How To Automate Your Accounts Payable Process

By
Writers@Aspire
Published
August 12, 2022

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.

What is Accounts Payable?

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:

  • Assessing suppliers
  • Negotiating with suppliers
  • Creating purchase orders
  • Processing invoices
  • Receiving goods
  • Paying suppliers
  • Managing inventory

Invoice processing is a typical example of an accounts payable process and consists of five steps:

  1. Receive: The process begins with the company receiving the invoice. In Singapore, many start-ups and small companies still accept hand-written invoices. It is also common practice worldwide to receive invoices via mail, email, and fax. Gathering invoices sent through multiple channels can be messy.
  2. Review: Next, the company’s accounts payable department verifies each invoice by cross-checking it with the corresponding purchase order. The goods or services purchased, purchase dates, and supplier’s identity are among the factors verified at this stage.
  3. Approve: Post-verification, the invoices are sent to relevant authorities for approval. There might be more than one approver. Before giving the go-ahead, the authorities must ensure the contents of the invoices are in line with company policies and regulations.
  4. Pay: Once an invoice clears the verification and approval stages, the accounts payable department pays the supplier.
  5. Record: Each invoice is then recorded in the company books for future reference.

Account payable vs note payable

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.

What is accounts payable process automation?

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).

How does accounts payable automation work?

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.

Benefits of accounts payable automation

The use of account payable automation software holds many benefits for businesses:

  • Reduces errors: Humans tend to make mistakes when performing dull, repetitive tasks like data entry. Data entry is the top challenge in manual accounts payable processes, says the 2021 Payables Survey. The use of accounts payable automation software greatly reduces human error, resulting in more accurate record-keeping.
  • Saves time: Some tasks – such as cross-checking invoices with purchase orders – take considerable time when done manually but are instant with automation. This leads to faster payments and satisfied suppliers, who might return the favour by offering beneficial payment terms and discounts.
  • Convenience: Accounts payable automation creates automatic digital records. Employees no longer have to fill up and scan paper documents if they are in digital format to begin with. What’s more, employees need not be physically present in the office to deal with digital documents. This is important given the great shift towards remote work in recent years.
  • Accessibility: Paper documents are easily misplaced or lost. Missing invoices are the third biggest challenge faced by accounts payable staff. Paper documents might also be stored in more than one place. When you need them, they might not be easily found. Digital records can be kept in a single centralised data bank that is easily accessible to all who need them, when they need them.
  • Visibility: A single payments data repository means greater visibility and control over the company’s cash flow. This paves the way for better financial planning and management of working capital.
  • Productivity: Freeing up employees from mundane work will allow them to do the important tasks they should be doing, making them more productive. Reducing their boredom and frustration will boost their motivation and improve their efficiency.
  • Prevents fraud: Fraud is a major risk when your accounts payable process is manual. Accounts payable automation lowers this risk by giving decision-makers a clear view of the company’s spend activity, enabling them to identify potential fraud if any.     

Reap the benefits of accounts payable automation with Aspire’s convenient, easy-to-use automated bill payments.       

Manual vs. Automated Accounts Payable

Manual accounts payable process  

  • Relies on manual data entry and human intervention
  • Is prone to errors and wrong payments due to the human factor
  • Requires employees to follow up on each expense or invoice
  • Documents and the data they hold are scattered and may be stored in more than one place, increasing risk of lost documents 
  • Greater risk of fraud 

Automated accounts payable process

  • Uses software to create digital workflows, thus eliminating or considerably reducing manual intervention
  • Reduces errors and greatly improves accuracy
  • Follow-ups are automated, creating a seamless process
  • Data is stored in a centralised database, increasing visibility and accessibility and lowering the danger of lost data 
  • Prevents fraud and is more secure

How Automation Cuts Down Invoice Processing Time

Manual Process

  1. Receive invoice from supplier
  2. Convert invoice into internal document
  3. Verify invoice by cross-checking with purchase order, goods receipt note
  4. Forward invoice to relevant approval authority
  5. Manually approve the invoice
  6. Repeat Steps 3 & 4 if the invoice need to pass more than one approval layer  
  7. Inform supplier of invoice approval, usually by email 
  8. Pay supplier. If payment is by cheque, this adds to invoice processing time    
  9. Manually upload invoice data to record-keeping software 

Automated Process

  1. Receive invoice from supplier
  2. Automation software converts invoice into e-invoice and also matches its contents with supporting documents
  3. Invoice is automatically routed for approval
  4. Invoice is approved electronically with  digital signatures
  5. Supplier is informed of invoice approval 
  6. Digital payment is made to supplier

How accounts payable automation can save you money in the long term

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:  

  • Manual invoice processing requires manpower and long man hours, which translates to high personnel costs. Automation helps you save on salaries because you’ll need to hire fewer staff. Your existing employees can take on more productive jobs that make better use of their skills. 
  • Automation reduces human error, which in turn helps you avoid late payment penalties and loss of discounts on account of inaccurate invoicing. Also, correcting a manual invoice with errors means double the processing cost in terms of man hours, paper, and so on.
  • Accounts payable automation also lowers the risk of wrong payments.
  • It helps businesses identify the most favourable payment terms and grab early payment discounts (where you pay less than the full invoice amount by paying your supplier earlier than stipulated).
  • Going paperless allows you to completely skip storage and courier charges, which can be considerable in the long run.

How to choose the right accounts payable automation solution

While picking an accounts payable automation solution, companies must ensure it can perform these tasks: 

1. Automate data entry

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.

2. Support e-invoices

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.

3. Automate invoice processing

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.

4. Automate coding

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.

5. Customer support system

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.

6. Perfect fit

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.

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