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7 Tips for Accounts Payable Process Improvement

Today’s tech-savvy CFOs track payables KPIs to measure processing costs and efficiency. How long does it take to pay invoices from the time they arrive? How fast is the approval process?

By optimizing these metrics and tracking them in real-time, payables teams can ensure good relationships with vendors and other providers.

While the practice might be more common among larger finance teams, small businesses may benefit even more from tracking their payable system.

Tracking payable systems for small businesses

Evidence suggests that small businesses may be de-prioritized by vendors, during supply-chain slowdowns. By giving up paper checks for faster digital options and making consistent on-time payments, small businesses can build vendor confidence.

Accounts payable improvements can also minimize data entry errors, late payments, and duplicate payments. Plus, if you’re like 61 percent of the respondents in a recent Association for Financial Professionals survey, catching fraud is a top priority.

The following accounts payable (AP) process improvements can help you overcome these challenges and more to improve your payables KPIs — and your cash flow. 

Common challenges in the accounts payable process

Accounts Payable has two main goals:

  1. Pay only legitimate and accurate invoices

  2. Find savings opportunities in payment terms

The following common challenges throughout the accounts payables process work against these objectives in businesses of every size.

Challenge 1: Slow invoice processing

In most businesses, invoice processing is still highly manual. Even if you use electronic spreadsheets, someone has to read each invoice and enter the payee, invoice number, amount, and other information by hand. That’s a time-consuming, manual process.

Then, someone has to take the time to send out emails or circulate paper invoices to gather approvals. That creates another bottleneck as those requests sit in an inbox or on a desk, waiting for attention.

From data entry to approvals to final payment processing, each step in your payable workflow can stall the vendor payment process, resulting in missed due dates and late fees. 

Challenge 2: Data entry errors

Manual data entry is also prone to errors. No matter how carefully your team works, no one is perfect. Hopefully, the errors are small, without a significant impact on your cash flow, but they still need to be tracked down and fixed. That takes valuable time away from more strategic initiatives.

Challenge 3: Fraud

According to FBI Statistics, Business Email Compromise continues to grow with a 65% increase in global exposed losses between July 2019 and December 2021, for a total of over USD 43 billion between June 2016 and December 2021. In many of these cases, bad actors managed to interrupt the AP process, rerouting payments to the wrong place.

Challenge 4: Duplicate payments

It’s far too easy to pay the same invoice more than once. Paper-based systems are especially prone to these accidents, but even electronic spreadsheets won’t catch every duplicate payment error.

If a payment isn’t recorded in real-time, for example, the spreadsheet may not reflect the fact that the payment was already made.

Challenge 5: Missing invoices

It’s also easy to misplace or lose invoices. In paper-based invoice management systems, invoices may end up buried on a desk under other paperwork. In electronic systems, invoices can be lost in email chains or end up in a spam folder.

Either way, those missing invoices can result in lost early payment discounts, late payments, and poor supplier relationships.

Accounts payable process improvement tips to take charge of your workflow 

Process improvement isn’t a final destination. It’s an ongoing system of analyzing data, finding issues, and implementing change. While the most important improvements for your team will depend on your own AP process, the following checklist represents a great start.

1. Automate your data entry to reduce input errors 

Consider an AP automation solution that uses optical character recognition (OCR) technology to read and enter invoice data. Paper invoices can be added to the system as easily as snapping a photo on your phone, and electronic invoices can be emailed to an automated inbox.

The software reads each invoice automatically and enters it for your review, minimizing the chance of human error.

