Accounts Payable Challenges & How to Solve Them

Published on February 8, 2023

Even at its most efficient, accounts payable (A/P) still comes with challenges. And while your business can take measures to help streamline and simplify these operations, there always remains a large amount of labor that needs to be completed either manually by your employees or electronically through automated accounts payable workflow automation.

At the same time, accounts payable is just a part of your overall accounting practices, so limitations or shortcomings within these focused operations can cause broader complications. Conversely, priorities and processes from your general financial efforts can create interruptions or challenges within your A/P work.

Here are the top accounts payable challenges that business experience and some accounts payable best practices that help to counteract them. 

Top 5 Accounts Payable Challenges

Consider the tension that exists between your purchasing efforts and your accounts payable. While both operations are part of the overall procure-to-pay process, each phase holds its own set of priorities that, if left unchecked, can frustrate your internal workers and your suppliers.

Accommodating this ongoing tension is challenging but doable. But it requires clear direction, efficient processes, and sometimes IT investments. Conversely, ignoring this tension can often lead to the following issues.

1. Documentation errors

Unfortunately, paperwork — particularly the kind that involves literal paper — can rather easily be misplaced or lost. And a missing invoice is often an unpaid invoice, which can lead to financial penalties and soured vendor relationships.

At the other end of the spectrum, your vendors and suppliers’ accounts receivable (A/R) teams can make their own mistakes, such as submitting an invoice more than once. So your A/P staff needs to be able to quickly and easily identify and address these duplicate invoices before your business pays twice for the same materials.

The solution: electronic records

An e-invoicing or similar payments portal can reduce the likelihood of potential documentation errors. When your suppliers provide their invoices and related records directly to your business in an electronic format, it is faster and easier to share with your back-end accounting systems.

Similarly, when dealing with data instead of physical paper, your financials staff can more readily recognize discrepancies, such as deliveries that don’t have a corresponding invoice or duplicate invoices.

2. Fraud

Someone is always looking for an opportunity to make your money their money. And according to research compiled by the Association of Certified Fraud Examiners (ACFE) in their 2020 Global Study on Occupational Fraud and Abuse, when you are defrauded, the action is likely to have originated from one of your regular employees (reflecting 41% of studied cases). Even worse, 24% of these fraud cases originated from the companies’ accounting, finance, and purchasing departments.

Of course, external actors are also an ongoing threat. Fraudulent invoices, light or damaged shipments, check fraud — the strategies are endless, so your business must be vigilant against this malfeasance.

The solution: security controls

You can’t expect fraudsters to leave you alone, but fortunately, there are a host of security policies and applications that you can put in place to protect your company. For example, you can separate authority for various stages in the procure-to-pay cycle across multiple employees or departments.

To discourage fraud, you don’t want the same individual responsible for scheduling a purchase to be the one that authorizes the final payment. Similarly, whoever is responsible for adding new vendors to your accounting systems shouldn’t be the person who also signs off on the checks being sent to that new vendor — unless you’re not concerned about potentially making payments to dummy accounts.

And while regularly reviewing and auditing your payments can help root out internal malfeasance, you’ll want to put in place measures to identify outside threats as well. Typically, these efforts will focus on validating the details of the shipments you receive match their corresponding invoices.

Learn more: How to Protect Your Business from Payments Fraud 

3. Hidden data

Typical A/P operations will include a number of verification checks to confirm that a requested payment is valid. And for these verifications (along with your overall accounts payable processes) to run smoothly, your accounts payable staff need complete access to all of the data and records generated since the original purchase.

What makes this an accounts payable challenge is that this information is often scattered across multiple sources, requiring workers to spend hours hunting through various applications, filing cabinets, or both to gather the appropriate data.

The solution: centralization

Effective platform integration across all of your interrelated financial systems can resolve many data-related challenges involved in your accounts payable efforts. Not only can individual transactions or shipments be quickly searched for and located, but data is often accessible from any of the integrated systems, avoiding the need to search through multiple applications. At the same time, if your integrated A/P platform offers 2-way or 3-way matching capabilities, you can conduct your payment verifications more accurately and more quickly.

Further, by creating common workflows across departments and locations, your business can easily report on and gain insight into company-wide operations, empowering key decision-makers to make more informed choices.

4. Opposing priorities

As you know, your A/P staff are responsible for much more than simply paying outstanding invoices. And one of these critical roles is to help your business manage its cash position responsibly by determining when payments are made. But when these choices don’t accommodate all interested parties, problems occur.

