If your team hasn't looked into your accounts payable workflows lately, consider a few reasons why you should. With a properly optimized accounts payable process, your team can accelerate processing time by reducing manual workload, ensure everyone gets paid on time and most importantly improving your bottom line.
What Are Accounts Payable Workflows?
This intricate process ensures accurate and timely vendor payments, extending beyond mere invoice handling to form a multi-step journey originating well before an invoice reaches the accounts payable department.
One of the standout features enhancing accuracy and timeliness is the incorporation of a three-way match capability. This functionality is designed to pair invoices with corresponding purchase orders and goods received. The result? Vendors and suppliers receive payments on schedule, and the entire payment process becomes a well-coordinated symphony. Beyond ensuring timely payments, the three-way match capability simplifies the task of pinpointing deviations and errors. This proactive approach to discrepancy identification allows businesses to maintain financial precision, fostering a smoother and more reliable workflow.
Why You Should Prioritize AP Workflows
Well-designed accounts payable workflows play a pivotal role in minimizing delays, preventing errors, and maintaining a steady cash flow. Additionally, they contribute significantly to fostering healthy vendor relationships and a positive company reputation. Common Bottlenecks: Identifying bottlenecks, ranging from manual errors in invoice processing to delays in approval chains, is the initial step towards optimizing AP workflows. Value of Automation: The incorporation of automation, particularly starting from the procurement stage, enhances efficiency within accounts payable. Automation streamlines the entire payment cycle, reduces errors, and allows employees to focus on tasks requiring human intelligence.
Join us as we explore the intricacies of AP workflows and delve into how automation and AP automation solutions, specifically from ConvergentIS, can eliminate bottlenecks, streamlining processes from intake to payment.
Understanding The Accounts Payable Workflow
A comprehensive understanding of the accounts payable workflow is crucial for optimizing procurement and payment processes. Contrary to common misconceptions, accounts payable is not merely an administrative function or an accounting system; it is a strategic activity influencing business cash flow, vendor relationships, and operational efficiency. The AP cycle involves a series of methodical steps necessary for accurate, timely payments.
Purchase Requisition Creation
The initial phase in a company's procurement process is the creation of a purchase requisition. This requisition serves as a formal request initiated by an employee or department seeking approval to procure specific goods or services. Following internal review and approval, the purchase requisition is utilized to generate a purchase order, which is then transmitted to the supplier for fulfillment.
Purchase Order Creation
The next step in the AP Workflow is the creation of a Purchase Order (PO), a legal document detailing the types, quantities, and prices of products or services to be provided by a vendor. However, challenges may arise even before the PO is generated during the procurement phase, impacting downstream processes, including the AP workflow.
Post-PO Stage Upon receiving the PO and delivering the goods or services, a vendor generates an invoice—a request for payment—listing the delivered items. Invoices undergo careful scrutiny for accuracy in terms of items, amounts, terms, and other critical information.
ERP Data Entry
Subsequently, the invoice data is entered into an Enterprise Resource Planning (ERP) system, serving as a central repository for various business processes, including accounts payable. A well-maintained ERP system ensures data integrity and facilitates seamless workflow automation later in the process.
A critical stage in the AP workflow is the 3-way matching process, comparing the PO, delivery receipt, and vendor invoice to ensure payment only for received and ordered items. Discrepancies must be resolved before proceeding.
Authorization Stage Following a successful 3-way match, the invoice undergoes a multi-tier approval process involving stakeholders such as the AP department head, finance teams, and, at times, top management. Any delays in this stage can impede the overall AP process.
Fund Locking After invoice approval, the finance team authorizes payment, reviewing internal controls to ensure alignment with company policies and fund availability. Payment authorization serves as the gatekeeping stage securing funds for the transaction.
Timing and Terms Payment scheduling follows authorization, outlining when and how the vendor will be paid, aligning with the company's cash flow needs and meeting the vendor's terms.
Final Verification Before fund transfer, a final review of the transaction occurs, auditing for discrepancies or potential fraudulent activities—a last checkpoint for accuracy and compliance.
