What is the accounts payable workflow?

Imagine a world where a business's accounts payable (AP) process runs like a well-oiled machine, saving it time and money while fostering better relationships with vendors. Optimizing your accounts payable workflow is key to making that a reality.

From invoice data capture to payment approvals, setting up the right AP workflow can help your business maximize efficiency and minimize errors.

How exactly do you do that? Keep reading to discover:

• The importance of a strong accounts payable workflow
• Key components of an effective accounts payable workflow
• Common challenges in accounts payable workflows
• How an AP automation solution can be implemented

What is the accounts payable workflow?

The accounts payable workflow is the complete process of receiving and paying an invoice from suppliers. It includes the moment you receive the invoice to when it's paid and every step in between.

At first glance, paying an invoice is simple. 

• You find a vendor for a product or service
• They provide you with the product or service
• You receive an invoice
• You pay the invoice 

However, when you receive multiple invoices from multiple vendors, across multiple departments, that process can become more difficult to track and manage.

For each invoice, you need to:

• Verify its authenticity to prevent fraud
• Check the details for accuracy
• Ensure you have enough cash for it to be paid
• Pay it on time

Your accounts payable workflow will allow you to check all those off your list in a systemized way so invoices get paid in a timely and accurate manner.

4 steps of the accounts payable workflow

The AP workflow includes four major steps:

1. Invoice capture and data entry
2. Invoice verification and matching
3. Approval and authorization
4. Payment processing and recording

Let's take a look at what each step involves and how to optimize them in your AP workflow:

Invoice capture and data entry

The initial steps in the accounts payable process are invoice capture and data entry. 

These involve collecting and inputting information from vendor invoices into the accounting system, often a tedious and error-prone task in manual processes.

You can optimize invoice capture and data entry by:

• Regularly training accounts payable staff on capture and entry best practices.
• Centralizing important financial documentation to speed up processing time.
• Monitoring invoice performance metrics to track irregularities and fix errors.
• Utilizing software solutions that can automate both capture and data entry. (like BILL)
• Implement data analytics to help identify patterns and opportunities to improve.
• Periodically auditing to identify and minimize delays, friction points, and compliance errors.

Following these suggestions can help you conserve time and resources, allowing the AP team to focus on more strategic tasks to grow the business.

Invoice verification and matching

Verifying and matching invoices are integral steps in the AP process that ensure invoice accuracy and legitimacy. 

This involves:

1. Comparing invoices to purchase orders (PO), receipts, contracts, and other documents 
2. Confirming that the items listed in the invoice match the purchase order
3. Checking each line item and quantity
4. Ensuring that only accurate and legitimate invoices are approved for payment

Manually performing each of these steps not only takes time, but also leaves room for error. 

Luckily, with the right tools, you can automate the process.

For instance, with BILL your PO and receipt details syncs directly from your accounting which speeds up the matching process.

Approval and authorization

Getting invoices approved is a critical step of the accounts payable workflow. 

Ensuring that invoices are reviewed and approved by the appropriate personnel before payment is made helps prevent unauthorized transactions and acts as a deterrent against fraud.

Implementing a multi-step approval process for accounts payable can ensure every invoice has been reviewed and approved by multiple people to prevent errors, duplicate payments, and unauthorized payments. 

One of the biggest problems with multi-step approval, however, is making sure reviewers do their approvals on time.

It’s easy for an invoice to be overlooked and sit in someone’s queue for days or even weeks. This increases the likelihood of late payments and fees.

To reap the benefits of a multi-person approval process while avoiding the common pitfalls, use accounts payable workflow automation to:

• Define which invoices require approval
• Designate who approves which invoices
• Give stakeholders the ability to track the status of pending invoices
• Automatically route invoices to the correct approvers

Payment processing and recording

The final steps in the accounts payable workflow are processing and recording payments, which involves issuing payments to vendors and updating the accounting records accordingly.

First, of course, comes payment processing, which involves scheduling and executing payments according to their payment type and the dates they are scheduled.

Then, upon the payment being made, the transaction must be recorded in the company's general ledger, ensuring accurate financial reporting.

The importance of an efficient accounts payable workflow

The goal of an efficient accounts payable workflow is to process invoices with as little friction as possible.

By optimizing your workflow, you can save two of your most valuable assets—time and money.

Timely invoice processing can help you avoid overpayments and late fees, which would otherwise negatively impact your company’s cash flow.

Let’s take a closer look at some of the key benefits of an efficient accounts payable workflow:

Cost savings

One of the biggest benefits of streamlining your AP workflow is to improve your bottom line. 

Whether it’s through avoiding costly processing errors (e.g. overpayments) or taking advantage of early payment discounts, implementing some simple changes can result in significant savings for your company.

We’ll dive into what these changes include further down.

There are also some often overlooked cost savings that can come from a more efficient accounts payable workflow. 

For instance, did you know that some vendors will renegotiate their prices for loyal (and reliable) customers?

