The end-to-end process of accounts payable refers to the steps the accounting department takes to pay off outstanding invoices and bills. This process involves four distinct steps. Knowing and understanding these steps is essential to managing your accounts payable process more efficiently. They include:
- Invoice Capture
- Invoice Approval
- Payment Authorization
- Payment Execution
However simple, this process can be inefficient and error prone when performed manually. In this article, we’ll cover several challenges associated with the end-to-end process of accounts payable that can be improved with AP automation. Let’s explore.
Exploring The End-to-End AP Process and Related Challenges
The traditional, manual process of accounts payable presents a number of challenges, the most daunting of which is a lack of visibility. As the invoice travels through the four essential steps, it may not be easy to determine where it lies at any given moment, which can lead to questions from stakeholders, emails asking if and when the invoice will arrive at their department, and a slew of other communication difficulties that may drag out the AP process further.
Over time, the cost of simply trying to track down invoices can add up and take away from time that could be spent on strategic activities that bring in new revenue. Your supplier relationships can also suffer if you’re consistently sending late or inaccurate payments.
To avoid these setbacks, AP teams need to fully understand the end-to-end process of accounts payable and where each challenge may lie. Below, we break down each step, explore common challenges associated with them, and offer tips for optimizing your process using AP automation.
1. Invoice Capture
Invoice capture is the first step in the AP process in which a given invoice arrives at your company via email, mail, fax, or through a website portal. Once the invoice is received, it is then coded into the accounting system.
Challenge: Manually keying data into your account system leaves room for human error and this process can be slow and tedious depending on the volume and length of invoices you need to input regularly.
2. Invoice Approval
The next step in this process is invoice approval where invoices are routed to the correct department and verification occurs. The department that utilized the vendor’s products or services confirms the items listed on the invoice have been received and match what was stated in the contract.
Challenge: The invoice approval process can be extremely long, especially if there are multiple people and departments the invoice needs to travel through before getting in front of the person who actually needs to sign off. If the process is manual, this may involve emailing invoices around for approval, or worse, walking paper invoices around the office from approver to approver.
3. Payment Authorization
Once the invoice has been approved, it is then sent to the CFO or controller who is responsible for the authorization of the payments.
Challenge: It can be difficult to get a hold of these authorizers and turn into a lengthy process if this person is on vacation, out of office, or has limited access to email. Moreover, AP staff may have to manually prepare the necessary materials for the CFO and controller to review in order to authorize payment.
4. Payment Execution
The final step is payment execution in which the invoice arrives at the person who will either cut the check or make an electronic payment.
Challenge: Paper check payments introduce inefficiency and fraud risk into the manual AP process, and even if your business is making e-payments, it may require a separate workflow. If someone isn’t paying close attention to a payment’s due date, it can be easy to miss deadlines as a result of these inefficiencies. Beware because late payments can affect the relationship you have with suppliers and your ability to participate in early payment discounts.
Other Considerations in the End-to-End AP Process
There are a number of other factors and considerations that can affect the efficiency of your AP process. Is your company still using paper checks to make payments? This can cause manual errors and the potential for duplicate payments. Are you implementing internal controls? These are essential, but of course, can make the process even more lengthy depending on the size of your company. How is the relationship you have with your suppliers? Having an inefficient AP process that results in late payments can tamper this relationship and potentially delay the shipment of supplies.
It’s important to be aware of the different factors that could be affecting your AP process and identify areas for improvement. If you’re dealing with any of the challenges listed above, implementing an AP automation platform that streamlines this process could be worthwhile.
Use AP Automation to Streamline the End-to-End Process of Accounts Payable
By automating the four steps of the AP process in an end-to-end solution, businesses can address the challenges presented at each step of the manual process.
For example, the risk of human error disappears when invoice data is automatically extracted during Invoice Capture and then synced with your ERP system, without any manual input. If your business uses purchase orders, an AP automation solution can even automate the matching process, using an algorithm to compare invoice line items against the PO and flag any exceptions.
Additionally, time is significantly reduced with automated workflows. Authorizers are assigned at each step and are automatically alerted when an invoice is ready for their approval. They also have the ability to accept or reject this invoice from any device. This means no more emails and phone calls reminding employees of impending due dates or invoices getting lost in the shuffle.
And lastly, for finance teams, an automated AP process provides greater visibility into the entire invoice process, upcoming payment dates, and any payment penalties – all of which are important components of managing payment cycles and improving cash flow.
By using an automated AP system from MineralTree, manual intervention is significantly reduced, errors are minimized, and your suppliers receive accurate payments on time, every time.