Before we get to how to process invoices in the accounts payable process, it’s imperative to understand the basics. All businesses, regardless of size, must settle their invoices. Usually, the products and/or services listed on these invoices were supplied by a different company or supplier. It is possible to classify the process of receiving, approving, and paying these vendor bills as accounts payable (AP).
Businesses might differ significantly in how they handle accounts payable (AP) processes; larger organisations can employ entire teams to handle the accounts, bills, and inquiries from their suppliers and service providers. An invoice must typically go through numerous processes and be processed by numerous people using the manual method employed by AP teams in large organisations in order for the finance system or ERP to pay it.
Even while smaller businesses typically don’t have a dedicated team handling accounts payable, they still need a procedure in place to make sure that their suppliers are paid on schedule and appropriately.
There are several essential steps in the accounts payable process that are as follows:
1. Invoice received and compiled: The vendor sends the invoice by fax, postal mail, or email in a number of different forms. Hard copy invoices are occasionally scanned, then preserved as electronic files.
2. Invoice recording: The invoice’s information is manually entered into a finance spreadsheet or the Finance/Enterprise Resource Planning System (ERP). These facts, which include the vendor’s name, ABN, GST details, invoice date, payment date, PO number, description of the products or service, terms of payment, and so on, must be precisely entered.
3. Invoice Approval: After entering the system, the invoice requires approval from the individual who placed the order for the products or services. In order to complete this phase, the vendor’s details (name, ABN, and GST details) must be checked. The purchase order must also match, and the invoice may occasionally need to be forwarded to one or more staff members for approval.
4. Invoice Payment: The finance team can make the payment of the invoice after it has been authorised. Before the money is paid, supplier payment details are verified once again.
5. Invoice closed: An invoice can be closed when payment is received to remove it from the finance system’s list of liabilities.
The actions listed above are merely suggestions and are thought to be the fundamental ones that must be followed in order to prevent fraud and mistakes before payments are issued. Sometimes there are extra steps involved in the process for large organisations, requiring more permissions and verifications before an invoice is paid.
The Accounts Payable Process:
What issues arise from using a manual accounts payable process?
Upon examining every activity involved in the manual accounts payable process and classifying the related issues, four primary challenges confronting AP departments become evident:
4 Major Issues that AP Departments Face
Manual Accounting Invoice processing fraud can become more likely to occur in an organisation that processes accounts payable. The ACCC received 13,455 reports of invoice-related fraud in 2018, a 46% increase over the previous year. Insufficient or subpar fraud detection procedures allowed millions of dollars to be transferred into bogus accounts by organisations who appeared to be unaware of the fraud.
“In 2018, invoice related fraud increased more than 46% on the previous year with 13,455 cases reported to the ACCC”
1. Cost per Invoice
A company’s financial status might be impacted by inefficient AP processing in two major ways.
Processing vendor invoices typically involves significant human resource costs, with an average cost of $15 per invoice. Although this appears greater than anticipated, it soon becomes apparent why when you look at the high-touch tasks from the preceding table.
Moreover, a company’s entire financial status might be significantly impacted by laborious accounts payable processes. Even though the majority of invoices begin as electronic documents, they usually wind up on someone’s desk as paper that needs to be approved and dealt with. Any pauses in this approval procedure could have a significant financial effect. Because inefficiencies in the jobs involved in the process can hurt a company’s bottom line, the expenses can mount up quickly:
- Higher human resource costs
- Late payment of invoice fees
- Early-payment discounts being lost
- Suppliers relationships becoming strained making it more difficult to negotiate discounts.
2. Dividends for Accuracy and Efficiency
The effectiveness of a company’s manual accounting procedures has a direct impact on its overall cash position.
Working capital is greatly impacted by any procedure that requires paper, human data entry, and manual approvals.
Heavy workloads raise the potential for mistakes, which raises internal and external scrutiny.
Any errors or hold-ups in the processing and recording of invoices may cause:
- Burden on human resources
- Misplaced, mishandled or overlooked invoices
- Strained supplier relationships
- Inaccurate financial statements
- Likelihood of regulatory compliance audits
- Allegations of fraud.
3. Transparency and Reporting
For a finance department, financial reporting can become more challenging and time-consuming using traditional accounts payable operations.
Every day, a finance team receives a plethora of requests that must be addressed promptly and effectively. These requests range from supplier inquiries to audit history reporting, invoice monitoring, supplier expenditure, invoice status, and monthly accruals.
An invoice’s transaction cost and the procure to pay life cycle as a whole may rise as a result of a traditional, non-automated method that deprives a finance department of financial visibility and transparency.
4. Invoice Processing Fraud Risk
Accounts payable automation, to put it simply, is the process by which a business uses software and technology in conjunction with the financial system to help automate accounts payable and reduce the amount of human contact needed to process invoices.
Accounts payable automation can significantly save processing costs, boost efficiency dividends, improve accuracy, and offer improved financial insight.
Why AP Automation is Important to Process Invoices?
Accounts Payable (AP) Automation can be defined as an organisation’s use of technology and software in conjunction with the finance system to help optimise the APA process and reduce the amount of human contact needed to process an invoice.
Automating accounts payable can significantly lower invoice processing costs while enhancing accuracy, enhancing financial visibility, and increasing efficiency dividends.
What are the advantages of automating accounts payable?
It is immediately evident that automation is the solution when you examine the issues with the manual Accounts Payable (AP) process and the financial implications these issues entail.
1. Greater accuracy and reduced keystrokes: AI-driven OCR technology that can reduce an AP department keystrokes by more than 90%, slashing both processing times and costs.
2. Fraud mitigation: smart technology can extract and automatically check the ABN and GST details provided on a supplier invoice against the finance system and with the relevant government department to reduce the risk of invoice fraud.
3. Invoice exception management: where accounts payable teams gain many of the efficiency dividends is by quickly and effectively resolving any discrepancies that arise during the invoice life-cycle before posting the information to the ERP.
4. Integration with your existing ERP: AP automation solutions can be ‘plugged in’ to your existing ERP to help compliment the overall finance function. There are a handful of integration methods enabling routine data exchanges through to real-time AP data integration with your ERP.
5. Total invoice transparency: you can have all invoice information at your fingertips: supplier data, amount to be paid, taxes, line-item details, workflow status (who, what, when & how someone has interacted with a task), audit trail and invoice images.
6. Improved financial situation: early payment discounts coupled with the elimination of late payment penalties, double payments and fraudulent invoices – can make a substantial difference to a company’s bottom line.
7. Accurate financial reporting: What was previously considered dark data is now accessible through deep search because to invoice libraries. Then, a wide range of requests, including supplier queries, audit history reporting, invoice tracking, supplier spend, invoice status, and monthly accruals, may be made using this data. With the use of drop-down filters, users may instantly retrieve information from any location on any device, increasing visibility and transparency across the whole accounts payable process.
8. Improve cash flow: visibility and control, along with timely and accurate reports, enable healthy cash flow decisions. You avoid late payment penalties while taking advantage of payment discounts.