For example, while your purchasing department might be ecstatic at your high cash reserves because you’ve been waiting to pay off invoices until the last minute, your suppliers might be growing increasingly frustrated. Further, your general accounting staff might be upset after tabulating the increased product cost from missing early payment discounts.

Similarly, the complexity of your verification efforts must be weighed against the time and effort required to perform these checks.

The solution: communication

When conflicting priorities undermine your accounts payable efforts, it typically indicates a fundamental breakdown in communication among your staff. No matter the size of your financials team, it’s an important part of accounts payable management to set up regular cross-department meetings to outline current and future plans — particularly ones requiring broader cooperation. After all, your A/P team won’t know to hold off on certain payments to build up needed cash reserves unless they know about the relevant investment or financing plans ahead of time.

5. Slow processes

While better than a missed payment, late payments can still cost your company money and undermine your business relationships. Further, the longer it takes your accounts payable department to receive, validate, and pay a submitted invoice, the less likely your organization will be able to capitalize on any early-payment discounts that might have been negotiated with the vendor.

Routinely, slow accounts payable processes result from manual workflows, personnel delays, unnecessary or duplicate steps, or validation issues.

The solution: workflow automation

Of course, many of these challenges can be at least partially addressed by knowing how to automate accounts payable operations. With most of your verification and processing tasks being handled without human intervention, you can perform your business-critical A/P tasks around the clock and avoid common process bottlenecks. Similarly, fewer manual touches to your financial data decrease the likelihood of mistakes or unintended errors.

At the same time, when automating these critical functions, businesses often audit their internal workflows, removing unneeded process steps that can cause further payment delays.

Understanding the cost of manual A/P

Of course, effective process automation often requires an investment of time, money, and effort — factors that cause some businesses to reconsider or delay such as transition. However, keeping your manual processes in place can yield unexpected downstream costs and limitations. For instance, complex accounting requirements — such as regulatory or industry-compliance demands — become much more labor intensive when handled manually and create the opportunity for process delays.

Imagine that your business has just begun receiving shipments from an overseas supplier that must register value-added tax (VAT) for its transactions. So when a purchase on account is made, the invoice becomes VAT valid, meaning a new line-item cost has been added to the invoice, and that your organization now needs a process to verify the accuracy of that new charge.

If you’re still relying on manual workflows, accommodating this new expenditure might prove complicated — particularly if your accounting staff doesn’t have experience with VAT. However, with an automated validation process that can automatically account for this type of cost, your business can limit the impact of handling these complex calculations.

Some clear numbers

Even routine operations face increased costs when conducted manually — at least according to the 2021 World Class AP Performance: Efficiency Benchmarking Metrics Report generated by the Institute of Finance and Management (IOFM).

For example, smaller businesses (those that handled fewer than 20,000 payments per year) had an average invoice processing cost of $15.97. And mid-sized companies (that dealt with between 20,000 and 100,000 payments) leveraged their economies of scale to drop that average to just $6.10. However, the companies in those same two categories that had automated their A/P spent only $12.98 and $4.24 respectively, netting nearly $2 in savings per transaction.

How A/P automation software can address your challenges

Choosing the right platform with A/P software features for your business will require some research and effort on your part — particularly depending on the number of tasks you choose to automate. So when evaluating potential tools or applications to build out your A/P software portfolio, look for options that play well with others, meaning that they offer comprehensive integration capabilities. Also, try to find solutions that come with a free demo or trial version, allowing you to explore real-world operations before purchasing.

When researching products in the market, you should also seek applications that include features such as:

  • Workflow engines: ideally ones that feature both pre-built process maps as well as the ability to create ad-hoc, customized workflows
  • Data capture tools: particularly useful if you still receive paper invoices through the mail from your suppliers
  • Invoice separation: allowing you to parse and organize invoicing details per transaction automatically, even when multiple purchases are outlined in the same document
  • 2-way or 3-way purchase order matching: which streamlines verification efforts by cross-referencing purchase and invoice documents
  • Advanced search: the more robust the search functions, the easier it will be to find that critical piece of information
  • Real-time data sharing: helping you to avoid misguided decisions based on outdated data

Invoiced: Accounts Payable Automation Software for Finance Pros 

Whatever accounts payable challenges you are trying to address, there’s a good chance that automation can help mitigate or even negate those outstanding issues. By removing the human element from these more routine operations, you can typically save your business both time and money — all while freeing up your A/P staff to focus on more strategic endeavors.

If you’d like to learn how the Invoiced Accounts Payable Automation Software can make life easier for your workers, schedule a demo today and get started on your automation journey.

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Published on February 8, 2023

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