terms the longer you work with them to help you strategically save. 

Getting Started

We’ve worked with small and growing teams, nonprofits, and enterprise companies for over five years to upgrade their accounts payable processes. Over and over again, teams have found that the benefits of managing processes in an AP automation solution outweigh the benefits of working with a free spreadsheet. 

Although spreadsheets might not come at an upfront cost, they eat up your time and resources. 

We’ve designed our solution to support the best practices we’ve learned along the way. Our P2P software offers procurement management and a suite of AP automation tools to support both sides of the equation. Our system allows AP teams to work in parallel with procurement and purchasers to enforce budgets, oversee spending, and manage vendor payments.