Accounts payable (AP) problems and solutions are enough to give even senior specialists a headache.
It’s no longer enough for a business to go paperless, either. While accounts payable departments of today often house software or electronic invoice solutions, they still encounter process and domain inefficiencies. These “solutions” can even introduce problems of their own, from entry errors to data security concerns — and much, much more.
You have questions. We have answers.
Continue reading to learn how to prevent accounts payable problems that commonly haunt your office, plus how to improve your overall accounts payable department, streamline its methods and increase its overall order flow.
Problem 1: Data Entry Issues
Solution: Optical Character Recognition (OCR) or Intelligent Character Recognition (ICR) Included in Data Software.
Human error in data entry is one of the most widespread issues found in accounts payable, and it’s not a shallow one. Studies of organizational management cite erroneous data-entry occurrences exist in nearly 88 percent of manual accounts-payable documents, with the potential to backlog an entire department. That’s 88 percent of spreadsheets with incorrect values, dates or percentages alongside wrongly inputted formulas and inaccurate final calculations.
Data entry issues caused by human error can be reduced through “smart” software that automatically reads and inputs invoice values. Since this sort of problem can occur at nearly any stage of payable processes that involve typing, software that decreases manual typing will, consequently, reduce risk.
Problem 2: Slow or Inconsistent Processing
Solution: Build a Central E-Repository That Manages and Digitally Verifies Each Processing Step
Processing invoices can be a frustrating and cumbersome task without some facet of an automated system. What’s more, in large accounts payable departments, personnel may be unaware of the comprehensive process, be overwhelmed by the number of invoices or even take liberties with them. AP employees get relegated to their particular role in processing invoices, and then they don’t know where to turn when questions or inaccuracies arise.
Invoice processing takes place in four general phases before a final payment: invoice receipt, invoice confirmation, invoice recording and invoice approval. Each of these stages comes with their own process streamlining capabilities through a digital repository:
- Invoice receipt: The repository automatically archives the invoice and notifies the necessary personnel of the received documents through email or messaging.
- Invoice confirmation: Since all invoice history and vendor information is housed within the system, confirmation and invoice review times are cut down dramatically. Double checking numbers and dates are only a few clicks away. Central repositories can even recognize missing or potentially fraudulent invoice information.
- Invoice recording: The repository automatically fills key information into AP records. They recognize, input and organize invoice numbers without the need for tedious manual data entry. Then they save those documents in one accessible place.
- Invoice approval: Digital repositories make invoice auditing and paper trails a breeze. Any incoming invoice can be set up to automatically match a housed purchase order or receipt since these documents are all now stored together. Personnel can quickly and thoroughly review each file, then pass it along to the relevant section manager or department head without undue delay.
Studies have found that companies using automated electronic repositories can process 437 more invoices per day, per employee than companies using a combination of electronic and paper invoicing or electronic but non-automated, disjointed systems.
Problem 3: Approval Lags
Solution: Choose Software With Customizable Workflow Routes
Invoice approval cycles are fundamental to accurately filing and managing all orders. They’re a serious matter, too. Accounts payable senior managers and strategists alike cite complicated billing approval processes as one of the top problems within their departments. Approval lags are only made more complicated the larger your department is and the more “hands” that invoices, purchase orders and receipts pass through.
At the bare minimum, without proper document oversight, your organization runs the risk of sloppy internal balance sheets. It also spells problems for vendor relationships and employee morale. What’s more, approval lags can directly contribute to missed monetary opportunities, such as early vendor payment discounts.
Look for automated AP software that affords the following approval routing flexibility:
- Custom routing “chains” or “branches” with select personnel: You can organize and create task-relevant groups made up of only the individuals necessary to approve an invoice or order type.
- Custom routing “chains” or “branches” where invoices are organized by payment amount: When invoices under a certain cap are received, you can automatically send them straight to a section manager, then on to finance. Likewise, for larger invoices, you can set up chains with section managers, and department heads get notified. This ensures proper notifications are sent to the appropriate people, wasting no one’s time.
- Email notification and approval: Some systems may even allow in-email reviews and approvals, improving efficiency and reducing approval lags.
Problem 4: Payment Errors
Solution: Set up Control Account Codes for All Vendors
Payment errors strike even the most diligent and automated accounts payable departments. It reflects poorly on your company, however, even in cases of small errors or well-intentioned accidents. As such, AP managers continually strive for ways to reduce payment errors — such as late or double invoice payments — while maintaining simple work order processes and a system that can, in the future, scale up.
You don’t need more eyes on final receipts or in-depth oversight from finance to reduce payment errors. Instead, opt for a system that allows you set up control account codes and account ledgers, or designated identifiers for each vendor or business you work with.
Individual control account codes solve a number of payment-error problems. They automatically classify invoices and receipts to the right account, then input detailed information into an account ledger that can be referenced later. They automatically flag or even reject vendor statements with duplicate invoice numbers. They code invoices immediately into any account-specific files and make sure those files are accessible to appropriate AP employees.
They can also calculate vendor-specific discounts and credits and apply them appropriately. What’s more, they help you check off orders after they’ve been paid in full, simplifying the oversight of expense lines and making sure finances are flowing to the right account, always.
Problem 5: Complicated Internal Processes
Solution: Personnel With Clearly Defined AP Roles Working in One Software
This solution may seem obvious, yet less than 20 percent of companies in a 2016 MasterCard survey noted they had a complete, uncomplicated e-invoice system all personnel felt confident with.
That’s a big problem because disorganized, non-intuitive internal department processes don’t just make everyone’s jobs more difficult — they directly reduce employees’ productivity, happiness and company buy-in.
Intricate internal processes are a key business challenge. For accounts payable departments, this can take the form of disorderly paper and digital invoicing methods, overworked or underutilized personnel, invoice systems spread out among different apps, platforms and software and managers too engaged — or too lenient — with order workflows.