Finally, payment execution marks the closure of the accounts payable cycle for that specific transaction. Timely and accurate payments are crucial for maintaining positive vendor relationships and ensuring financial reporting accuracy.
The AP workflow surpasses the mere act of "paying bills." It is a multi-step process initiating well before a PO is generated and extending beyond check issuance. Understanding these steps and their interconnectedness can aid in streamlining processes, eliminating bottlenecks, and ultimately enhancing the financial health of the company.
Common Challenges in Accounts Payable
Workflows Even with well-defined accounts payable workflows, organizations often encounter challenges that can impede payment cycles, disrupt supplier relationships, and incur additional costs. Identifying these challenges is the initial step towards optimizing the AP process. Below, we explore common challenges and bottlenecks frequently faced by businesses.
Excessive Manual Processes
In numerous organizations, the accounts payable process relies heavily on manual tasks, including data entry, invoice matching, and payment processing. This manual approach consumes time and increases the risk of human error, leading to:
Poorly Tracked Invoices
Difficulty in tracking invoices, potentially leading to misplaced or lost documents. Elevated costs due to labor-intensive tasks.
Time Delays in Payment and Processing
Ripple Effect Time delays can occur at various stages, from approval loops to actual payment execution, causing a ripple effect with consequences such as:
Strained Relationships with Suppliers
Penalties for missing payment deadlines. Cash flow challenges due to difficulties predicting outgoing expenses.
Unseen Glitch The 3-way matching process, where purchase orders, delivery receipts, and vendor invoices are matched, can be a source of errors.
Delays in resolving discrepancies, further stalling the AP process. The risk of fraudulent activities if the matching process is not rigorously monitored.
Lack of Visibility
A lack of standardized intake processes often results in poor visibility into POs and invoices, leading to unpredictable cash flow due to invisible or 'surprise' expenditures, greater difficulty in complying with regulatory requirements and a lack of controls and shadow purchases.
Why Automating Your Intake-to-Pay Process Improves Accounts Payable Workflows
The move toward automation is not just a passing trend; it is a critical element for thriving in today's fast-paced business environment. Particularly in accounts payable workflows, the demand for efficiency, accuracy, and visibility is paramount. ConvergentIS aims to address these challenges as the #1 add-on for SAP Procurement, you can automate not only accounts payable activities but also the crucial intake-to-pay processes laying the foundation for them.
Significance of Focusing on Intake Processes
ConvergentIS offers a comprehensive approach to automating intake-to-pay processes, reducing bottlenecks and minimizing errors from the outset. Initiating a purchase or vendor request through ConvergentIS allows the platform to automatically route workflows to the appropriate parties, enhancing efficiency and accountability.
Benefits of Standardized Vendor Data
Inconsistent vendor data is a common issue that hinders the AP process. ConvergentIS enables you to standardize and centralize all vendor information, facilitating invoice matching, compliance, and providing a layer of protection against fraudulent activities.
Organized Approval Chains
ConvergentIS's automated workflows allow you to establish predefined approval chains compliant with your organization's policies. Real-time visibility into each stage of the process, from request to approval to purchase, is available through user-friendly dashboards.
Unlocking Valuable Spend Insights with ConvergentIS’s Analytics
ConvergentIS's real-time analytics and reporting capabilities enable you to track, analyze, and forecast expenditures. This data-driven approach empowers better budgetary decisions, identifies cost-saving opportunities, and facilitates negotiation of improved terms with vendors.
Automated PO Matching
ConvergentIS's platform automates the traditionally time-consuming 3-way matching process. This feature immediately flags discrepancies, resolving them autonomously or routing them for quick review, ensuring accurate and timely payments.
The Bottom Line
Automated systems consistently offer advantages such as enhanced speed, ease of comprehension, reduced susceptibility to errors, and long-term cost-effectiveness. With these benefits in mind, the logical next step is to explore and test a selection of these tools to experience firsthand the efficiency and effectiveness they bring to various processes. The only thing left to do is bringing together a list of your requirements.