Accounts payable represents one of the most important areas of an organization’s accounting operations. As with all accounting tasks, accuracy and payment tracking is vital, but achieving consistent accuracy and maintaining detailed tracking is far easier said than done.
This reality prompts many companies to look into the possibility of accounts payable (AP) process automation.
The Benefits of Automating AP Processes
There are numerous benefits associated with automating AP processes, beginning with the elimination of human error. Human error accounts for a large portion of the accounts payable-related issues that arise on any given day. Automation largely removes humans from the equation, resulting in a level of accuracy that surpasses what even the most experienced accountant can achieve.
Automating AP processes can bring the following benefits to an organization.
- Improve payment tracking capabilities
- Streamline cash flow management processes
- Better ability to negotiate pricing discounts
- Consistently get early payment discounts
- Improve overall AP process efficiency
- Get the lowest possible shipping and delivery rates
These are a few of the advantages an organization enjoys when they automate accounts payable processes. With so many benefits in play, many companies find that they recoup their investment and see a healthy ROI within a very reasonable time frame.
How Does Automating AP Work? – Examples of Accounts Payable Automation
For some, “automation” is a technical term that feels rather foreign and unrelatable. But a few AP automation examples can bring the potential benefits — including the financial benefits — into sharper focus.
Example one: Let’s say your company implements accounts payable automation software that tracks payment terms, allowing your business to take advantage of early payment discounts. With AC automation tools, you are empowered to avoid leaving money on the table.
For instance, the payment terms for a specific supplier may be 2% 10-net-30. But if your company fails to submit a payment within the given timeframe of ten days, you will miss out on that 2% discount. While it may not seem like a lot of money, that 2% discount can really add up over time. This is especially true if your organization routinely negotiates those terms or deals in large quantities/high volumes. In the latter scenario, 2% may represent hundreds or even thousands of dollars.
Additionally, AP automation software can alert an organization’s accounting staff to issues that may require their attention. For example, automation tools can be configured to flag an invoice that represents a departure from the contractually agreed upon pricing model. An accountant could easily miss this sort of thing — especially if the variance is slight or if they are not familiar with the pricing agreement with a particular supplier, contractor or vendor — resulting in a potentially-avoidable overpayment.
AP automation software is also very effective for tracking volume-based discounts. The savings for buying in bulk can be significant, but suppliers and vendors may not always apply the proper discount to your invoice. Fortunately, a well-built automated accounts payable software platform will include tools that will ensure the agreed-upon discounts are consistently applied to your invoices.
For organizations that are shipping lots of parcels, accounts payable automation can be very effective in helping you find the lowest rates. Today’s best AP automation solutions can compare your current rate to the shipping rates for a variety of different shipping companies, including a company that you have negotiated pricing with. This comparison allows you to determine if you are paying a fair market rate or whether you are overpaying. In some cases, you could find that you are getting a great deal, paying less than the average shipping rate.
Using AP Automation to Your Advantage
Automation brings many potential benefits to a business, from improving efficiency and helping avoid human error, to ensuring price accuracy and maximizing discounts for early payment and high volume purchases. The advantages of accounts payable automation can result in a significant ROI in fairly short order.
Not all AP automation technology is created equal. Therefore, an organization must invest some time and effort into finding an automation solution that fulfills the needs of their accounting division. iTech specializes in today’s most in-demand and emerging technologies. Contact the iTech team today and together, we’ll develop strategies to ensure that your business is making the most of its data.