The accounts payable process can be broken down into a few key steps:
- Invoice received and collated: the invoice is sent from the vendor via email in various formats, via post as a hard copy, or via fax as a hard copy. Sometimes hard copy invoices are scanned and saved as electronic files.
- Invoice recorded: details of the invoice are manually typed into a Finance/Enterprise Resource Planning System (ERP) or finance spreadsheet. These details need to be accurately entered and will include information such as vendor name, vendor ABN, vendor GST details, invoice date, payment date, PO number, description of goods, and/or service, payment terms etc.
- Invoice approved: once the invoice is in the system, it needs to be authorised by the person who ordered the goods or services. This step requires that the vendor’s details are verified (name, ABN and GST details); requires purchase order matching, and sometimes requires the invoice to be sent to another staff member or staff members for approval.
- Invoice paid: once the invoice is approved, it can be paid by the finance team. Supplier payment details are checked again before the amount is paid.
- Invoice closed: once the invoice is paid, it can be marked as closed so that it no longer shows up as a liability in the finance system.
The accounts payable process:
What are the problems associated with the manual accounts payable process?
As with all organisations, efficiency dividends and cost savings are integral. Sadly, the Accounts Payable (AP) department can be one of the largest overheads in an organisation, with the AP process being heavily reliant on people and paper.
AP departments relying on manual processes are finding that adding staff does not solve the overall problem. Manual processes are not only expensive and inefficient, but they also increase the chance of errors and expose organisations to many risks.
If you review each of the tasks in the manual accounts payable process and categorise their associated problems, it reveals four key challenges facing AP departments:
Four key challenges facing AP departments:
Manual accounts payable processing can increase an organisation’s vulnerability to invoice fraud. In 2023, Australian businesses reported nearly 5,000 cases of scam activity, losing approximately $29.5 million, with small and micro businesses particularly impacted. While reports of payment redirection scams declined by 28%, total losses rose, reflecting the increased sophistication and targeting by scammers. Notably, payment redirection fraud, often involving altered invoices sent through hacked or impersonated email accounts, accounted for a significant share of these losses, costing Australians over $16 million in 2023 alone.
- Cost per invoice: Inefficient AP processing can affect a company’s financial situation in two main ways.
The human resource cost of processing vendor invoices is generally high, with the average invoice processing cost being $15 per invoice. This might seem higher than expected, but when you review the high-touch tasks from the previous table it quickly becomes clear why.
A company’s overall financial situation can also be dramatically influenced by cumbersome accounts payable processing. Although most invoices start as electronic documents, they generally end up as paper on someone’s desk requiring actioning and approval. Any delays in this approval process can have a big financial impact. The costs can quickly accumulate because inefficiencies through the process tasks can hurt a company’s bottom line:
- 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.
- Accuracy and efficiency dividends: Manual AP processes can dramatically affect a company’s efficiency levels and, in turn, their overall cash position.
With any process that involves paper, manual data entry, and manual approvals, the impact on a company’s working capital is high.
High workloads increase the capacity for errors and, in turn, increase scrutiny, both internally and externally.
Any inaccuracies and delays in processing and recording invoices can result in:
- Strain on human resources
- Misplaced, mishandled, or overlooked invoices
- Strained supplier relationships
- Inaccurate financial statements
- Likelihood of regulatory compliance audits
- Allegations of fraud.
- Transparency and reporting: Traditional accounts payable processing can make financial reporting more difficult and time-consuming for a finance department.
A myriad of requests are regularly submitted to a finance team, with everything from supplier queries, audit history reporting, invoice tracking, supplier spend, invoice status, and monthly accruals needing to be handled quickly and efficiently.
A traditional, non-automated process can create a lack of financial visibility and transparency for a finance department, which can contribute to the increase in the transaction cost of an invoice and the overall procure-to-pay life cycle.
- Risk of invoice fraud: Put simply, accounts payable automation is when an organisation implements technology and software in conjunction with the finance system to help streamline their accounts payable process and minimise the level of human interaction required to process an invoice.
Automating accounts payable can improve accuracy, provide better financial visibility, increase efficiency dividends, and dramatically reduce the cost of processing an invoice.
What is Accounts Payable (AP) Automation?
Accounts payable automation leverages technology to streamline the AP process by minimising manual intervention and human error. This approach integrates software with an organisation’s finance systems, optimising invoice processing for efficiency and accuracy while reducing costs and improving workflow visibility.
Key Benefits of Accounts Payable Automation:
Here are some significant advantages automation brings to the AP process:
- Improved Accuracy and Reduced Keystrokes: Automated Optical Character Recognition (OCR) technology can significantly reduce manual entry by capturing and processing data from invoices, lowering keystrokes by up to 90%. This not only speeds up processing but also reduces costs.
- Fraud Prevention: Intelligent technology can verify supplier information by cross-referencing ABN and GST details with government databases, reducing the risk of fraudulent invoices.
- Efficient Exception Management: Automation identifies and addresses discrepancies in invoices early in the process, allowing for quick resolutions that prevent costly delays before data is posted to the ERP.
- Seamless ERP Integration: Many AP automation solutions integrate directly with existing ERPs, enhancing data flow and enabling real-time updates within the finance system.
- Complete Invoice Transparency: With automation, all invoice details are instantly accessible, from supplier information to tax details, status tracking, and audit trails, providing a comprehensive view of every invoice.
- Enhanced Financial Position: Automated AP systems support timely payments, enabling early payment discounts, eliminating late fees, and reducing duplicate or fraudulent payments, all of which contribute to improved financial health.
- Accurate Financial Reporting: Automated invoice libraries offer searchable access to invoice data, supporting audits, supplier inquiries, tracking, and real-time reporting, which improves transparency and insight across the AP process.
- Optimised Cash Flow: With real-time data and detailed reporting, organisations gain better control over cash flow, avoiding late payments and capitalising on early payment discounts.
Get a Step Closer to Simplifying Complexity with Efficiency Leaders’ Solutions!
