Managing accounts payable—entering, approving, and paying a company's bills and invoices—can be a challenge, especially when bills arrive at different times in different ways and through different people.
Some arrive by snail mail. Others are attached to emails sent to different managers throughout the organization. As companies grow, the problem only escalates.
With an increasing number of invoices, purchase orders, approvals, and receipts to manage, AP teams need a systematic approach to document management. The tips, strategies, and best practices included here can help.
What is document management in accounts payable?
Document management in accounts payable (AP) is the systematic organization, storage, retrieval, and tracking of all the financial documents and records that are related to the accounts payable process. This includes invoices, receipts, purchase orders, payment records, and any other relevant communication and documentation.
The goal of document management in accounts payable is to streamline and optimize the AP system—processing, approving, and paying invoices—ensuring accuracy, efficiency, and compliance with both financial regulations and company policies.
Why is accounts payable document management important?
AP document management is especially important for AP teams (or companies) that have outgrown the way documents were originally managed.
Most startups have a relatively simple document storage system. Paper receipts are kept in file folders. Invoices that are emailed from vendors are "stored" in someone’s inbox. As long as there aren't too many bills, the cost of managing the process and storing that documentation isn't very high in terms of either time or money.
Now imagine that same startup 100 employees later. Eight different department managers all receive invoices, but they aren't all equally fast at forwarding them to the AP team. Meanwhile, the AP team has grown too—and so has the number of bills that come in every month. Papers are starting to pile up.
If there's a problem with an invoice, that problem gets handled on an ad hoc basis. The person handling the error might be on top of it, but no one else in the organization has that insight. So the bill accidentally gets paid. When the issue gets fixed, the invoice is sent again, and a duplicate payment may occur.
A growing company needs a systematic way to enter, approve, and pay every invoice, no matter how or where it arrives. Purchase orders, invoices, approvals, and payment documentation need to be stored in one centralized place where anyone who needs that information can access it easily.
Accounts payable document management pain points
As companies grow, adding more staff, departments, locations, and expenses, their accounts payable departments often experience some or all of the following common pain points.
Difficulty tracking and organizing invoices
As more invoices come in the door, it becomes a struggle to keep track of them all. As a result, it's also more difficult for AP staff to find what they need, causing daily AP tasks to slow down and occasionally grind to a halt as teams search for paper invoices.
Lost or misplaced documents
As papers pile up, invoices, receipts, purchase orders, approvals, or even contracts may be lost or misplaced. This can lead to awkward calls from vendors who haven't been paid on time, missed payment discounts, or even security concerns, depending on the nature of what's been lost.
Inefficient approval processes
AP departments often face challenges in managing the invoice approval process. Delays in obtaining necessary approvals can result in late payments, strained relationships with vendors, and potential late fees.
Manual data entry
Another pain point is the need for manual data entry when receiving and processing invoices, costing AP teams valuable time. Manual data entry can also result in errors as AP staff members struggle to keep up with the continuing onslaught of paper documents.
Lack of transparency and visibility
Without a centralized system, teams don't have clear visibility into the status of invoices, approvals, and payments. This lack of transparency can lead to confusion, disputes, and potential missed payments.
Limited accessibility and collaboration
In a traditional paper-based system, accessing and collaborating on AP documents can be difficult, especially for remote or decentralized teams. If the AP team needs to contact traveling managers or work crews in the field about vendor invoices, there's a good chance that payments will be delayed.
Lack of integration with other systems
In many cases, accounts payable systems are not integrated with other financial or enterprise resource planning (ERP) systems. AP teams have to enter invoices manually in more than one place with a greater chance of errors and a lack of real-time synchronization between systems.
Compliance and regulatory issues
In a worst-case scenario, ensuring compliance with internal policies, regulations, and even tax laws can become a pain point in AP document management. Failure to comply with these regulations may lead to penalties, audits, or legal issues.
Why are paper-based accounts payable document management systems ineffective?
The list above documents many pain points of paper-based systems, but those pain points add up to one key issue—paper-based AP document management doesn't scale.
