Are you bleeding cash in your Accounts Payable process?

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Bleeding cash means losing money in a business over a period of time. Most businesses bleed cash, especially in the initial set-up days; but bleeding cash in the accounts payable process on an ongoing basis is something different.

Accounts payable is an important activity in a business organization. The success of a business organization in the long term depends as much on paying its debts in a timely manner as on collecting revenue.

In many organizations, accounts payable is still a manual process, which can create a huge number of issues like:

A manual accounting system also generates a lot of papers which have to be stored for a number of years. Every single purchase transaction may need multiple paper documents, which makes the task of retrieval or access difficult.

Even with accounting software or in case of some ERPs, there are other challenges.

• Transactions have to be identified differently into different types. For example, large payments may qualify for a certain discount, while payments of small amounts will not qualify for the same benefits. So the two types of transactions have to be treated differently.
• Purchase orders also require approval of various departments which will further delay the process.
• Goods rejected sometimes get into the system too late by when the supplier is already fully paid and the company is unable to get refund especially if it is a non-regular vendor.
• In case of certain suppliers, on account payments are made and it becomes difficult to match payments with the relevant invoices in absence of proper purchase orders.
• In some cases, there is a mismatch of taking input tax credit for services and supplies received at the month end and credit is often lost as it is denied in the subsequent month.

The role of traditional ERP systems

The purchase order system in most ERP software products helps in digitizing and automating most of the steps in the accounting payable process to save time, money and efforts. Digitization of documents using a secure server to store all the documents giving the staff role based access to the documents can help in making the information accessible without compromising security. ERP systems also help in streamlining the accounts payable process by aggregating all the accounting functions in one centralized location.

However traditional ERP systems have some critical issues for the accounts payable process, like:

• In many traditional ERP systems, the accounts payable process is not linked with the ERP system. As a result, both systems may or may not work from the same data. This hampers the ability to process invoices quickly via a single unified process, as the accounts payable process cannot leverage the business logic or data that is already present in the ERP. For example, an early payment can earn a discount from a supplier, which in turn, can have a big impact on cash flow. If there is no integration, then the organization cannot take advantage of such scenarios.
• Even with all the automation of processing, there is a huge dependency on the quality of data input, which is often challenging if the data entry into the system is manual. Errors in the manual data entry can render the most complex ERP systems vulnerable to processing errors.

Seamless integration between the accounts payable process and ERP can offer immense benefits.

• The integration enables real-time and bi-directional flow of data and allows smooth execution for all invoices. For example, to ensure that all invoices are paid correctly, the accounts payable department can perform three-way checking to see if the invoice matches the purchase order in the ERP, and if the goods or services were delivered.
• Enterprises gain the ability to process all incoming invoices from any location as the accounts payable process is integrated with the backend ERP system.

In an automated accounts payable system, the invoice is received from the supplier by email, which is scanned, the invoice is recognized and validated and verified by OCR by reading invoice data. The invoice data is subsequently captured in respective fields. Data is reviewed for accuracy. The system checks for duplicates and the data is validated against the rules defined. This is then triggered for approval as part of the workflow, and once approved, the invoices are automatically posted in the ERP.

This also helps in enabling more accurate financial reporting through complete visibility. Enterprises can also monitor across all steps of the invoice process and provide a complete audit trail. The ERP system must provide a user-friendly interface that provides access to a unified view of invoice data and documents. This enables all stakeholders to access invoices, resolve problems, and route invoices for approval.

The benefits of automating accounts payable process

The benefits of automating accounts payable process and integrating it with ERP are huge. Some of the benefits include:

• Adherence to compliance norm: Companies get full access to detailed invoice processing history at any time for auditing
• Reduced processing time: Enables the organization to scan through multiple invoices in a short period of time. It also enables finance heads to monitor and streamline approvals. This significantly reduces manual operations and reduces processing time for invoices by a significant margin. Faster invoice approvals are now possible, as errors are detected and corrected before submission and invoice data is emailed to the inbox of the approver. Escalations can also be automatically routed to higher authorities, if the time taken for processing an invoice crosses a defined threshold.
• Improved cash management: Payment discounts from suppliers can make a big difference to the cash flow of any company. By automating the accounts payable process, organizations can succeed in earning early payment discounts from suppliers, by adhering strictly to required timelines. This can also help in eliminating any possibility of penalties.
• Improved vendor relations: As invoice processing is done faster and payments are made quickly, it can lead to a significant improvement in vendor relations. Suppliers can also track invoice and payment status through an online network. Payments are also released on time and discounts can be availed for early payments.

In summary, automation of the accounts payable process can significantly reduce paperwork and enable accounting staff to engage themselves in more strategic higher value activities. Working capital management can also be improved due to better visibility and improved efficiencies.  In an era of increased digitization, it is imperative that organizations take active steps to automate the accounts payable process, as it is the foundation of your financial forecasting process.

If you want to avail the services of a trusted and experienced partner for automating your accounts payable process, please feel free to write in to us at [email protected]

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