How to Make Accounts Payable Paperless
Ira Brooker November 18th, 2022
A steady flow of paper used to be the lifeblood of any healthy business, with elaborate systems of file folders and document routing processes keeping vital operations moving. The move to more digital-based workflows across all industries is rapidly making those paper-based systems obsolete, but change does not always come quickly. As accounts payable departments move to more automation in their invoice processing and documentation, the idea of a paperless AP system has become more and more appealing to many organizations.
What is a paperless accounts payable system?
Instituting a paperless accounts payable system means updating all of your paper-based workflows and daily operations to electronic ones. The goal is to eliminate repetitive tasks, reduce human errors, cut down on processing time, and streamline the overall day-to-day workflow of an accounts payable team.
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Paper-based vs Paperless AP process
Is a paperless invoice processing solution really that much different from an old-fashioned, paper-based system? In a word, yes. In nearly every aspect, going paperless creates a faster, more accurate, and less expensive process for your AP department’s day-to-day functions. From receiving purchase orders to sending out invoices to ensuring that all of your data matches across all documents, accounts payable automation can revolutionize the way your organization handles invoicing from end to end. Let’s compare the key steps of a paper-based and paperless AP process.
Paperless AP process
Paper-based AP process
1. PURCHASE ORDERS ARE ISSUED
A purchase order including line item descriptions, date of the order, quantity, price, and other necessary info is sent to a supplying vendor via postal mail, fax, or email attachment. A paper copy is filed for future reference.
An electronic purchase order including line item descriptions, date of the order, quantity, price, and other necessary info is sent to a supplying vendor via email or online form. A digital record is stored automatically.
2. RECEIVING REPORTS OR GOOD RECEIPTS
The vendor sends the products or services ordered, along with a paper report or receipt listing everything your business received, including quantity, shipping details, date of receipt, and other key details. The report is filed and stored in a file cabinet or folder.
The vendor sends the products or services ordered, along with a digital report or receipt listing everything your business received, including quantity, shipping details, date of receipt, and other key details. The report is automatically stored for easy reference.
3. VENDOR INVOICES ARE ISSUED
The vendor sends a paper invoice including details such as the amount owed, sales taxes, shipping or freight fees, and payment due date. That data is manually entered into your system via a spreadsheet or pen and paper.
The vendor sends an electronic invoice including details such as the amount owed, sales taxes, shipping or freight fees, and payment due date. That data is automatically entered into your system via optical character recognition (OCR) which converts all data into text files that can be easily read by a computer and transferred to your ERP system.
4. IDENTIFYING DISCREPANCIES
4. THREE-WAY MATCHING
AP team members compare the physical documents you’ve received — purchase orders, receiving reports, and invoices — to make sure that all relevant data matches on all three documents. If discrepancies are detected, your team coordinates with the vendor to determine which data is correct and make changes where needed.
An automated AP software solution checks electronic documents — purchase orders, receiving reports, and invoices — against each other to make sure that all relevant data matches on all three documents. Any discrepancies are flagged for further review. Your team coordinates with the vendor to determine which data is correct and make changes where needed.
5. REVIEW AND PROCESSING OF PAYMENT
Your AP team manually routes invoices to all of the people and departments within your organization that need to sign off on them before they can be approved. If any of those parties is out of the office or unavailable, they must be re-routed to a backup authority. Once those approvals are obtained, a check or money transfer is disbursed to the vendor.
Your AP software automates the processing of invoices along a predetermined set of routes with approval tiers. If someone whose approval is needed is unavailable, the invoice will be automatically sent to the next person in the chain. If any approvers do not respond within a set time, they will receive automated notifications to remind them. Once all approvals are in place, the system generates an automatic, secure ACH payment to the vendor.
The advantages of moving to a paperless accounts payable process should be evident by now, but it still isn’t a decision to take lightly. Let’s take a deeper look into some of the specific benefits that make investing in paperless invoice software a cost-effective decision in the long-term. Automating your day-to-day AP operations allows you to:
1. Improve Document Organization
Even the most organized AP department will have struggles with storing paper documents. A carefully organized storage system with file cabinets full of folders sorted alphabetically, chronologically, or by client name can still be thrown into disarray the first time someone forgets to put an invoice or purchase order back in the proper place. Accessing a specific piece of information requires sorting through all of those physical files to find a particular document, and if you’re away from the office you’re out of luck.