As more people need access to documents, paper forms of invoices, approvals, and even payment become more problematic. That's why growing businesses eventually turn to a digital document management solution, providing wider document accessibility.
That said, there's a difference between document scanning and a true digital automation solution for document storage. Anyone who has had to scan even a dozen documents in a row can tell you that document scanning still involves a lot of manual work!
Advantages of electronic document management
When companies implement true accounts payable automation software, the system does a lot more than digitize financial records. It streamlines the business processes associated with accounts payable processing.
An accounts payable automation solution can automate a wide variety of the manual tasks required for paper-based invoice processing—invoice entry, document routing for approvals, records management, syncing with accounting software, and even audit trails.
AP automation solutions can also simplify remote access for approvals and payments while helping to limit unauthorized access by letting teams set different permissions for different roles.
7 AP document management best practices
By following these AP document management best practices, businesses can streamline their accounts payable processes, improve efficiency, reduce errors, and enhance overall financial management.
1. Centralize document storage
Having a centralized and organized document storage system makes AP management much more efficient. Storing documents in one location ensures easy access and reduces the chances of misplacing or losing important documentation.
A cloud-based solution takes this one step further, ensuring that the AP team can access critical documents anytime, no matter where they are.
2. Digitize documents for electronic storage
Scanning physical documents and converting them into PDF files can be a first step toward digital storage. Electronic storage and retrieval is more efficient than paper systems, eliminating the great paper chase and reducing the extra costs associated with paper storage.
However, electronic invoices still require manual invoice processing—for the scanning process itself and for the data those invoices contain. Simply scanning a document won't enter the invoice number, payment date, billed amount, payment terms, company address, and other data points into an accounting system.
To break away from manual processes, invoice document management needs to take advantage of more modern technologies.
3. Adopt optical character recognition (OCR) technology
OCR technology allows computers to pull data from scanned documents and enter it into an AP system automatically. This reduces the chance of human error and saves a significant amount of the AP team's time. OCR technology can capture key information such as invoice numbers, supplier details, payment amounts, and more.
By digitizing the actual information included in the invoice, accounts payable solutions can also check for duplicate invoices, keep track of early payment discounts, track payments, and more. It also allows for seamless integration with accounting software to keep books up to date automatically.
4. Establish approval workflows
Creating approval workflows for AP documents streamlines the approval process and ensures compliance with company policies and procedures. AP automation can then automate these workflows according to predefined rules regarding who needs to approve what.
Accounts payable software can support remote communication and approval, keeping all related communication and documentation in one storage system. It can even sync with a mobile app so approvers can take care of invoice approvals on a mobile device.
5. Set up access controls and permissions
Restrict access to AP documents based on job roles and responsibilities. Only authorized personnel should have permission to view, edit, or delete documents to maintain data integrity and prevent unauthorized access.
In a robust document management system, different roles will support different permissions. Approvers, for example, only need permission to view and approve documentation. By separating permissions by role, workflow automation software supports accounting best practices.
6. Establish backup protocols for AP documents
Implement a regular backup schedule to ensure the safety and continuity of AP documents. This will protect against data loss due to hardware failures, natural disasters, or cyberattacks. When designing your backup system, remember to think about the physical safety and redundancy of your file storage system as well as digital security.
7. Keep an automatic audit trail
One of the biggest problems with paper documentation is that audit trails can be very hard to keep up with—let alone produce in case of an actual audit. With a cloud-based system like BILL Accounts Payable, audit trails are automated, capturing every action along the way with a timestamp and a record of what was done.
In the case of an actual audit, an automated system makes the process much faster and easier, allowing auditors read-only access to the system for a fully transparent process.
AP document management with BILL
BILL Accounts Payable is an AP automation solution that includes unlimited document storage along with all the benefits of automated AP workflows. Store contracts and payment terms by vendor, just where you'd expect to find them, while storing invoices (and communication about invoices) with each individual transaction.
It's searchable, shareable, and scalable—with advanced security for your financial operations.
With OCR data entry (just snap a photo with your phone), automated workflows, approvals on desktop or mobile, and automated audit trails, BILL Accounts Payable transforms the AP process.