Defining Accounts Payable (AP) Automation and How it Solves Paper-Based Challenges

Posted by Lauren Ford on Sep 13, 2017 3:06:24 PM
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Accounts Payable (AP) departments are responsible for making payments owed by a company to its suppliers. Being that every company has bills to pay, AP processes are critical to revenue management. But there are many challenges to paper-based accounting practices that can negatively impact a company’s profitability, including time-consuming invoice approval, error-prone data entry, and missed payments. However, AP tasks are essentially universal and highly repeatable, which can be greatly improved with digital process automation.

In a study by the Aberdeen Group, organizations reported between 40-60% savings by implementing the right invoice automation solution with document management software. By leveraging software automation, AP departments can benefit from effortless compliance with the latest regulatory requirements, increased process visibility, improved supplier relationships, plus the ability to leverage prompt-pay discounts.

Let’s review the challenges of paper-based accounting processes and how automation with document management software enables AP departments to work more efficiently!

Process Challenge #1: When an employee wishes to purchase office supplies, they send a requisition request to their manager. Sometimes, these requisitions can be emails, or even notes on a paper, making it difficult for the manager to review, approve, and forward to the AP clerk in a timely manner.

AP automation solutions facilitate the administrative tasks that, though critical, slow down productivity when performed manually. This is especially true when transferring documents between employees, such as purchase requests. With digital workflow rules, as soon as a requisition is entered into the document management system, the department manager is notified via email that a purchase request requires their attention, which streamlines the approval process. In addition, AP automation effectively enforces best practices for business processes with checkpoints to ensure that a requisition was in fact approved before continuing through the purchasing process.

Process Challenge #2: The AP clerk enters the requisition data into their accounting system and creates a purchase order to match the request. Depending on the amount of requisitions received, this process can take anywhere from 30 minutes to 3 hours. The AP clerk then prints two copies of each purchase order, adding to the company’s print supply costs. One copy is sent to the vendor and another is placed in a folder.

Time is money, and manual data entry is time consuming! Several steps require manual data entry into the accounting system which can be both costly and prone to errors. According to PayStream Advisors, manual invoice processing can cost between $10 - 22 per invoice. If a company is processing 100 invoices a week, costs can reach $4,000 - $8,000 a month or $48,000 - $105,000 a year! By taking this process digital through AP automation, companies can use the money saved to hire several additional employees! Plus, by document management software integrates with popular accounting systems such as QuickBooks® or Microsoft Dynamics®, taking AP automation to the next level with instant data capture and automatic bill creation to eliminate duplicate data entry.  

Process Challenge #3: When the supplies arrive, inside the box is a packing slip, telling the company what they’ve received. The Receiving Clerk manually marks off that each item was in fact received, and gives the packing slip to AP. The AP clerk searches for and retrieves the original purchase order from the filing cabinet, stapling the packing slip behind it, before re-filing the documents again.

Requiring someone to physically move a stack of paper from one location to another can cause documents to get delayed, lost, or damaged. Often packing slips will end up on someone’s desk, and are overlooked or even lost, eradicating the process of reviewing goods received. Automation software keeps employees accountable for their document-driven processes by keeping record of each file’s routes and user actions. It also eliminates the need for photocopies and physically dropping papers off, so employees can remain at their desks, keeping productivity levels high. Document management software acts as a digital file cabinet that goes to work for you by capturing, organizing, and authorizing which employees can search for, retrieve and edit documents. This in return, eliminates the manual tasks like filing documents, or creating new folders, while enabling employees to locate stored records in a matter of seconds.

Process Challenge #4: The invoice arrives, asking the company to pay for the supplies.  It is routed to the AP clerk who, once again, searches for and retrieves the original purchase order and packing slip, and staples the invoice behind them. The AP clerk does a quick visual inspection of the documents to make sure everything matches before cutting the check, finalizing payment and completing the transaction.

The key to getting an invoice approved quickly is validating that you received what was intended to be purchased, and that the terms and amounts match the original purchase order. This process is known as the ‘three-way match’ and it is always the same. With everything routed manually, there is no visibility into the AP process and management may not know where an outstanding purchase is bottlenecked. The current status of any given vendor invoice is not easily known, leading to the risk that if invoices aren’t paid on time, late fees might be levied. AP automation enables organizations to take advantage of early-pay discounts as the software automatically matches incoming invoices to their respective purchase orders and packing slips through intelligent data recognition technologies. When the match is confirmed, the invoice will automatically be routed for final approval and payment, cutting out a large chunk of the AP clerk’s time so that they can focus on higher priorities.

The AP department is all about purchasing and payments. The faster a company pays their bills, the more credit they’re extended, and the more chance by leveraging prompt pay discounts, while avoiding late fees. AP automation through document management software reduces the time it takes to complete AP tasks, without sacrificing the quality of work. Best of all, in most cases, the investment pays for itself within a matter of months.

Is it time to implement AP automation in your organization? Contact Square 9 today to explore your options!

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Topics: Paperless Office, Accounting, Document Management Software, Automation, Productivity, Enterprise Content Management