Streamlining document organization is a key benefit of switching to a paperless invoice system. Instead of flipping through paper files, hunting for one outstanding invoice from months ago, you can use the document retrieval system’s search feature to immediately locate and load any document you need. A digital storage system also provides multiple options for opening a file and allows you to email documents with the click of a mouse.
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“ Once customers make the decision to go paperless with MHC NorthStar, they tell us how amazed they are to look back at how much more work their old systems were by comparison. ”
Gina Armada, CEO of MHC
2. Reduce Duplicate Payments
Duplicate payments are one of the greatest ongoing headaches for any accounts payable team, and a paper-based invoice processing system elevates many of the root causes behind them. Misplaced documents, delays in approvals, and basic human errors can lead to multiple payments being issued for the same invoice, or to a vendor issuing a second invoice when the first isn’t paid in a timely manner. Identifying those errors and correcting the duplications can eat up a lot of time and money while also damaging an organization’s reputation with important vendors and suppliers.
Moving to a paperless invoice processing solution significantly reduces the risk of duplicate payments by providing AP teams with a standardized process that makes sure invoices move through your system quickly and consistently. Automated data processing cuts down on human touch points and manual data entry, removing many of the most frequent causes for duplicate payments. And in the event that a duplication does make it through your system, an automated software solution offers greater visibility into your processing, making it much easier to pinpoint the causes of mistakes and make sure they don’t happen again.
3. Increase Mobility
A paper-based invoice processing system is, by its nature, largely tied to a specific location. Retrieving information, making changes, and compiling materials for auditing requires sorting through physical file cabinets and sorting through papers. That method is much less feasible in the post-COVID era, where more and more employers are dealing with a remote or hybrid workforce with fewer workers physically in the office to retrieve documents.
A paperless accounts payable system makes your invoicing and payment process mobile and usable no matter where employees are physically located. Going paperless eliminates the need for employees to transport files between home and office, where documents can more easily be lost or damaged in transit. That mobility also allows you to make quick responses to vendor concerns and questions by accessing necessary documents with the click of a mouse, no matter where you are.
4. Backup Documents Automatically
You may have noticed a running theme in this list of benefits: it’s easy to lose or damage paper documents. That’s especially true when your business is dealing with a range of vendors who submit invoices in a variety of formats. A page of an important report or a small receipt can end up in the garbage or can get shredded by accident. Paper files can be damaged by sun, water, improper storage facilities, and many other environmental factors that aren’t always in your control.
A paperless accounts payable process provides greater security and peace of mind by giving your organization the option to back up files and store them in secure, cloud-based servers. If your business deals with sensitive information that you do not trust in the cloud, electronic files can also be stored on a flash drive or other portable hard drive. An AP automation solution also allows you to set up regularly scheduled backups, which further minimizes the risk of data loss without requiring you to remember to save and store every new invoice or purchase order that comes in.
5. Reduce Your Environmental Impact
A more eco-friendly approach to business is top-of-mind for many organizations. Reducing your paper consumption is one of the most achievable steps you can take toward better environmental consciousness. Research shows that producing a single ream of paper requires more than 47 gallons of water, and that producing 40 reams of paper is the equivalent of cutting down 1.5 acres of forest. With the average office worker using around 10,000 sheets of paper per year, that adds up to a major impact on water consumption, greenhouse gas emissions, and other damages that do long-term harm to the environment.
Moving to a paperless AP solution not only drastically reduces the amount of paper your organization goes through each year, it also has a ripple effect across other areas of your environmental impact. Less reliance on office equipment such as printers, copiers, and paper shredders means less upkeep on those electronics, less need to purchase ink and toner, and less frequent disposal of broken or outdated equipment. All of those actions have negative environmental impacts that can be sharply reduced with less reliance on paper processes.
“Paper doesn’t seem like a cumbersome problem for an organization. But MHC customers constantly express just how thrilled they are at how MHC NorthStar gives them more space and less waste. ”
Gina Armada, CEO of MHC
6. Simplify Collaboration
No employee is an island in a modern workplace. Nearly every file and document that moves through your accounts payable process requires input from multiple members of your AP team. In a paper-based environment, that means routing documents across different desks, waiting for people to carve out time to log, review, and approve incoming invoices and payments, and dealing with delays as people try to make their schedules align.
Accounts payable automation simplifies those collaboration and invoice approval efforts by immediately entering all received invoices into a routing system that ensures that each document gets in front of the people who need to see it at the time they need to see it. That makes it easier for team members to communicate, ask questions, and suggest changes in real time, without having to wait for someone else to complete their review. That helps to build bonds within your AP team while significantly reducing the time it takes to get important documents processed.
