In business, a late payment is always a bad idea. Not only can it damage your reputation—and send the wrong signal to investors—it can also undermine existing financial relationships and put any current purchasing discounts at risk.
Of course, these late payments aren't typically made intentionally. Sometimes they result from poor planning, undetected errors, or other complications that might creep into your accounts payable (A/P) efforts. And an inefficient A/P workflow can cause more damage to your company's health than the occasional missed payment.
That's why many businesses are currently evaluating ways to streamline and better formalize their A/P efforts, with some shifting from traditional processing managed by an entire department to automated accounts payable workflow software that a handful of staff can oversee.
What is accounts payable?
Accounts payable is a bookkeeping term that simply refers to the outstanding bills or debts that you or your business currently hold—specifically those that need to be paid soon. Similarly, the term can also be used to describe the corresponding accounting practices or departments involved in managing these unpaid costs.
If you've received a shipment from a supplier that you haven't yet cut a check for, or if you have a lease or mortgage payment coming due at the end of the month, you would record these accounts payable transactions in your balance sheet as current liabilities.
In more detail, whenever your business receives an invoice, your accounting staff credits the accounts payable line of your general ledger while also debiting the same amount to a corresponding expense account. And when the bill is paid, your staff would then debit accounts payable and apply an offset credit to your cash account, thereby reducing your overall cash balance.
Check out our article on accounts payable vs. accounts receivable for a comprehensive overview of how these two processes differ.
What does an accounts payable workflow look like?
The complexity of an accounts payable workflow will vary depending on the size and nature of the company. Obviously, a small business with just a handful of employees will need to chase far fewer internal payment authorizations, while the sheer volume of invoices for a major corporation will often demand an entire department dedicated to keeping debts paid on time and avoiding potential fraudulent charges.
On average, an accounts payable workflow will look something like:
- Invoice received: The entire process begins once you've accepted a payment request from one of your suppliers or vendors. And depending on how these invoices are collected—electronically or on physical paper—you may need to transfer these details by hand to your general accounting systems.
- Verification: After receipt, your accounting staff will typically run through a series of checks, such as confirming that the invoice is for a valid purchase, that it is free from errors, and that it has not already been paid. Beyond verifying its authenticity, most businesses also require decision-making staff to sign off—sometimes with a written signature on paper records—for these payments, allowing the organization to fine-tune its cash flow and prioritize capital output.
- Scheduling: Once your accounting team has gathered all necessary approvals, you'll schedule the actual transaction date and determine the payment method. At this stage, additional verification steps are commonly employed, like confirming the payment total matches the original invoice and that it is being sent to the appropriate creditor.
- Payment: Depending on the method of payment, this may involve you signing and mailing a check, initiating an automatic clearing house (ACH) transaction, or completing a credit card payment.
Another factor that might influence the complexity—or at least the perceived complexity—of your A/P workflow is how much you have or haven't automated these processes. Depending on the level of manual effort your operations demand, you may need to accommodate higher personnel costs or limit the number of verification rounds to accommodate available labor. Conversely, an automated platform might allow you to add further steps without encouraging delays.
Common problems with a manual A/P workflow
Humans aren't perfect. In fact, we're far from it. And the more any given process relies on direct action by a physical person, the greater the likelihood that mistakes will be introduced. From transposing figures during data entry to forgetting a crucial step to just being wrong or confused, the average person's fallibility can wreak havoc on the accuracy of your payment cycles.
The Institute of Finance and Management recognized this trend in its 2021 World Class AP Performance: Efficiency Benchmarking Metrics Report. For businesses processing fewer than 20,000 payments throughout 2020, 8.6% of these transactions—on average—required corrections.
Depending on how granular your A/P processes are, any given payment might need to be touched or authorized by several people throughout your organization. And with each new step and each new required signature, you introduce another delay and potential bottleneck in processing your outstanding payments.
Invoices, authorized signatures, canceled checks, bank statements—there's a lot of information and records to keep track of throughout the accounts payable process. And when many of these documents are stored on paper in a filing cabinet, gaining clear insight into company-wide finances can prove difficult and time-consuming, if not impossible.
Considering the potential for errors and poor process visibility, a manual accounts payable workflow also creates a greater opportunity for fraud. According to a study conducted by the Association of Certified Fraud Examiners, 20% of examined fraud cases originated with fraudulent billing. And 10% of cases were caused by check and payment tampering.
Benefits of A/P workflow automation
Perhaps the most immediately recognizable advantage of an automated workflow is the removal of paper from the payment cycle. Not only are internal processes handled electronically, but your organization can also avoid the data entry burden associated with traditional A/P efforts. Routinely, automation tools feature optical character recognition (OCR) technology that lets the user scan a received paper invoice, feeding all relevant details into the backend payment platform.
With all of the A/P tasks being conducted in a series by the automation platform, the corresponding data, and metadata associated with these transactions can be readily traced from the initial invoice to the final payment. So if a question arises regarding a specific transaction, the system can identify and report on each step of the process.
This insight is particularly useful during any auditing efforts.
Thanks to the time savings delivered by an automated system, your suppliers and vendors will receive their funds more quickly, resulting in fewer late payments. Similarly, a given transaction is less likely to slip through the cracks or hit a processing bottleneck when all manual steps have been removed.
In fact, according to a 2019 survey conducted by Levvel Research, 64% of respondents indicated that faster invoice approval was the primary benefit from their A/P workflow automation.
With your accounts payable workflow now being handled by technology, your business can refocus the staff previously associated with these operations to more strategic and potentially profitable endeavors. And by eliminating these repetitive, time-consuming tasks from your personnel's daily workloads, you can typically expect an increase in employee satisfaction.
By removing some key verification steps from direct human oversight, an automated workflow can help limit the impact of internal misconduct. Conversely, many automation platforms also feature monitoring tools that can detect patterns that the average human might overlook and instantly react to established red flags that might indicate fraud.
Returning to the previously-mentioned Levvel Research survey, where businesses were asked about the primary benefit they've realized from A/P automation, 30% of respondents listed fraud reduction.
Invoiced: Accounts Payable Workflow Automation Software
Regardless of industry or process, automation is almost always a smart investment. Accomplishing tedious, time-consuming work at the push of a button lets you focus your personnel on the critical aspects of your business.
Instead of constant data entry and chasing signatures throughout the office, consider software that does the hard part for you. Software that auto-populates necessary forms with data scanned from incoming invoices. Software that automatically routes approval requests to the right party and lets them quickly authorize with a digital signature. Software that can easily transmit your digital payments while protecting them from fraud and error. Software that just works.
That's what we've tried to do here at Invoiced. Our Accounts Payable platform will remove the hassle from A/P while helping to make sure that your bills are paid quickly and accurately. If you'd like to see how this new offering can revolutionize your payment processes, schedule a demo today and discover how automation can benefit you.