For any modern business, accounts payable is considered the backbone of the financial department. 

According to Business Insiders, “Accounts Payable is a complex process, and entrenched habits and limited resources have stymied digitization and kept companies set in their ways.”

In this department, managing invoices promptly and accurately is key to maintaining good relationships with suppliers. A good accountant’s payable system also ensures you don’t have liabilities on your books for too long and that auditing goes smoothly.

In this article, we’ll take a look at the basics when it comes to accounts payable, as well as exploring some critical tools and techniques to make the process more efficient for your team. 

But first, let’s start with the basics — what is accounts payable, really?

Accounts payable consists of everything your business owes to suppliers of services or products. Typically, accounts payable refer to short-time debts that need to be paid off within the year.

But first, let’s take look at the differences between accounts payable and accounts receivable.

Accounts Payable vs Accounts Receivable

Accounts Payable and Accounts Receivable go hand in hand.

Accounts payable refers to the bills you need to pay. They’re sometimes called payables or AP. It can also relate to the person or team who processes invoices and pays your bills. A supplier who hasn’t received payment for the goods they’ve provided might want to talk to ‘accounts payable’.

Accounts receivable, however, refers to the exact opposite — money owed to your business by debtors, e.g. people who haven’t yet paid for your goods or services.

According to Xero, Accounts Receivable are invoices owed to you by customers. They’re sometimes called receivables, trade debtors, or AR. It might help to think of accounts receivable as a sales invoice that your customer hasn’t paid yet.

This process is quite complex as you would need to find customers that pay, bill them correctly, communicate clearly, and lay out enforceable consequences for slow payment.

Now that we have clarified the differences, let’s dive into some of the crucial considerations when managing accounts payable.

Managing the AP Process

Today, businesses have to work closely with suppliers and find seamless ways to pay them.

Suppliers or vendors can be anyone from software providers to services and consultants.

The number of people relying on the fast and accurate payment of invoices makes accounts payable a critical task in an organisation.

If you don’t have a system in place to help you manage these payments, then it gets difficult to take control of your business expenses and focus on growth.

For good housekeeping, before you process a supplier invoice, keep in mind to check the following things:

Does the invoice reflect what the company ordered?

Has the company actually received the goods or services billed?

Are the unit costs and calculations correct? And how about the GST?

Getting this information right will help you determine the accuracy and integrity of your accounts payable process.

Set up clear goals for your team

There is a lot of commotion around the idea of automation replacing jobs, and there are AI experts and venture capitalists who are already predicting that automation will cause major changes in the workforce.

While automation is becoming the norm in many organisations, these predictions shouldn’t hinder teams from working closely with technology. On the contrary, we strongly believe technology should coach teams to complete daily work more efficiently. 

For AP teams, one recurring question that arises is “What are the results you hope to achieve from automating the accounts payable process?”

Begin by identifying your problems, then set up actionable goals based on the issues you identified. This is the time to determine your AP department’s needs and plan on how to best meet them.

In this case, try to be as specific as you can be and even document it. 

Here are some ideas to get you started. Jot them down to gain more clarity.

1. We want to process 1,000 or more invoices per month, but we don’t want to get extra people on board or commit to any extra costs.

2. We want to continue processing the same number of invoices, but we want to enable our team to work fewer hours.

Whatever outcomes you have at the end of your assessment, you should be able to trace them back clearly to the inefficiencies you identified previously. 

Staying on Top of Accounts Payable Workflows

Accounts payable automation comprises of a number of elements like processing invoices, approval workflows, adding data to an ERP system, paying suppliers and vendors, and generating reports and analytics to help you gain insights.

One important step of this process that often gets overlooked is capturing invoice data. 

This is the phase where the supplier invoice is received, the data is extracted and then entered into the system. Before the automation can take place, data from the invoice needs to be entered accurately.

Organizations typically receive invoices in either paper, PDF, or electronic format. Depending on certain factors within the organization, there are numerous ways for the data to be extracted and entered into an ERP or accounting system. In many companies, this process is still done manually.

Full digital transformation is still considered a bold statement, but when done systematically, it fosters great results.

Automating data entry doesn’t only keep AP teams in line with their internal goals and ahead of competitors, but it also allows them to serve customers better and become more efficient in their daily work.

To gain insights into the evolving role of the companies, and what they can do to stay on top of these changes, we have shed light on some of the most important learning points companies can tap on.

Key Steps in the Accounts Payable Process

Accounts payable is one of the areas that are prone to errors.

For most businesses, the accounts payable process boils down to three key steps:

1. Completing a purchase order (PO): This involves setting out the items or services to be purchased, as well as the price. A purchase order also lists any terms and conditions for the transaction and the timelines for delivery.

2. Processing a receiving report: Here, the supplier records the goods or services provided and lists the payment owed to the supplier. Receiving reports list a lot of crucial details, so it’s important to take the time to comb through them.

3. Receiving and processing the supplier invoice: Once an invoice is received, the business then processes it for payment. As above, this involves checking through each of the details to ensure it matches the goods or services actually received.

Track and process invoices with an easy-to-use invoice processing application

Getting the whole accounts payable process right can be time-consuming. After all, there’s an overwhelming amount of details and steps to follow up on.

And unfortunately, a lot of businesses are still performing these tasks manually. 

Why? Because even in the digital age, many companies still use manual processes and physical, hard-copy invoice systems.

Not only is this time-consuming and expensive, but it also creates increased error risk. With the amount of money at risk in accounts payable, it’s really important to get this right from the start.

The right tools can make all the difference here, helping teams track and process invoices clearly and accurately with minimal effort while achieving the following benefits:

1. Avoiding Errors — With a system in place, you can minimize fraud and costly errors. There can also be a layer of checks and approvals that require more than one person in your organization to authorize a payment. That will help reduce the risk factor involved in payments.

2. Establishing Compliance — Set up advanced approval hierarchies and multi-stage approval workflow to process any purchase orders or invoices. Implement robust protocols and accounts payable procedures to categorize and automatically approve certain types of requests made by specified people to streamline the approval process.

3. Optimizing Auditing — Get the complete transaction details after invoices are processed. In a robust system, all the events are recorded that occurred in the execution of any purchase order or payment transaction, and the systems should offer instant access to them.

4. Automating Recurring Tasks — Approving purchase orders or making payments are tedious tasks that consume a lot of time for finance teams. Automating these tasks by setting up notification for any pending approval, processing payments, matching invoices against purchase orders can significantly increase productivity and give them time to focus on other tasks.

Maintain good vendor relationships

If you use the same suppliers regularly, you need to be able to rely on them to have your best interests at heart. 

Cultivating relationships with your vendors may pay off over time. For example, if you are on good terms with a vendor as a regular customer, you may be able to get discounted services or products.

Additionally, if your company prides itself on timely payments, you may be able to secure better-discounted payment terms.

This yields to a better relationship with vendors by allowing them for preferred service and better deals.

The benefits that teams should see after moving to automation are: improved accounts payable governance, streamlined processes, more control on budget spend, increased productivity, effective communication and collaboration, faster and accurate invoice processing, and minimized risk associated with invoice payments.

Final Notes

To give yourself the best shot at a seamless and responsive accounts payable process, think about the tips in this post, and reflect on how you could improve your systems.

For more info, take a look at our help centre and blog articles and see how you can save time and improve your current invoice and expense processes.

Posted by:Andreea Serb

Andreea Serb is a Content Marketing Lead at Innovo42. Follow her on Twitter @Andreea_Serb to discover stories and fresh perspectives from the industry.