What is the accounts payable process?
Accounts payable (AP) is responsible for the payment of vendors and suppliers for products and services that are purchased by the company. AP departments usually handle incoming invoices and bills, but they may also serve other functions depending on the nature and size of the business.
Although the accounts payable processing can be broken into four steps depending on how complex and long each step is, they all have their own unique complexity. These are the accounts payable process steps:
- Receipt of the invoice
- Examining the invoice
- Approval of the invoice
- Vendors and suppliers being paid
What is the importance of accounts payable management?
AP process, despite being a back-office function, is a vital business process. How well employees manage the procure to pay cycle is crucial for the efficiency and productivity of AP departments.
A well-managed AP Department ensures:
- A strong relationship with vendors and suppliers is a benefit to the business over the long-term
- The business runs smoothly with uninterrupted delivery of purchased goods and services
- There are no penalties or additional costs for late payments.
- To avoid duplicate or missing payments, systematic tracking of all invoices is done
- Better control of cash flow for a company
- Lower risk of fraud
What are the biggest challenges for accounts payable?
However, AP departments are often faced with challenges that hinder their ability to optimize their processes. Managers in AP departments are under increasing pressure to do more with less and transform their departments into profit centers.
AP professionals often face the following problems:
- Too much paperwork- AP has half of all invoices that are received in paper form. Your employees will waste time sorting, organizing, and AP processing paper files. This could allow them to spend their time on more valuable tasks.
- Manual data entry- AP teams spend a lot of time manually entering data from many formats and sources. This could lead to data entry errors or misplaced documents.
- Long approval process- There may be multiple stages and levels depending on the amount of the payment. Many invoices require approval from outside parties. This can increase the cycle time, especially if approval accounts payable workflows are not easily accessible.
- Inadequate visibility- Paper and manual processes can create a blind spot that prevents AP teams from efficiently tracking the company’s cash flows. It is difficult to assess the company’s financial health and reduce the risk of late payments by not knowing the stage at which each invoice is.
How to simplify the accounts payable process
To address the problems that hinder AP teams from being efficient There are best practices to help you. Streamline the process of paying accounts From beginning to end.
- Centralize all AP documents and automate processes using a single platform. You can capture, integrate and measure, process, store, and access important AP information.
- Reduce the use of paper. Establish guidelines for vendors to send digital invoices. Use invoice capture software to extract the required information into your ERP.
- Set up reminders for payment. You will be notified to avoid missing or late payments.
- Monthly reports can be generated. To help your company understand its cash flow, compile monthly reconciliation, voucher activity, and payment history reports.
Set up payment reminders. You will receive notifications to notify you of late or missed payments, and early payment discounts.