Your business might receive invoices for products and services every day. Whether you get hundreds or a handful of invoices daily, you may be wondering how to streamline accounts payable or how the accounts payable process can be improved.
Automating accounts payable is the key to improving invoicing workflow. Among the benefits of document automation in the AP department are a reduced risk of error and improved approval time for payments. If you’re looking for ways to make invoicing more efficient, take a closer look at how automation makes AP easy.
1. Eliminates the Costs Associated With Data Preservation
When you decide to automate accounts payable, you have the option of going completely digital. Invoices can be emailed by your vendors or sent in the mail. Physical copies of invoices are collected and scanned into the system so everything is in the same location.
Going digital highlights several benefits of document automation. Minimizing or eliminating paper invoices means you no longer need to allocate a physical location at your place of business to store those invoices. Where you once might have needed a large filing cabinet or multiple filing cabinets, you can have space for another employee or an area where your team can gather together to collaborate on projects.
Invoice processing automation can also reduce the need to store documents at an off-site file archive. You will not have to pay for storage space, nor will you need to cover the costs of moving paperwork back and forth between your office and the off-site storage facility.
Automation also saves your business money by saving you time. When a member of the AP team needs to look up an invoice, they can do so efficiently with just a few keystrokes. Pre-automation, people typically had to sift through physical files in search of an invoice, which took considerably more time. Being able to quickly find the invoices they need also helps members of your AP team feel they are contributing to the company more. Instead of wasting time on dull tasks such as searching through files, they are able to devote more energy to projects and tasks that can help your company get ahead.
2. Offers Ease of Access
Accounts payable automation takes the guesswork out of managing invoices. It also reduces the chance of an invoice being misplaced. Whether an invoice begins life as an emailed, digital, or paper invoice, each type is received at a centralized load point. From there, the information contained in the invoices is extracted using optical character recognition (OCR). Based on the contents of the information, it gets routed to the appropriate location, whether it is expense approval or purchase order matching.
With the data in the accounting system, accessing it becomes simple. Instead of having to travel to a physical location to find an invoice or having to wait to receive a paper copy, an employee can verify an invoice has been received or otherwise check up on its status from any device that can access your company’s accounting software.
3. Engages in Strategic Decision Making
Accounts payable is about more than paying the bills and invoices at a business. It is also about strategy. You want to organize your payments to maximize any early or pre-payment discount benefits or stretch your payments to make the most of your company’s cash flow.
When all your invoices are in one location and time-consuming data entry tasks are minimized, you can take a closer look at your accounts payable to see how they fit into the big picture of your company. For example, you might review your invoices and the terms of those invoices to create a list of preferred vendors for your company to use. You can seek out preferred vendors based on the following considerations:
- Vendors who offer the best repayment terms.
- Vendors who offer the best price or who have a track record of providing superior customer service.
- Vendors who are willing to negotiate on price or payment terms.
You can also use automated invoice processing to create a payment schedule. Generally speaking, it is in the best interest of your company not to pay invoices early. Vendors are not expecting payment until the due date, and paying early often reduces your cash on hand.
But there might be situations when an early payment is appropriate or can help your company financially. If a vendor offers a 2% discount on all invoices paid within 10 days, it makes sense to pay ahead of schedule. Your company’s accounts payable automation software can help you sort through invoices, setting up a payment schedule that financially benefits your business.
4. Reduces the Room for Error
During manual invoice processing and accounts payable processing, there is a considerable amount of room for error. If an individual or group is responsible for transcribing the information on paper invoices into a software system, they can press the wrong key or input the wrong due date, leading to payments for the wrong amount or payments that are early or late.
Another common mistake is to type in the wrong purchase order number or the wrong vendor ID, meaning payment can go to the wrong company or individual. Research has shown that the vast majority of manually entered invoices contain at least one data entry error.
While OCR is not perfect, it can drastically reduce the number of data entry errors that occur when invoices are scanned into accounting software. Unlike humans, scanning software doesn’t get tired or distracted. It also saves time, making it easier for a member of your team to review any information scanned by the software quickly, compare it to the original invoice and make corrections as needed. With manual entry, there is less quality control involved.
In addition, AP automation software can initiate downstream workflow to avoid an invoice sitting at a certain stage without the appropriate employee realizing it is their turn to complete an action. The software can send notifications to alert employees they can review or validate an invoice to keep the workflow efficient and in motion.