7. Reduce Costs
Upgrading to a paperless accounting system does require a significant upfront investment. That can be daunting for some budget-minded organizations, but the fact is that eliminating paper invoices and financial documents is a cost-saving move in the long run.
The cost-reduction benefits of a paperless AP process are similar to the environmental impacts in a number of ways. Going paperless sharply reduces expenditures on paper and all of the office furniture associated with it, such as filing cabinets and storage bins, as well as the physical space required to house them. Paperless invoicing also cuts down on the need for printers and copiers, along with the ink, toner, and maintenance it takes to keep them operating. By reducing processing time, a paperless system also cuts down on the time employees spend performing repetitive tasks. That helps to boost productivity and bring down payroll costs.
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8. Prevent Payment Fraud
Dealing with fraudulent invoicing and payment practices is an unfortunate reality for most AP teams, and a paper-based accounting system makes it easier to get away with that kind of bad behavior. A paper-oriented system not only makes altered documents, unauthorized approvals, intentionally duplicated payments, and other common forms of fraud easier to perpetrate, it also makes them more difficult to track after the fact.
When fraudulent behavior is suspected with an electronic invoice, on the other hand, an automated AP system makes it much easier to audit and review every step of the process and identify where exactly the problem originated. That kind of visibility, combined with automated tools that can flag irregularities in the invoicing process, acts as a deterrent against potential fraud. As we’ve addressed in our MHC fraud prevention webinars, that makes for an excellent means of stopping bad actors before they can do serious damage.
“ Fraud is one of the biggest concerns we hear about. Businesses know there are all kinds of threats out there but they don’t always know what can be done to prevent them. The peace of mind our customers get with the MHC NorthStar system is one of our biggest points of pride. ”
Gina Armada, CEO of MHC
9. Expedite Customer Payments
Getting payments in your customers’ pockets can be a massively time-consuming process in a paper-based system. The time it takes to receive, log, route, and obtain necessary approvals for physical invoice processing adds up quickly. Research shows that it takes a mid-sized company around 25 days to process a single invoice manually. As covered earlier, a manual approach also makes errors and fraud much more likely. Identifying and correcting those issues only holds up payments further.
By investing in a paperless invoice software system, organizations can expedite payments significantly. An automated end-to-end invoice process with AI tools like optical character recognition (OCR) ensures that every invoice is entered into your system immediately on receipt, regardless of format. From there, invoices are automatically routed to the people and departments who need to sign off on their approval. When errors do arise, the visibility of an automated AP solution makes it much quicker to pinpoint and address them. That adds up to a much swifter payment experience that keeps relationships with your customers and vendors healthy and strong.
“Many businesses don’t realize just how inefficient their paper-based AP systems really are. It takes so much longer to do just about everything when you’re chasing down signatures and hunting through file folders for paper documents. Going paperless is the most effective way for them to put more hours back on their clocks.”
Gina Armada, CEO of MHC
10. Enhance Regulatory Compliance
No matter what industry you’re working in, your accounts payable team has some important regulatory compliance considerations to keep in mind. An AP team deals with a large amount of personally identifiable information, which is closely regulated by the European Union’s General Data Privacy Regulation (GDPR) as well as a number of state and local privacy laws. There are also many governmental and industry-specific requirements for how payments are recorded and reported, timeframes for making payments, and other complex financial rules.
Trying to keep track of all of that data in a manual system with multiple human touch points is a recipe for compliance violations, as well as the fines and reputational damage that come along with them. An automated, paperless AP system reduces that risk by routing financial documents through a clearly defined and consistent process that ensures all materials are handled correctly every time. If compliance issues do arise, an electronic system provides an easily referenced audit trail with greater visibility into potential violations and greater guidance for preventing them in the future.
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Make Your AP Department Paperless with MHC
The bottom line is that moving away from a paper-based AP system is both a long-term and short-term benefit for your organization. Making the switch to a paperless system might seem intimidating at first, but your business will quickly begin to see improvements in processing speed, accuracy of reporting, regulatory compliance, employee engagement, and cost savings that make the investment more than worthwhile.
MHC offers state-of-the-industry software for creating a paperless AP process, with personalized service that lets you choose a solution that works best for your organization’s specific needs. Contact us today to schedule a demonstration and see how going paperless with MHC NorthStar can change the way you do business.