Accounts Payable
9 tips for accounts payable process improvement

9 tips for accounts payable process improvement

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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?

Accounts payable improvement can minimize data entry errors, late payments, and duplicate payments.

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

1. Decide on sweeping or incremental changes when setting expectations

Accounts payable process improvement is meant to serve you. It should remedy headaches, not create new ones.

Before committing yourself to accounts payable process improvement, have an idea of how far you want to take it. Setting expectations for what you want from the improvement process ensures you don't overwork yourself getting things done.

Taking this step can also save you time and money as you won't sink either into revamping something that you've already worked on improving.

Steps to take:

Before you start making changes, look at what the current and upcoming workload looks like.

For business with high seasonality, down periods give you the most leeway to make changes while still getting the rest of your work done.

If making changes is a high priority but you're entering a busy period, create a list of priorities that act as your compass.

When trying to figure out where to start, use an impact-effort matrix. This groups tasks by the time investment and overall impact of the change. This helps whittle down potential improvements to what's going to give you the highest return.

Pros Cons
Incremental Changes
  • The most approachable tactic
  • You learn about what you value as you go
  • Constantly adapting to any pain points that come up
  • Possibly sinking time into something that will change again
  • Changing one aspect might require changing another
  • Processes become inconsistent
Sweeping Changes
  • Make the time investment once
  • Gives the biggest efficiency gains
  • Solves multiple problems at once
  • New system may have learning curves to get up to speed
  • More of an upfront time investment
  • Hard to revert if you don't like the change

Pros and cons of incremental changes and sweeping changes to an accounts payable process

2. Automate your data entry to reduce input errors

Manual data entry is 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.

Steps to take:

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. By cutting out manual processes, you minimize the chance of human errors.

3. Establish KPIs to measure accounts payable efficiency

Sometimes changes don't have the desired effect. Every AP process and team has its own nuances and what works for one team might not work for you.

Remember, accounts payable process improvement is not about getting to the perfect system, but your perfect system.

But determining whether a change was successful or not shouldn't depend on gut checks. This is where KPIs come in.

Steps to take:

Measure the success of your process improvement efforts by tracking 11 accounts 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

Give your changes time to come into effect before deciding if they were a success or not.

Check in on your KPIs regularly to see how they're trending. The change might not have helped you hit your KPI, but if the metric is consistently trending towards your goal, there's good reason to believe you'll hit that mark down the line.

4. Establish fraud detection and prevention measures

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.

Plus, if you’re like 61 percent of the respondents in a recent Association for Financial Professionals survey, catching fraud is a top priority.

In many of these cases, bad actors managed to interrupt the AP process, rerouting payments to the wrong place.

Steps to take:

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.

5. Prevent duplicate invoice 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.

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.

Steps to take:

Take advantage of the following changes to minimize 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.

6. Track and resolve disputes promptly to avoid 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.

Steps to take:

It's hard to resolve a dispute when you can't 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

7. Streamline your invoice approval workflow with defined roles

When an accounts payable process has multiple people involved, each person must know exactly what their responsibilities are.

Oftentimes, there are people involved who aren't part of the finance team. For example, the head of marketing might need to approve invoices for filming an ad.

Everyone should be on the same page when it comes to who's responsible for what and be notified when the invoice is ready for their contribution.

Otherwise, you risk the bystander effect showing up in the workplace where everyone thinks someone else is taking on the task.

Steps to take:

Some AP automation solutions 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.

invoice approval workflow

8. Use a single point of entry for invoices to avoid missing 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.

Steps to take:

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.

9. Set up payment reminders to reduce late or forgotten payments

If all your invoices are recurring and consistent, making payments can feel like muscle memory. The problem is if an invoice breaks that pattern, it's likely to be missed.

Steps to take:

Set up automated payment reminders so once an invoice is entered, a reminder is created some time before the due date. This is easier when you receive digital invoices which often already come with reminders.

Continuing to iterate your accounts payable process

Accounts payable 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 helps you keep up with how accounts payable processes are trending.

Ready to improve your process with AP automation software?

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

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.