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Accounts Payable Process: The Complete Guide

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Does your hand cramp after signing a few dozen checks? Does the thought of accounting admin tedium push those tasks to the bottom of your to-do list? Do you wish your accounting software included more sophisticated options or a broader feature set?

We’re here with a virtual hug to empathize with you. We’ve seen it before. And we’re here to suggest another way—a better way—that adds stability to your business’ accounting function and brings about more positive emotions to the task of bill pay.

This guide demystifies how the latest technology advances support the accounts payable process, from beginning to end, and more specifically. how Bill.com streamlines the process through digitization and automation. Let’s dive in!

What is Accounts Payable?

Accounts Payable is the line item in your accounting software that keeps track of the bills your company owes but hasn’t paid yet. In a broader sense, “Accounts Payable” (or AP) is the term businesses use for the end-to-end process of receiving a bill or invoice, vetting that invoice to make sure it’s right, and then paying it.

In a large business, the AP department can get incredibly complex. For many small businesses, it all falls on the shoulders of the business owner, sucking away a tremendous amount of time.

Keeping track of the money that comes in and out of your business is also known as managing your cash flow, and the balance between what people owe you (Accounts Receivable) and what you owe other people (Accounts Payable) can make or break a business.

In fact, Business Insider recently published an article that states 82 percent of small businesses fail within their first 5 years due to poor understanding of cash flow management.

If cash flow is so critical to keeping a business open, why do so many businesses struggle with it even when they’re tracking those bills and payments in their accounting software?

It comes down to 3 main inefficiencies within traditional AP processes, that can bog a small business among tactics, rather than seeing a bigger strategic picture that can course correct:

  1. Too much paper. From paper invoices to paper checks, the reliance on hard copies slows down the process of documentation—the lifeblood of any accounting system. Electronic records speed up your ability to store and retrieve information, request approvals, and follow audit trails if you ever need them. Digitization also lets you control who has access to those records, and it leads to cost reductions through a reduced need for paper, toner ink, staples, folders, and postage.
  2. Double data entry. Whenever you enter an invoice or write a physical check, there’s always a chance of human error. The Bill.com system applies artificial intelligence, and a subset of it called machine learning, to read invoices, match them against purchase orders, flag duplicate bills, and help spot possible errors (like duplicate payments) before they happen. And, since you pay those bills in the same system, the amount of the approved invoice is automatically transferred to the payment and synced to your accounting software. AI begins to recognize patterns over time and starts providing suggestions, a time saver for many.
  3. Timing of payments. Keeping track of variable payment terms across dozens, hundreds, or even thousands of vendors is a significant challenge. But paying those bills too early can funnel away cash you need, and paying them too late can invoke extra charges that really add up. Who you pay and when you pay them becomes an art form with the stability to your business on the line. Software has the ability to navigate these terms. Our platform in particular tracks those terms and attaches them to each invoice, providing real-time status on due dates, approval cycles, and projected spending, for powerful data insights that often lead to better decision making.

Image of employee learning about and understanding the accounts payable process

Explaining the end-to-end process of Accounts Payable

Accounts Payable in an ideal world. Here’s what’s supposed to happen. In theory, your controller enters each invoice into a tracking system as soon as it arrives. That invoice gets routed to the right people through a formal approval process to make sure the details are correct, that the goods or services it represents have been delivered, that the price matches the original quote, and that the invoice is approved for payment. Those communications are trackable, stored in an audit-ready trail in case it’s ever needed. Once approved, timely payments go out the door in the right amounts, and all financial statements and balance sheets get updated in the accounting system.

But the real world isn’t always ideal.

Accounts Payable in the real world. In most small-to-mid-sized businesses, invoice processing starts in a lot of different ways. Some show up as paper mail. Others are attached to emails, sent to different people. They end up in different places, sitting in various inboxes until those people finally have time to deal with them. Eventually, each vendor invoice gets entered by hand into the business’ accounting software, and then the paper is stored somewhere else.

If the invoice is unusual in any way, someone has to try to make sure it’s okay to pay it. That tends to happen by email, so the record of those communications isn’t stored with the invoice or with the accounting records but across several different email accounts throughout the company. And, if your colleagues don’t respond, someone has to keep yet another system to make sure those invoices don’t fall through the cracks. (Which happens far too often.)

Bill.com moves the real world a lot closer to the ideal one, with a much more efficient system through AP automation, and a lot less time spent on problems with the accounts payable process.

How Bill.com helps with the Accounts Payable process

 

“Prior to implementing Bill.com, the AHS team spent almost a
week each month processing paper, matching each of the invoices
to a single check. Now the process takes just one hour in
addition to dramatically reducing the time the CFO spends
in the approval and signing of checks.”

Diana Westrop, Controller, Atlanta Humane Society

 

Bill.com offers a faster, easier way that gathers invoices into a digital system, handles approvals remotely, stores back-and-forth communication with each invoice automatically, and lets you pay those bills with a few clicks, all inside the same system. It even syncs with your accounting software so you don’t have to enter any of it twice.

 

A competitive chart to explain what Bill.com offers over other companies to improve the accounts payable process

 

Digitize every invoice. Bill.com digitizes the AP process. It applies smart process automation that does a lot of the work for you while keeping you in control, helping businesses spend an average of 50% less time on vendor payments while getting an extra “pair of eyes” looking out for potential errors, thanks to our Intelligent Virtual Assistant (IVA).

Store them all in one place. The Bill.com platform starts by helping you collect those invoices, storing them all digitally, in the same place, no matter how they come in. Vendors can email invoices directly to a special inbox, or you can drag-and-drop files from your desktop, or you can snap a photo with your phone and add it through our mobile app. Every invoice, no matter how it arrives, is stored in one place.