2. Establish KPIs to measure accounts payable efficiency 

Measure the success of your process improvement efforts by tracking 11 payable metrics. Here’s a sample of these key performance indicators (KPIs):

  • Cost, on average, of processing a single invoice

  • Average payment processing time

  • Percent of exceptions in total invoices processed

  • Percent of early payment discounts captured

  • Number of questions or disputes from vendors

3. Establish fraud detection and prevention measures

Accounts payable automation software uses artificial intelligence (AI) and machine learning (ML) to identify unusual patterns that can indicate fraud attempts, such as:

  • ACH Fraud

  • Asset Misappropriation

  • Duplicate Invoices

  • Change of Master Data

An automated AP platform can include several techniques to identify and prevent fraud:

  • Anomaly Detection: The system can identify unusual patterns. For example, if a supplier submits an invoice that is significantly larger than their average invoice, the system flags the invoice for review.

  • Process Reliability: The automated process follows a predefined and set procedure that can not be easily circumvented. It also provides an automatic, time-stamped audit trail. 

  • Purchase Order (PO) Matching: The system performs an early-warning check as each invoice arrives, making sure the invoice matches any underlying purchase order.

4. Prevent duplicate invoice payments 

Duplicate payments happen for a variety of reasons. Payments might not be recorded correctly at the time they’re made, for example, or a duplicate vendor record could confuse your payment trail, leaving you with one record where the payment was recorded and another where it wasn’t.

The following steps can help minimize the risk of duplicate payments:

  • Clean Master Vendor Files: Archive vendors you no longer use, eliminate duplicate vendor records, and make sure you have the most up-to-date vendor information. 

  • Require a Valid PO Number: Eliminate informal procurement processes as much as you can. Every pre-defined purchase should start with a purchase order, and each invoice should be matched with its originating order.

  • Only Pay From One Source Document: If your company sends out a purchase order and receives an invoice upon delivery, make it a policy only to pay from the invoice. This can help avoid paying for the same goods or services twice.

  • Mark Invoices as Paid Immediately: This last step is crucial. Mark all invoices paid as soon as you send the payment to minimize the risk of a duplicate payment. A bill pay platform can handle this for you, making this step automatic.

5. Track and resolve disputes promptly

Resolving disputes can be frustrating, especially when you can’t easily track where a payment is in the AP process or what steps other team members might already have taken. And the longer disputes take to resolve, the more they can damage your vendor relationships.

With AP automation software:

  • Vendors can receive automatic updates when invoices are received when payment is approved, and when payment is sent

  • AP team members can easily track invoices to identify where they are in the system and why the approval process has been held up

  • Communication about each invoice is tracked and stored with that specific invoice, so following the conversation is as easy as looking up the invoice in the system

  • Approval requests and reminders can be sent automatically, and invoices can even be approved on a mobile device, minimizing the chance of delays

6. Streamline your invoice approval workflow

Sometimes, approvals are the bottleneck in the process. An AP automation solution can allow your accounts payable department to set custom rules and workflows including which invoices do and don’t need approval and where approval requests should be routed.

The system will send follow-up reminders and monitor due dates, flagging any invoice that’s being held up too long in your workflow.

Approvals become less stressful for everyone when there’s an automated procedure in place to keep things on track. 

7. Use a single point of entry for invoices

One of the biggest struggles in improving the AP process is the fact that invoices can arrive in so many places and so many different forms. Set up your system to route all invoices into the same workflow, so they all follow the same process.

As challenging as that sounds, an AP automation solution can help by providing many easy ways to enter an invoice into that workflow.

  • Vendors can email invoices directly to an automated inbox

  • AP team members can scan invoices into the same inbox, or even snap photos on their phones using a mobile app

  • Managers throughout different departments can do the same thing, sending those invoices automatically to the same starting point

Using one point of entry ensures that the same systems, security checks, and approval rules are applied to every invoice no matter how it might arrive.

How’s AP automation software can help

Streamlining your AP system with workflow automation can lower stress levels throughout the AP department while improving your AP metrics, saving you time and money.

It also provides an agile, scalable bill pay process that can pivot when markets change and grow with your business.

To see how can help you implement accounts payable process improvements that your AP team, approvers, and vendors will love, request a live demo or start your risk-free trial today.


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