The accounts payable department is crucial to running a business successfully because it performs a critical function – monitoring what the company owes its suppliers and keeping accurate financial records. A large number of businesses today still operate with a manual accounts payable process, working their way through piles of paper invoices, routing each one to the relevant authority for approval, and then making each payment manually. Such a system is not only time-consuming and labour-intensive, it is vulnerable to errors and fraud.
Considering that even companies of modest size deal with multiple invoices in a day, there is a real danger of falling behind on payments, which can have serious repercussions for the business. Hiring as many employees as needed is not the answer. A more effective solution is to automate the accounts payable process. This will not only ensure that work gets done on time but also that it is streamlined and error-free.
In this article, we deal with several key questions relating to the accounts payable process, including what is accounts payable, how does accounts payable automation benefit businesses, and what can companies do to effectively automate their accounts payable process.
Before getting into accounts payable automation, let’s first understand the meaning of account payable, also called trade payable.
Simply put, account payable is the money a company owes its suppliers for the goods and services it has purchased and for which the suppliers have submitted invoices. A trade payable is recorded in the company balance sheet as current liabilities that must be paid within a specific period. This payment window is typically short (usually a month).
Supplier invoices make up a chunk of a company’s trade payables. Other expenses that are covered include employee reimbursements and travel expenses.
You can get a fair idea of what accounts payable involves by knowing about the various tasks employees in this department perform, which includes but is not limited to:
Invoice processing is a typical example of an accounts payable process and consists of five steps:
Accounts payable is not to be confused with notes payable. The easiest way to differentiate between the two is that trade payables involve money a company owes for goods or services purchased by it while notes payable deals with money it has borrowed. The amount that has been borrowed is recorded in the company books in the form of a formal written note from the borrower promising to pay the lender the full amount plus interest by a specific date. This note is called a promissory note. A loan is a typical example of notes payable.
Unlike notes payable, accounts payable does not involve promissory notes or interest payments. Additionally, while amounts recorded as notes payable are fixed, those recorded as accounts payable can change depending on how frequently the goods or services are purchased. Supplier invoices, utility bills, and insurance premiums are examples of accounts payable.
Account payable meaning, therefore, differs from notes payable meaning, even if both are liability accounts at their core.
When a company automates one or more manual aspects of the accounts payable process – such as data gathering, data entry, and invoice approval – with the help of technology, it is called accounts payable automation. Dedicated software programmes take over repetitive, tedious, and time-consuming tasks, saving time, reducing errors, and streamlining processes. This, in turn, frees up employees to take on more meaningful, value-added work (such as dispute redressal).
Accounts payable automation software classifies, matches, and verifies payments data and forwards them to the accounting system for final settlement. It is a set of customised instructions that enables you to automate your payment process from start to finish.
Take invoice processing, for example. The accounts payable automation process usually starts with paper invoices being converted into a standard digital format. This is done with the help of accounts payable automation software that uses optical character recognition (OCR) to extract information digitally from the paper invoices.
Many companies also use machine learning to read patterns and draw inferences from invoice data. Machine learning is an artificial intelligence that works on algorithms. It can greatly improve the accuracy of data extracted with OCR. Furthermore, the patterns and insights can be used to route invoices automatically and intelligently on the basis of codes, keywords, and supplier information. Machine learning not only speeds up invoice processing and removes human errors, it is also capable of identifying duplicate invoices and sniffing out potential fraud.
An automated trades payable process can set up email reminders for pending payments, perform multi-level checks to verify invoices, and much more.
The use of account payable automation software holds many benefits for businesses:
Reap the benefits of accounts payable automation with Aspire’s convenient, easy-to-use automated bill payments.
There is another benefit to automating your accounts payable process. It reduces expenses in the long run, even if it is an investment initially. Here are the ways in which accounts payable automation software helps companies cut costs:
While picking an accounts payable automation solution, companies must ensure it can perform these tasks:
Data entry is the most time-consuming and error-prone exercise in the accounts payable process. While other stages in the accounts payable process are usually completed with the invoice being paid, automated data entry remains useful for a long time. You can use the stored data for future analysis to inform your company’s policies and strategies.
Invoices are the starting point of an accounts payable process and the course correction must start from here. You can start by scrapping paper invoices and moving to digital invoices received via email. However, even email invoices have their limitations. They are usually human-generated PDFs that can only be digitised with the use of OCR. The next step in the automation process would, therefore, be to switch to XML invoices, which can be opened and read in a browser, or to have your suppliers send their invoices through supplier portals.
Those who wish to switch to e-invoices can check out Aspire, which has been helping businesses create professional and tax-compliant e-invoices in just a few clicks. That’s not all. Our invoice management platform also sends reminders for upcoming or overdue payments and alerts once payment has been received.
You can choose to automate some or all of the steps. Apart from switching to electronic invoices, you can automate the matching of invoices against supporting documents such as purchase orders and goods receipt notes. Automating invoice approval is also recommended as doing it manually can create delays and bottlenecks. Accounts payable automation software facilitates seamless electronic routing of invoices to the right approvers. If the invoice is for products purchased by a specific department, it can be routed to that department. If the invoice amount is large and needs to go through multiple approval layers, the software can take care of that as well. There are even digital solutions for the final disbursal of payments. Take, for instance, Aspire’s Bill Pay, an AI assistant that helps you set up automatic invoice payments with minimum intervention and maximum visibility. What’s more, Aspire can also make sure you never miss a recurring payment.
Depending on their needs and budgets, companies can go in for either traditional automation or robotic processing automation (RPA) to digitise invoice processing. The former uses digital tools managed by humans, who also take over the manual tasks that must be performed in between automated tasks. The latter is an end-to-end automated solution that does away with human intervention altogether. This, however, makes it unsuitable for tasks that require a certain degree of human judgement.
Next to data entry, coding is the most time-consuming and error-prone exercise in the accounts payable process. General Ledger (GL) coding is a system of classifying expenses on the basis of various values such as the invoice amount, product, supplier, department, and so on. When recorded in the company books, each invoice or transaction is assigned a GL code for the purpose of easy reference. As the number of invoices increases, so do the GL codes. In a manual accounts payable process, this opens up more room for mistakes and confusion to creep in. This can be avoided by automating GL coding. As soon as the invoices are digitised with OCR, GL codes can be applied automatically to each entry, making classification easy and accurate.
When choosing an accounts payable automation software, it is important to factor in an in-built customer care service that is thorough and dedicated. This is because problems are bound to occur in business transactions, even if conducted meticulously. For disputes with suppliers, you could develop a mechanism for time-bound resolutions. Other services could include facilities for suppliers to track the status of their invoices and find answers to common queries.
The software you pick out should be one that your employees can get on board with easily. The software provider should ideally be involved in the process of training your employees. This will ensure smooth implementation of the automation solution. The chosen software should also integrate seamlessly with the other systems in your company, including the accounting system. What’s more, it should also be customisable and scalable so that it can adapt to your business’ changing needs.
An accounts payable automation process does not come for cheap. Lack of budget is the single biggest reason businesses resist automating payables processes. Yet, automation brings distinct advantages that not only makes up for the initial investment but also proves more cost-effective in the long run.