5. Increases Security
In many ways, the accounts payable department holds your company’s purse strings. To keep your cash flow in the black, it is vital that any potential for fraud be reduced or eliminated. Examples of accounts payable fraud include submitting duplicate invoices for payment, directing payments to a non-approved vendor or submitting fake invoices.
When your company’s accounts payable system is entirely paper-based, it is relatively easy for fraud to occur, even unintentionally. An invoice can be submitted or entered twice by accident or an unscrupulous employee can slide a fake invoice into the pile.
An automated system increases security and lowers the risk of fraud in a few ways. First, it can quickly detect any duplicate invoices, flagging for review any documents that look very similar. If an invoice is scanned into the system twice, it will recognize and reject the duplicate. You can also program the system to flag invoices that are above a particular amount or that are for unknown or new vendors.
Among the other benefits of document automation is that the system itself is built with security in mind. The software program should have encryption features that prevent third parties from intercepting confidential information. It should also offer file backup and secure storage to minimize the chance of losing important documents due to a computer crash, virus or other technological glitches.
6. Helps You Comply With Laws and Regulations
Using document automation can help ensure that your company is in compliance with accounts payable best practices and with generally accepted accounting principles (GAAP). GAAP are a group of standards compiled by the Financial Accounting Standards Board. They are meant to be used by accountants who are putting together financial statements for companies.
The standards describe the accepted ways of reporting information and recording accounting details. The goal of GAAP is to improve the way financial information is shared and communicated. GAAP consists of 10 key principles:
- Regularity: GAAP regulations and rules will be adhered to.
- Consistency: The same standards are used throughout the process and from one quarter or year to the next.
- Sincerity: The company’s financial situation is reported in a way that is impartial and accurate.
- Permanence of methods: The company uses consistent reporting methods.
- Non-compensation: A company’s financial situation is reported without the prosecution of being compensated for debts.
- Prudence: Financial data is not influenced by speculation.
- Continuity: The assumption is that the company will continue to be in business.
- Periodicity: Standard accounting periods, such as a quarter or a fiscal year, are used.
- Materiality: Any financial reports disclose a company’s financial situation.
- Utmost good faith: All involved are acting honestly.
Document automation helps your company comply with GAAP principles in a few ways. Automation provides a way to consistently capture and classify invoices. It also offers a permanent method of reporting, as invoices remain easily accessible. Having the ability to detect duplicate invoices or potential instances of fraud allows your accounting and accounts payable team to ensure they are acting in good faith.
7. Reduces the Cost of Transactions
How much does it cost to process an invoice? Some companies spend more than $10 per invoice, while others spend a little over $2 per invoice. Several factors influence accounts payable transaction costs, such as the industry a company is in and the method it uses to process invoices.
The number of invoices a company needs to process can also influence how much it spends per transaction. For example, a company that processes hundreds of invoices a day is likely to have developed methods to reduce the cost of processing each one compared to a company that might only process a few invoices each month.
Automation is one process that can help to lower transaction costs, for several reasons. Automating the process reduces the number of people who need to handle an invoice, which lowers the risk of error. The fewer people who handle an invoice, the faster the process can go, which also helps to bring down costs.
Companies that have a long history of handling accounts payable or that have a high volume of invoices might have adopted automated processes sooner than others in an attempt to streamline accounts payable and save money. While businesses with high invoice volumes can stand to see the greatest overall cost savings from automated accounts payable processing, companies with smaller volumes can also benefit and save money by improving their invoicing workflow.
8. Minimizes Clutter
The office of the automated future doesn’t look like the office of the past. It is likely to be less cluttered, as there will be fewer pieces of paper scattered about to take up space on countertops, desktops and filing cabinets. Minimizing paper clutter isn’t just good for the office, it is also good for the environment. Trees do not have to be cut down to produce the paper and less ink needs to be produced and used when everything is taken care of digitally.
Your company doesn’t have to go fully digital to take advantage of the reduction in paper clutter. If you choose to have physical invoices sent to a payables lockbox service, then scanned into the system, you are still bypassing the piles of paper invoices you might otherwise receive.
Here is another benefit of reducing clutter in the office space: Cutting out the clutter can also help to lower stress levels and improve employee focus. For that reason, automating the invoicing process can make accounts payable more efficient in two ways. Your employees will be able to work faster and more effectively when they can focus in the workspace and automation itself speeds up invoicing workflow.
Discover How to Streamline Your Invoicing Process With Vanguard AP Automation
Your company’s accounts payable team has better things to do than perform menial tasks. Automating data entry and other aspects of the invoicing process will help you develop an accounts payable strategy that maximizes your company’s cash flow and maintains strong vendor relationships.