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Creating AP Efficiencies Minimizes Payment Hassles

Read Time: 3 minutes

Bills are an essential part of business. As a small business you might be able to get away with time-consuming data entry, paper invoices and tallying through spreadsheets. But the bigger you grow the more the invoices. Big corporations can have many thousands each month, needing a specialized Accounts Payable Department. It is responsible for vendor approvals, invoice processing and payments. Several different workflows are involved but surprisingly it is one area that is slow to adopt AP best practices for process efficiencies.

1.Central your invoice receiving and processing

Some companies with multiple locations tend to duplicate efforts and functions by having separate AP teams at each location. A centralized team has many advantages over such a decentralized team and it is not just in terms of costs.

When all invoices are received in one location and handled by one team then the volume of bulk purchasing from one central location can reduce the per unit cost price that would definitely be higher for smaller purchases at different branch offices. It makes it easier for the vendor too as they need to deal with a single invoice even if delivery is at different locations.

A centralized accounting staff also means a leaner well-trained team and processes are easier to implement. Studies show that a centralized team has a per bill processing cost that is $2 less than that of a decentralized team leading to a substantial annual cost savings.

2. Two and three way PO matching

One of the best controls in Payables is the introduction of 2-way and 3-way PO match. It is essentially a check that prevents incorrect or even fraudulent invoices. Matching is part of an online approval process that matches goods and services against a purchase order (2-way). The invoice is considered successfully matched within tolerance if

  • Quantity Billed in invoice is less than or equal to Quantity Ordered on Purchase order
  • Invoice Price does not exceed the Purchase Order Price

In a 3-way matching, an additional criterion is added – invoices are matched with purchase order as in 2-way but it goes one step further to match with the receiving information as well.

  • The Invoice Quantity Billed is less than or equal to the Purchase Order Quantity Received

Most organizations prefer the 3-way PO since the quantity gets into the system before the invoice is generated. This keeps the PO information updated.

3. Automate anywhere you can

Manual and paper processes can severely affect the whole process flow. Apart from being time consuming, misplaced documents or a document pile-up is often a reality. There is also no visibility of where the work is at any stage of the workflow. Given that it is critical to company fiscal health, it is important to consider moving to Accounts Payable (AP) Automation.

AP Automation starts with using Optical Character Recognition (OCR) to scan paper invoices into an electronic format or parse email invoices. It will then manage the coding and routing of invoices through the workflow specific for each business. It is called a “touchless” automation process since it is conditioned to work without any manual intervention. In fact, Accounts Payable Automation can even integrate seamlessly with ERP systems providing a transparency and flawless reporting environment meeting all security compliances. Most AP Automation Software have a reported ability of reducing downstream errors by 80 to 95%.

4. Outsource data entry to expert vendors trained in your process

Forget investing in the latest hardware and software. Data entry service providers will offer you top accounts payable software and also a ready and experienced staff. An added benefit is that the outsourced team will always be current with the best practices in the industry that your team might not be. These advantages are supported by the Deloitte Outsourcing and Insourcing survey a couple of years ago. It showed that 41% of companies had already outsourced their AP processing.

When evaluating data entry outsourcing companies, there are a few pitfalls businesses should be aware of. Some firms that have till now been offering call center resources or offshore technology support have now positioned themselves as accounting firms. Cheaper costs comparable to other outsourcing firms can often be due to less experience in the process.

It’s important to ensure efficiency through a Contracted Service Level Agreement (SLAs). This will guarantee that the data entry services are organized according to parameters agreed on. Another item that should be discussed is the level of reports your company will be looking for. Businesses that have negotiated an integrated-and customized end-to-end accounts payable process have seen a good ROI. Aberdeen Group reports that companies that have outsourced their AP process have an increased efficiency of 59% over those that don’t. There is also a cost saving to the company between 30 to 50%.

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