Automate your data entry. As mentioned earlier, Bill.com leverages artificial intelligence and machine learning to pull information from those digital invoices into the system. IVA automatically captures and enters data for your review, learning patterns and preferences over time.

Customize your approvals and handle them remotely. Set up your approval workflows, as many as you need, and the system will automatically route notifications to the right people while ensuring that your internal controls are followed. Custom roles support separation of duties and multiple-reviewer scenarios, while also letting you set up routine bills to be paid automatically.

Flag possible issues for review. IVA also checks for potential problems, flagging anything it finds that might be a duplicate invoice, for example, or a purchase order amount that doesn’t match the amount in the invoice.

Capture audit-ready trails. Every time someone “touches” that invoice, the system timestamps the interaction, creating a permanent log. If anyone raises a question or makes a note, that communication is stored with the invoice itself. Whenever you bring up that invoice again, its entire history is still attached to it in a clean, intuitive interface, putting everything you need at your fingertips.

Pay those invoices in the same system. Once an invoice receives approval, you can pay it from the Bill.com platform with a few clicks, on any device. The amount is filled in automatically, and you can make that payment by ACH, virtual card (a credit card-type payment that hides your actual account information), paper check (we’ll print and mail it for you), or even international wire transfer, all with just a few clicks.

Sync with your accounting software. Because Bill.com syncs with leading business accounting software, you only have to enter that invoice once. AP and payment information is captured and synced automatically with most of the best-in-class accounting technologies on the market: QuickBooks, Oracle NetSuite, Sage Intacct, Xero, and more.

Find exactly what you need. See everything that’s due soon in one easy notification center. Or use our simple search function to find whatever you need to know. Did that vendor get paid yet? How much have you paid them historically? Who approved their last invoice? Or their first? If it’s in the Bill.com system, you’ll have access to it any time, anywhere, even on your mobile device.

 

“Bill.com ensures we never lose an invoice, never forget to pay,
and have greater visibility into our payables. Paying our
bills is a breeze - we cut down on time spent printing and
mailing checks, and with just a few clicks of the mouse, our
vendors are paid in full and on time, with a perfect
workflow to prove it.”

Katherine Harvey, CEO and Co-founder, Bare Bones Broth

 

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While this guide focuses on the accounts payable process and paying your vendors, Bill.com also helps you get paid. On the accounts receivable side, our platform offers automated accounting and internal controls that can help you get paid faster, with no additional to your subscription fee.

An employee understanding the accounts payable process

How to manage the Accounts Payable process (in 4 easy steps)

 

“Bill.com is like an extra partner in the office - the one who's
looking at all the details and bringing pertinent information
to the surface that I need to act on. I wake up every day
and the first thing I do is get on the system, because it
helps me be more productive.”

Mark Lindsay, CEO, Lindsay Leasing

 

Here’s a look at how Bill.com supports the AP workflow, in 4 easy steps.

Review your bills. IVA captures and auto-enters invoice data for you to review, saving you time from the start since you’re not manually entering the details yourself. No more filing paper invoices, matching check stubs to bills, or coordinating schedules for check signatures. Every invoice is routed through the approvals process, and all data in transit is encrypted using industry-standard Transport Layer Security (TLS).
Simplify your approvals and handle them remotely. Invoices are sent to your selected approvers for digital approval from within the Bill.com system. (They can even get those requests on their phone and handle them through our mobile app.) If your approver has comments or feedback, it’s captured directly on the invoice so you and your vendor can resolve the issue without delaying payment. Again, our software enables custom role-based access for extended workflow needs.
Pay with ease. Whether you know it as direct deposit or e-checking, the ACH (Automated Clearing House) global network is a reliable system for making digital payments. Bill.com also partners with a PCI certified vendor for credit card payments. And, if a vendor prefers to stay with paper checks, we’ll even print and mail those for you. Our system can also handle international wire transfers and vendor-direct virtual card payments. No matter how you decide to pay, it’s all done within Bill.com.
Stay up to date. Bill.com integrates with top accounting software, eliminating the need to enter data more than once. Automated accounting updates happen after each transaction, so accounts reconcile faster. Our cloud-based information is easily searchable, so you’re always audit-ready, and your business becomes even more nimble when you manage your AP processes on the go, making payments and receiving reports via our mobile app. Portable access gives reviewers and approvers greater flexibility, so they’ll never be out of reach when there’s an important bill to pay.

 

“Bill.com has restored my faith in technology and has allowed me
to use our resources for growth and to develop ideas on how
to be even more efficient. We didn’t have time for this before.
Thanks to the streamlined processes, our human talent is
working on creative and impactful projects, rather than
managerial processes.”

Diana Westrop, Controller, Atlanta Humane Society

 

The Bill.com intelligent business payments platform can help revitalize accounting and finance teams with newfound bandwidth, letting them expand beyond administrative tasks into more strategic projects and initiatives like cost reduction, tighter cash flow management, and long-term corporate growth. The reallocation of your company’s most valued resource—your employees—toward more growth-oriented tasks not only levels up your AP department, but elevates the company long-term success as a whole.

Try it risk-free today!

We are proud to support small businesses in their endeavors, which is why we partner with leading U.S. financial institutions as we move more than USD 70 billion annually and customers approve more than 2.4 million bills every month. Join millions of businesses paying and getting paid with Bill.com.

 

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July 16, 2020
Kelly Kipkalov
Sr. Director, SMB Product Marketing, Bill.com
Kelly Kipkalov has been in Fintech marketing for over 10 years, focused on Small and Medium-Sized businesses. She is always listening for customer insights, and loves to help SMBs work smarter and build their businesses.