If vendors don’t have to constantly follow-up on overdue invoices or go through lengthy processes to get paid, you may be able to use that as a bargaining chip for pricing negotiations.

Improved cash flow

When it comes to accounts payable, timing is critical. There’s a delicate balance between paying invoices on time and ensuring you have enough cash coming in to cover those costs.

Carefully timing your outgoing payments with your receivables is both an art and a science.

By improving your accounts payable workflow, you can automate some of this process by ensuring invoices are paid on a set schedule.

Optimizing this aspect of your accounts payable workflow can help ensure you have enough cash in the bank to pay all of your invoices on time.

Better vendor relationships

Vendors play a critical role in providing the goods and services necessary for your company to operate. 

Building strong vendor relationships can lead to more favorable terms, dependable supply chains, and better overall results for your business. An optimized accounts payable workflow can be a powerful tool for fostering these relationships.

By processing vendor invoices accurately and promptly, you can demonstrate your commitment to maintaining a professional and mutually beneficial relationship with your vendors.

This, in turn, can result in more favorable payment terms, better pricing, and flexibility from your vendors.

Ultimately, optimizing your accounts payable workflow not only benefits your company’s financial management, but also strengthens the foundation of your business relationships and long-term success.

How to overcome common challenges in the AP workflow

Improving your accounts payable workflow does pose its unique challenges. 

Inaccurate and mismatched data in invoices can result in costly delays, while manual processes can consume a significant portion of the AP team’s time.

Here’s how to avoid these costly challenges and turn your accounts payable workflow into a well oiled machine.

Reduce data entry errors

Errors occurring amid the invoice capture and data entry process can heavily influence the efficiency and accuracy of the rest of the accounts payable process. 

Minimizing these errors is vital to maintain a stable cash flow and ensure vendors receive payments on time. 

Some of the more common errors found in the data entry process include: 

• Omissions or duplications of an entry
• Including an unnecessary digit or decimal
• Missing a digit or decimal
• Unintentionally switching numbers’ positions
• Entering data into the wrong fields or account

Here’s how to effectively minimize data entry errors in your accounts payable workflow: 

• Balanced workloads: Overwhelmed staff members are more likely to make even simple entry errors. Make sure your team has a balanced workload to avoid burnout. 
• Data validation checks: Implementing data validation checks can further ensure the accuracy of the data entered, reducing the potential for discrepancies and delays.
• Automation: By automating invoice capture and data entry, you can save time by offloading tedious and repetitive tasks from your team’s plate.

Streamline approvals

Another way to make your accounts payable workflow more efficient is to refine the approvals and authorizations stage.

Here are some tips to prevent bottlenecks and systemize your invoice approvals process:

• Establish well-defined deadlines for each approver.
• Minimize redundancies by assigning roles and responsibilities to specific staff members. 
• Implement controls that ensure all parties are accountable for their part of the process.

Enhance visibility and collaboration

Disorganization can wreak havoc on your accounts payable workflow.

Luckily, this issue can be fixed by centralizing vital documentation, including:

• Invoices
• Purchase orders
• Receipt reports

When you need to sort through email, folders, online storage and even drawers to gather receipts and PO’s, it’s easy for things to get lost.

Centralized documentation allows for easier access to relevant information for everyone involved in your accounts payable workflow.

The other major step of organizing your accounts payable workflow is optimizing the way your team communicates.

When you have a question about a specific invoice, the status of a vendor, or anything else related to AP, what channels do you use to communicate?

Some companies prefer tools like Slack, Trello, or Asana, while others simply prefer email.

However, ideally you’re using an accounts payable solution (like BILL) that allows you to communicate and collaborate directly within the platform.

For instance, in BILL, you can tag users in a note on the specific bill or invoice with any questions you have.

This eliminates unnecessary back and forth over email and makes it easier to track the status of any issues.

Applying the right tools within the AP workflow can ensure cross-team clarity through every step and foster strong collaborative relationships, ensuring all team members involved remain knowledgeable, aware, and, most importantly, responsive whenever a potential error rears its head. 

Implement accounts payable automation

Finally, installing accounts payable workflow automation software is one of the best ways to help drive AP workflow processes to become far more efficient and accurate, as well as bring your business processes that much more up to date.

Through automation, you can process invoices more rapidly while maintaining a high rate of accuracy.

It means you can spend less time matching invoices to PO’s or manually entering details from paper bills into software.

Whether you’re a sole proprietor or part of an accounts payable team, automating time-consuming tasks frees you up to focus on growth and improving efficiency.

BILL's Automated AP solutions can help businesses streamline their accounts payable processes and reduce workflow issues. Optimize your business with BILL today!

Enhance your accounts payable workflow with BILL

From automated invoice processing to built-in approval workflows and real-time visibility, our integrated accounts payable and receivable system offers the features businesses need to optimize operations and minimize errors.

With BILL, you can easily track and manage invoices, approvals, and payments all in one place, ensuring your financial obligations are met accurately and on time.

So why wait?

Start using BILL today and experience the power of our advanced AP workflow solutions for yourself.