5 Simple Strategies To Automate Your Accounts Payable

11/30/2022
  1. 5 Simple Strategies To Automate Your Accounts Payable

Are you unsure of how and why to automate your accounts payable process? We've got the low down for you.

Getting your accounts payable to run smoothly is crucial for the growth of your business. Accounts payable refers to any amount of money that your company spends - essentially, outgoing money. This includes current liabilities, such as short-term payments and regular outgoing payments, such as office space rental fees..

As all businesses will incur expenses simply through their operation, it’s crucial to have a defined system in place to track your spending. Otherwise, it's easy to let things slip through the cracks, miss payments and damage relationships with your suppliers and vendors.  And if you don't know how much money is leaving your business, you could end up in hot water and find it difficult to handle your financial responsibilities. 

It's not good enough to simply implement an accounts payable process. Yes, that should be the first step and it will certainly help you improve your cash flow, build a stronger business credit score and increase your credit limit. But if you go about it using manual processes, it'll be tough to scale your business growth. 

This is where automation will do wonders for improving your financial performance. Not only will it remove the heavy lifting of monotonous tasks, but it will also reduce the number of errors and duplications that often occur. Best of all, it will give you full visibility of your outgoing payments, when recurring payments are expected each month, how much will come out of your business account. The more you know about your outgoing expenses, the better equipped you'll be to keep your cash flow healthy.

Business expenses
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1: Switch from paper to digital invoices

Digital invoices can be a real game changer for your finance team. It may sound simple, but it really can do wonders. If you’ve spent any time working with invoices, you already know how time-consuming collecting, reviewing and approving invoices can be. This is because it's quite common for invoices to have errors on them - whether it's the billing amount, payment address, bank details or PO number.  So, it makes sense that you shouldn't rush this process. 

What makes it even more frustrating is that different suppliers and vendors will send invoices in varying formats.. So, you might get a PDF from several suppliers, while others might send their invoices in formats like DOCX and PNGs. What's worse is that some smaller businesses might even send you invoices via fax or in the post. 

On top of confirming everything is as it should be in invoices, you also need to incorporate the invoices into your own accounting system. That's time-consuming and needs to be done carefully. But if you switch to digital invoices and ask your vendors to do the same, then errors will be less likely to occur.

Once set up, the digital invoicing system can organize all the data from invoices, make it easier to find documents, set up recurring payments and prevent lost information.

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2: Build in workflows for seamless approvals

Invoice workflows

While invoice approval is crucial for managing expenses and keeping your cash flow healthy, there are many ways it can go wrong. This is because the responsibility switches from one department to department at each stage, which can often lead to confusion, lost invoices and delayed approvals. 

If you use an automated accounts payable workflow, you can easily route every invoice to the appropriate party effortlessly. For example, under an automated process, an invoice for new inventory would automatically be sent to the person who initiated the purchase order. Once it's checked for accuracy and approved, it will automatically be moved to the financial administrator to confirm pricing. After this confirmation, it can be stored in the archives.

Each person involved can complete their task without interfering with the next person’s job. They're all labeled in the job activity so it's easy to trace approvers and each transaction is properly labeled and categorized.

This means there won't be any lost paperwork, it’s easy to see who has been involved and updates are completed instantly - saving your team and business both money and time.

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3: Use data cleansing software for more reliable data

Manual data entry involves transferring data from various documents into record books, general ledgers and more. On top of being tedious and time-consuming, it's also quite common for it to lead to errors and duplications. 

What's interesting is that many businesses that are reluctant to automate data entry cite cost of buying software as a key reason. But if you think about how much error corrections end up costing, it's more cost-effective to use software. It's also been shown that incorrect data can cost businesses at least 30% or more of their revenue.

This is where data cleansing software can be a lifesaver - tidying up your existing database to flush out errors caused by manual data entry and data decay. This means that old email addresses from past customers will be removed and errors will be highlighted creating better quality data that will help your business grow long-term.

 

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4: Make your general ledger coding less complicated

Just like data entry, complex coding can easily be littered with mistakes, and these mistakes can cost time and money. One comma in the wrong place and suddenly everything stops working.

In an automated accounts payable system, your information will go through a General Ledger Code. This is a unique shorthand version of coding used specifically for accounts and financial systems.

This type of coding is an exhaustive process and aids in identifying a wide range of values for every single invoice. This can include things such as the below and more: 

  • Warehouse

  • Department

  • Freight details

  • Business unit

  • Invoice category

  • Amount

  • Vendor

  • Product line

  • Country code

General ledger

As your business grows, so will your invoices. If you don’t have a solid system from the beginning, you can easily lose control as you expand. Fixing the issue now will save you a lot of time and hassle later.

As your invoices start to mount up, the amount of General Ledger coding will grow to an unprecedented and almost inhumane level - creating a huge and horrific task for the accounting team to tackle manually. 

When a workload is so overwhelming, the chance for an error to occur also grows too. Making the GL coding automated instead of manual can help avoid these errors. 

An OCR system (Optical Character Recognition) can process all the data from every invoice, and GL coding can then be automatically applied at every needed data point. 

When the time comes for you to analyze your spending or get data together for taxes, you will then have everything you need right there.

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5: Automatically match and verify entries

By automatically matching and verifying entries, you’re ensuring that you’re only paying for what you actually ordered. Too often, you'll end up paying for something that isn’t exactly what you asked for. 

If you set up automated matching and verifying systems, you will easily be able to pick up on any inconsistencies. These inconsistencies could be incorrect due dates, amounts of payments, the total of goods, prices per item, and so much more. OCR technology will match purchase order numbers with totals and all the accompanying data to verify the purchases. 

By automating this step, you won’t need to rely on human eyes to point out little errors, which can cost you thousands in the long run. 

The match and verifying process compile the data into matching and inconsistent piles to easily sift through information that needs updating. This gives you peace of mind that information is accurate and alerts you when something is incorrect.

This system will save you time and money as fewer errors are made.

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