To simplify complicated personnel processes, review the following strategies:
- How many meetings are you having? A Goldilocks balance of scheduled meetings is imperative for any department to nail down.
- How many people review an invoice? Are there approval routes tailored to the invoice or purchase order type, or a broad system without set reviewer domains?
- How many people must sign off on expense reports or purchases? Approval routing with more than two or three people will inevitably find itself stalled.
- Do department employees have specialized, non-redundant tasks? Who approves purchases? Who files and documents invoices, and who catalogs received items? Who oversees payments, and who handles any invoice disputes or errors? Every company will have different answers to these questions, but it’s most important that the responses get tailored to what works for you.
To simplify complicated software, review the following strategies:
- Go digital: Straddling both paper and electronic invoicing systems creates problems for everyone. You can cut department expenses by up to 90 percent just by going paperless.
- Go automated: A single, automated accounts payable software system has the ability to transform your processes. With everything your department needs located within one application, all tasks are made smoother.
Problem 6: Hard-to-Manage Paper Records
Solution: Go Paperless. If You Can’t Go Paperless, at Least Go OCR or ICR.
The value of being a paperless accounts payable operation extends beyond the budget.
Paperless AP departments reduce, on average, 62 percent of labor time spent on receiving, organizing and inputting data from paper invoices. Initial investments into paperless account-management systems average a $30 rate of return on every $1 spent. What’s more, mix-system record keeping — like AP departments that try to fuse both paper and electronic methods — spend $12.44 to process each invoice and are considered “bottom performing”concerning industry efficiency. “Top performers” spend only $4.98 processing invoices — and are mostly electronic.
Paperless management systems are simply the way of today’s AP world. Yet if your business still receives over half of its invoices through traditional paper documents, it can seem daunting to rock the boat through an entire workflow overhaul.
If you cannot fully convert to digital and automated accounts payable solutions, you can at least begin laying a paper-reducing strategy. Build a single template with a single format or layout that all vendors must adhere to. Track and cut down redundant papers, such as printing and re-printing purchase orders across approval phases or putting together new approval packages for senior management. Finally, incorporate technology like OCR or ICR apps that can “read” and input important paper invoice information straight into your computer.
Problem 7: Insufficient Encryption or Security
Solution: Follow Accounting Information Security Best Practices, Bolstered by Software Security Features
Data security is a rising concern for many in the accounting field. Standard advice on how to improve your accounts payable department often neglects this contemporary problem as well, leaving many ill-prepared for the equally rising AP compliance and regulatory standards.
Smaller organizations or businesses in particular face data insecurities. These organizations are more likely to be working with tighter resources and smaller teams. They may also simply lack the capacity to stay up-to-date on the latest encryption defenses.
However, you risk your company’s assets and capital — not to mention its very brand name — without shoring up safe electronic payments, sensitive client information, financial accounts, ledgers and more. Consider if your business is utilizing the following best practices for accounts payable and accounting information security:
- Confidentiality agreements, both internally with employees and externally with vendors and contractors, ensuring all privacy and information security expectations will be upheld.
- Regularly scheduled risk assessments on your network to identify weak spots.
- Regularly scheduled data back up, especially for business-critical files and data.
- Updated firewalls and software security, which can be included in a variety of automated AP software and software updates — yet another reason to make the paperless switch.
- As-needed, password-protected access to sensitive data that only relevant employees can obtain.
- Password-protected computers and networks, with quarterly to bi-annual password changes.
- A disaster-recovery or business continuity plan, in the event of a data breach or loss.
- Data-security training, for all employees and managers.
- A comprehensive AP software package where security and encryption features come standard, and all data is automatically saved in encrypted files.
Problem 8: Fraud
Solution: Institute Automated and Manual Safety Checks
Billing-related fraud was the number one accounts payable legal issue in 2016. Other fraud concerns stayed internal, such as forged expense reimbursements and check tampering — plus external in the form of phishing and malware schemes.
These are complicated and frustrating problems for any accounts payable office — but they’re not anything that a central, automated AP software with fraud tools can’t solve.
To help catch and prevent fraudulent AP activity, begin by ensuring your employees:
- Have properly defined, functional roles within a logical department structure: Too many “cooks in the kitchen” can allow fraudulent accounting to fly under the radar, just as one employee tasked with everything can easily miss something. All employees should know who is in charge of what.
- Participate in ethical and legal trainings on the dangers of fraudulent activity: Educate all employees on internal control policies as well as the protocol if they catch something alarming.
- Set up checks and balances: The system doesn’t have to be complicated or time-consuming. Rather, use software to complement multi-level, manual checks. Then let that same software fill in capacity gaps before workflows go to a final managerial review.
Accounts payable software features that can help detect fraud include:
- Transaction monitoring, to asses and identify unusual transactions in your overall software.
- Customized access, where certain files can only be opened by certain individuals on the network.
- Account-information masking, a form of encryption where only personnel with the digital “key” can see and edit data.
- Chargeback protection, to avoid the common credit card scandal and so you don’t double-pay duplicate invoices.
- Forced password resets alerts, for in-the-moment knowledge on potential hacking.
- Data-mining tools, that survey and track employee activity outside of defined areas. You can see who inputs what within the software and receive alerts when suspicious figures occur.
Vanguard Systems: Your Partner With Answers to Accounts Payable Problems
No matter where your department sits in its automation capabilities, there’s an accounts-payable software solution to simplify any receiving, inputting, approval and filing need.
The right accounts payable software and management means you have invoices suited for you. You’ll be amazed by the ease and efficiency a central accounts-payable repository brings to your business — freeing up much-needed time and resources across the entire AP workflow.