How to Create a More Efficient Accounts Payable Workflow

How to Improve Your Accounts Payable Workflow

Your accounts payable workflow involves more than the seemingly simple equation of invoices in, payments out. Improving the accounts payable process steps can mean your business consistently pays what it owes and can help improve your overall cash flow.

1. Teamwork Is the Dreamwork

One of the first steps toward improving your accounts payable workflow is to make sure everyone on your team is on the same page when it comes to accepting invoices, creating purchase orders, and working with the appropriate vendors. Collaboration should extend beyond the accounts payable team. You want to make sure anyone who evenly remotely touches outside vendors or payees understands the process, and that the information gets shared with all the appropriate parties.

Collaboration between two departments, in particular, is critical for a streamlined AP workflow: procurement and accounts payable. Procurement is the department that’s traditionally responsible for ordering supplies and services, while AP handles the issuance of payments. At many companies, the two teams often work separately, even though the work of one team intimately impacts the other.

There are several ways to make sure procurement, AP, and other related departments can all collaborate and share information easily. One option is to develop standards for purchases and spending. Team members from across departments should have easy access to the standards and to understand the process when making a purchase or working with a vendor.

Another way to increase collaboration and sharing is to compile a list of preferred vendors. Making that list available across departments will help reduce the likelihood of rogue or unauthorized purchases, and will cut back on the administrative effort of having to constantly onboard new vendors or payees.

A great way to ensure all parties are on the same page is to employ an automated AP solution. Providing access to members from each team guarantees that all information is accurate and updated real-time. With an automated solution, procurement, AP, and any other impacted teams will have perfect visibility into the status of each order and invoice.

2. Digitize Your Data

Paper invoices are easy to lose, damage, or destroy. When vendors submit physical invoices, someone from your AP team needs to take the time to transfer them into your payment system, process the payment, and then record it. A member of your team also needs to verify and review each paper invoice, manually and tediously comparing it to the products ordered or services rendered.

Digitized data minimizes the risk of transcription errors and helps you avoid accidentally under- or over-paying vendors. Digitizing your data also reduces the number of precious work hours spent processing and accepting invoices. There are multiple ways you can go about digitizing your data.

One option is to encourage suppliers, vendors, and other payees to send in electronic invoices. Vendors can email PDF versions of their invoices to a dedicated, monitored email address. From there, the software can scan the information on the invoice, such as line-item details and header data, to absorb it into the system.

If you have vendors who prefer to send in paper invoices, you can still digitize them. With a lockbox system, vendors can send their paper invoices to a designated P.O. box. From there, the invoices get scanned and analyzed for any errors before being passed on to your team. Another option is to batch scan paper invoices so that the information becomes available electronically in a format that AP software can easily and accurately interpret.

In addition to digitizing the process of collecting and reviewing invoices from vendors, you can modernize the payment process. Rather than having to issue checks, which need signatures and approvals, your business can pay vendors with ACH or direct deposit. Since the funds from ACH or direct deposit end up in the bank accounts of payees almost immediately, there is no need to worry that a check has gotten lost in the mail or that a payee has forgotten to deposit it.

3. Keep Your Accounts Payable Information Centralized

Many hands make light work, but in some cases, they also create confusion. Centralizing the accounts payable workflow reduces the number of people who might come into contact with an invoice, as well as the likelihood that an invoice will get paid multiple times (or, worse case, not at all). Identifying a single location for invoice submission, whether it’s an email address or lockbox, and setting up a system to track and record any activity on an invoice will help eliminate missed or multiple payments.

A centralized AP system can be particularly valuable for larger companies, companies who are likely to work with vendors across multiple departments. It is also very useful for small companies, who typically only have one or two individuals handling the full accounts payable workflow.

Since a centralized system typically includes digital invoice collection and submission and automated payment reminders, it reduces the amount of effort your team puts into inputting invoice data and making sure payees receive timely payments.

Another benefit of centralizing AP information is that it encourages everyone to get on the same page. If a member of the procurement team has a question about an invoice or wants to confirm payment on a purchase, they can log into the centralized system, quickly look up the invoice, and discover everything they need to know. Providing internal team members with easy access to invoices and other AP information will help streamline the process, reduce questions and confusion, and eliminate duplicates.

4. Instill Internal Controls

Since accounts payable is the department that manages the money leaving a company, it tends to be the department that is most frequently a target of fraud. On average, companies lose about five percent of revenue in a year because of fraud. One of the most common examples of fraud is asset misappropriation, which includes billing schemes, check tampering, and falsifying expenses.

Vendors can commit fraud, as can your employees. Putting internal controls in place can help dramatically reduce the risk of fraud. One example of internal control is a defined process to verify all new vendors. Internal controls can also help you verify that invoices are from an approved vendor and can detect and flag any invoices that seem suspicious. Among the criteria you can use to verify vendors and invoice, some include:

• Approval: Has a member of your team entered the vendor into the system and approved them? Is it from your list of preferred vendors?
• Address: Does the vendor’s invoice include a legitimate business address, or does it seem to be a residence? Another flag to screen for is whether the vendor’s address matches or is similar to an employee’s address.
• Inaccurate information: Do the products or services for which the vendor is charging you match up to the products or services received? Have they submitted an itemized invoice that breaks down the cost of each product or service?

Having internal controls can also cut down on reimbursement and payment fraud. For example, your business can implement a system to verify that an employee used the expenses they are claiming for business, rather than personal, reasons.

Sometimes the simplest way to detect and stop fraud is by confirming that you are being asked to pay for what you requested and received. Automating a three-way match system allows you to automatically compare existing POs, receiving reports, and vendor invoices. And as an automated three-way matching process removes errors and delays from the process, you can rest assured that you’re paying only the invoices you should be.

5. Invest in AP Automation

Before you decide to move forward with an automation solution for your accounts payable workflow system, it may be helpful to imagine how it would actually work for your company. An accounts payable process flowchart looks something like this: