Improving Accounts Payable Processes: Strategies, Automation, and Invoice Approvals

Without a doubt, accounts payable (AP) is one of the most critical functions in every modern enterprise. After all, each firm must ensure timely invoice approvals. Thus, improving your AP process signifies a core avenue for business growth. Although change might seem daunting, cultivating an approach optimised for AP can pave the way for significant advantages.

Moving forward, businesses must adopt a more strategic approach to managing their operations in today’s competitive business environment. Ensuring prompt electronic invoice approval is vital. Companies are continually under pressure to perform optimally, and cash flow management is a critical responsibility that must be handled with precision. As such, AP operations must be meticulously recorded to maintain a clear cash flow picture, making the transition to a paperless invoice approval system crucial.

What is the AP Process?

The Accounts Payable (AP) process involves a systematic approach to managing a company’s financial obligations to its suppliers and creditors. This process typically encompasses the receipt, verification, and approval of invoices, followed by the subsequent payment to suppliers. In recent years, there has been a significant shift towards paperless invoice approval systems and electronic invoice approval, which streamline the AP process by reducing manual intervention and increasing efficiency. These systems facilitate quicker and more accurate handling of invoices, ensuring compliance with regulatory standards and enhancing financial transparency. By adopting these modern practices, businesses can optimise their accounts payable operations, reduce errors, and improve overall financial control.

Constructing a Fundamental AP Process

Creating management workflows enables a comprehensive understanding of the AP department’s operations. Management workflows can help pinpoint and rectify system bottlenecks and streamline process handoffs to enhance liquidity management. One vital component is ensuring a structured invoice approval process, detailing the frequency and methodology of your business payments. Following that, delineate how and by whom purchases and payments are approved, ensuring a smooth electronic invoice approval process.

Steps to Optimise Your AP Process

• Standardise Procedures: Establish clear, standard procedures for invoice handling to ensure consistency and reduce errors. This includes developing a detailed policy manual that outlines each step of the AP process, from invoice receipt to payment.
• Train Staff: Provide regular training to staff on the latest AP practices and technologies. Continuous education ensures that employees are up-to-date with current best practices and can effectively use new tools and systems.
• Monitor Performance: Implement performance metrics to track the efficiency and accuracy of the AP process. Key performance indicators (KPIs) such as invoice processing time, error rates, and payment cycle times can provide valuable insights and highlight areas for improvement.
• Enhance Vendor Communication: Foster good relationships with vendors by maintaining open lines of communication. This can help resolve invoice discrepancies quickly and ensure smooth transactions.
• Utilise Data Analytics: Use data analytics to gain insights into spending patterns and identify opportunities for cost savings. Analysing payment trends can also help in negotiating better terms with suppliers.

Details to Determine in Your AP Process

Several details should be determined in the AP process to ensure efficiency and accuracy:

• How data may be shared and entered: Establish protocols for data entry and sharing to prevent errors and ensure all information is accurately recorded.
• Terms of payment and discounts: Define payment terms and any applicable discounts to optimise cash flow and reduce costs.
• How to proceed upon receipt of an invoice: Develop a procedure for handling invoices as they are received, including validation and approval steps.
• The approval procedure for invoices: Create a clear, structured process for approving invoices, specifying who is responsible for each step.
• What to do when suppliers fail to adhere to contract conditions: Set up protocols for handling non-compliance with contract terms, including communication and resolution strategies.
• The procedure for dealing with late supplier deliveries: Establish steps for addressing late deliveries, including how to handle payments and any potential penalties.

Establish Supplier Portals

Establishing supplier portals enables suppliers to monitor the progress of orders, delivery timelines, possible product shortages, and payments received online. These technologies also reduce manual mistakes, resulting in increased order accuracy.

A vendor portal functions as a go-between for your business and its suppliers. Your business agrees on a set price for the goods, and the supplier ensures that the inventory stock level is maintained in accordance with your specifications. Suppliers can manage inventory supply, receive automatic payments, and more via the vendor portal, simplifying your company’s AP procedure.

Benefits of Supplier Portals

The following activities should be established so that suppliers can monitor your business’s performance:

• Product shortages that may occur: Suppliers can proactively manage inventory to prevent shortages.
• Order status and scheduled delivery: Real-time updates on order status and delivery schedules enhance transparency.
• Received funds: Suppliers can track payments and reconcile their accounts efficiently.

Setting up supplier portals not only aids in managing AP but also in streamlining electronic invoice approvals. Such portals enable suppliers to monitor various aspects like order progress, delivery timelines, potential product shortages, and the status of their invoice approvals.

Overall, top-tier AP automation systems come with supplier portals as basic functionality. Suppliers may instantaneously transform (or “flip”) electronic purchase orders received through an online portal into an electronic invoice that goes directly to the buyer’s enterprise resource planning (ERP) system, without the need for operator participation. Besides, electronic submissions of shipping notifications and other regular activities are also possible through an online portal.

Centralise Your AP Process

Centralising AP operations and reporting throughout the company via a shared service environment ensures that all personnel adhere to similar procedures and standards and that performance is measured against specified business metrics. Additionally, this enables you to complete more activities in less time and with fewer staff members, thereby lowering corporate expenses.

Enhancing Financial Reporting

Ensure that financial reports are current and accurately reflect current AP balances. Enhance real-time reporting capabilities through automation and maintenance. To boost the procedure, adhere to the following actions:

• Maintain accurate records of all payments: Keep detailed records to ensure all transactions are tracked and reconciled.
• Choose a payment method: Select appropriate payment methods to optimise cash flow and reduce processing times.
• Validate supplier invoices against contract requirements: Ensure that invoices match contract terms to prevent discrepancies and disputes.
• Ensure that purchase orders are accurately billed: Verify that all purchase orders are correctly billed to maintain financial accuracy.

Centralising AP operations and the invoice approval process ensures uniformity across the company. This not only enhances efficiency but also ensures that all invoices go through a consistent approval procedure, maintaining clarity and transparency.

Automate Your AP Process

Transitioning to AP automation and a paperless invoice approval system has its merits. The Institute of Finance and Management (IOFM) estimates that only 9% of AP leaders questioned indicate their department is completely automated with few or no human operations. Besides, 33% of AP divisions have limited automation, and 14% of AP departments generate invoices and pay vendors in a purely manual setting.

Benefits of AP Automation

AP automation enables organisations to benefit from speedier payments and healthy cash flow. Due to the automated nature of the procedure, all paperwork and payments are exchanged in an automated environment, eliminating the need for human operations. All financial reports, including those about overdue payments, invoice ageing, estimations, purchase orders, and taxes, are available for study. It reduces the cost of processing invoices.

Depending on the amount of automation you choose, you may even be able to automatically scan invoices, track delivery receipts, and handle disputes electronically rather than by human follow-up.

Cost Savings with AP Automation

Based on findings from IOMA, the average cost of processing an invoice in an environment with a low degree of automation may be up to 20 times higher than the average cost of processing an invoice in an environment with a high level of automation.

While expenses differ considerably, Goldman Sachs estimates that the overall cost of processing a single invoice manually by AP personnel is $16.00 for medium-sized enterprises and $22.26 for small businesses. These figures decreased to $5.89 and $6.89, respectively, representing a net savings of around 60-70%.

Tasks Automated by AP Automation

An enterprise may use an electronic payables system to execute a range of operations that save significant time, such as:

• Executing purchase orders automatically: Automate the creation and processing of purchase orders to streamline procurement.
• Maintaining an inventory of received products: Keep accurate, real-time records of inventory levels.
  Accepting and validating invoices: Automate the receipt and validation of invoices to reduce errors and processing time.
• Approving purchase orders: Streamline the approval process to ensure timely and accurate order fulfillment.
• Paying bills on time: Automate bill payments to avoid late fees and maintain good supplier relationships.

Enhancing Your Invoice Approvals Process

In every modern enterprise, the importance of invoice approvals cannot be understated. Ensuring timely and efficient approvals is key for a streamlined financial process. With advancements in technology, there are innovative ways to manage these approvals, such as the paperless invoice approval system and electronic invoice approval methods.

• Embrace Electronic Invoice Approval Methods
  Opting for electronic invoice approval mechanisms can significantly speed up the process, reduce errors, and provide a digital trail for every transaction.
• Implement a Paperless Invoice Approval System
  Transitioning to a paperless invoice approval system not only reduces the dependency on physical paperwork but also ensures a more environment-friendly approach, reducing the carbon footprint of your financial operations.
• Regular Training and Updates
  Ensure that the team is well-versed with the nuances of the electronic invoice approval process and the paperless invoice approval system to maximise efficiency.
• Audit and Feedback
  Periodically reviewing the invoice approvals process helps identify areas of improvement and ensures that the system remains robust and efficient.

To stay competitive in this evolving business landscape, organisations must adapt and incorporate these modern invoice approval methods, ensuring both efficiency and accuracy in their financial operations.

Invoice Approval Process Steps

The approval process typically involves several steps:

1. Invoice Receipt: The invoice is received and entered into the system.
2. Validation: The invoice is validated against purchase orders and receiving reports to ensure accuracy.
3. Approval Routing: The invoice is routed to the appropriate personnel for approval based on predefined rules and thresholds.
4. Payment Authorisation: Once approved, the invoice is forwarded for payment authorization and subsequently processed for payment.

Importance of Invoice Approval to the AP Process

Invoice approval is a crucial element of the AP process. It ensures that only legitimate and accurate invoices are paid, preventing fraud and errors. Efficient invoice approval can lead to:

• Better Cash Flow Management: By ensuring that only approved invoices are paid, businesses can better manage their cash flow and avoid overpayments or duplicate payments.
• Timely Payments: A streamlined approval process helps ensure that invoices are paid on time, which can improve relationships with suppliers and potentially result in better payment terms.
• Improved Financial Accuracy: Accurate invoice approval helps maintain the integrity of financial records, ensuring that expenses are recorded correctly.
• Fraud Prevention: A rigorous approval process helps detect and prevent fraudulent invoices, protecting the company from potential financial losses.

How to Improve the Invoice Approval Process

• Implement Automation: Use electronic invoice approval systems to streamline the approval workflow and reduce manual errors. Automated systems can route invoices to the appropriate approvers based on predefined rules and thresholds.
• Set Clear Approval Guidelines: Establish clear guidelines and criteria for invoice approval to ensure consistency. Define who is authorised to approve invoices and under what conditions, and communicate these guidelines to all relevant personnel.
• Use Workflow Management Tools: Employ workflow management tools to track the status of invoices and ensure timely approvals. These tools can provide visibility into the approval process, allowing managers to identify and address bottlenecks.
• Enhance Communication: Improve communication between departments involved in the invoice approval process to ensure swift resolution of any discrepancies. Regular meetings and a shared platform for tracking invoices can facilitate better coordination.
• Regular Audits and Reviews: Conduct regular audits and reviews of the invoice approval process to identify areas for improvement and ensure compliance with company policies and regulatory requirements.

Ready to Enhance Your AP Process?

Setting up an automated AP process and managing it in-house can be challenging for busy business owners. Nonetheless, you can speak with a Kefron expert to learn more about AP Automation. By focusing on these areas, businesses can optimise their accounts payable operations, enhance efficiency, and maintain strong financial control.

How to Improve the AP Process

The easiest and most effective way to improve the Accounts Payable (AP) process is by adopting AP automation. Automation simplifies and streamlines the entire process, reducing the need for manual intervention and minimizing errors. Transitioning from paper-based systems to digital platforms is the first step towards AP automation. This not only speeds up the process but also reduces the risk of lost or misplaced invoices. Digital platforms enable efficient handling and storage of invoices, making them easily accessible for review and audit. Additionally, integrating your AP automation tools with your accounting software allows for a smooth flow of data between systems, maintaining a single source of truth and avoiding duplication of data entry. This integration enhances financial control and reporting accuracy.

Kefron AP Automation for Advanced AP Process Automation

Kefron AP Automation leverages AI technology to transform accounts payable processes, offering an efficient, accurate, and compliant solution. By automating the entire invoice processing workflow—from receipt to payment—Kefron eliminates manual tasks, reducing processing times and errors. The system seamlessly integrates with existing ERP systems, ensuring smooth data flow and maintaining a single source of truth.

AI-powered Optical Character Recognition (OCR) and Intelligent Data Capture (IDC) accurately extract data from invoices, regardless of format, enhancing data entry speed and precision. A paperless invoice approval process further streamlines operations, allowing suppliers to submit electronic invoices directly through a vendor portal, which integrates with the company’s ERP system.

Kefron’s automated workflows route invoices to the appropriate personnel based on predefined rules, ensuring timely approvals and improving cash flow management. Real-time reporting and analytics provide valuable insights into AP operations, enabling better decision-making.

By adopting Kefron’s AI-driven AP Automation, businesses can significantly enhance efficiency, accuracy, and financial control, positioning themselves for sustained growth and success in a competitive market.

Final Thoughts

Without a doubt, accounts payable (AP) is one of the most critical functions in every modern enterprise. Ensuring timely invoice approvals is essential for maintaining smooth operations and healthy cash flow. Thus, improving your AP process signifies a core avenue for business growth. Although change might seem daunting, cultivating an optimized AP approach can pave the way for significant advantages.

Businesses must adopt a more strategic approach to managing their operations in today’s competitive environment. Ensuring prompt electronic invoice approval is vital, as companies are under constant pressure to perform optimally. Effective cash flow management is critical and must be handled with precision. Transitioning to a paperless invoice approval system is crucial for maintaining a clear cash flow picture.

Setting up an automated AP process and managing it in-house can be challenging for busy business owners. Nonetheless, you can speak with a Kefron expert to learn more about AP Automation.