8 Accounts Payable Problems & How Automation Can Resolve Them

One of the most challenging functions in the finance & accounting space is accounts payable. Problems like high processing costs, human errors, and sluggish approval times can significantly impact a company’s operations and bottom line. We’re sure that you’ve heard of automation and the benefits it can offer, such as reduced costs, time savings, and enhanced accuracy, among others. But, did you know that automation can also impact a company’s bottom line positively?

Let’s take a look at 8 common AP-related issues and how automation can solve them.

1. LIMITED NUMBER OF RESOURCES

Generally, accounts payable departments run lean. However, staying lean can impact a company’s ability to scale. Additionally, lean models tend to rely on a single individual or a particular team to solely handle all AP functions, which can easily lead to disarray in their absence.

Solution: Automation can enable a seamless workflow of all AP activities, which allows teams to stay lean while performing at a high level. Additionally, electronic invoicing and storage can enable quick accessibility via a central location to all stakeholders.

2. LONG INVOICE PROCESSING TIME & DELAYED PAYMENTS

Paper-based, manual invoice processing can slow down approval processes, increase chances of human error, and potentially result in slower payments. Delayed payments can lead to late-payment fees, shipping delays, and affect credit ratings. Additionally, invoices can get lost or be misplaced if they are physically transported to approvers, which in turn increases costs.

Solution: Intelligent automation of the AP workflow can improve efficiency, speed up processing time, offer higher accuracy, and help optimize payment cycles. This in turn allows businesses to avoid late fees and improve cash flow. Furthermore, early payment discounts can enable significant savings. Increased efficiency will also free up more time for AP teams to focus on other value-add tasks and strategic initiatives.

3. LACK OF VISIBILITY & ACCESS TO FINANCIAL DATA

Legacy systems make it difficult to quickly gain access to important financial data, such as outstanding vendor payments, current expenses, and more. Furthermore, siloed data and lengthy timelines for accessing data can hamper financial reporting and in turn, business growth. Finance leaders will find it challenging to make strategic and tactical decisions in the absence of crucial financial information.

Solution: Automation can enable instant access to financial data through a single repository of documents and system integrations. With enhanced visibility and control over rich datasets, finance leaders can easily identify gaps and business opportunities. Furthermore, AP teams can better evaluate internal processes, make quick adjustments to boost productivity, and measure overall efficiency.

4. INVOICE PROCESSING IS EXPENSIVE

Manual invoice processing can get expensive. In fact, it can cost up to $15 to process a single invoice. So, if your business processes hundreds or even thousands of invoices regularly, it can become extremely expensive in the long run. Manual processing is also a time-consuming, labor-intensive process that is prone to errors and duplicate payments.

Solution: Automation can offer significant cost savings for your business by eliminating manual and paper-based processing altogether. Labor-intensive, repetitive invoice-related tasks, such as opening, sorting, routing, reviewing, approving, validating, and processing can easily be automated, thereby saving costs and time. Furthermore, e-invoicing paves the way for minimal to no errors, eliminates payment delays, and boosts efficiency.

5. REGULATORY COMPLIANCE ISSUES

Everchanging taxation and legal regulations make it difficult to maintain 100% compliance at all times. If you add paper-based invoices to the mix, auditing becomes challenging, documents can get lost or damaged, and incorrect reviews or approvals can lead to strict action or fines.

Solution: Automation eliminates several compliance-related issues, such as incorrect data, untracked documents, manual errors, and lost documents. Automatically logging access, approvals, changes, and sharing of invoices will improve compliance, while financial data security can be tightened with the help of customized access restrictions.

6. DATA ENTRY ERRORS

Manual processing, especially when you are dealing with laborious and repetitive tasks, is prone to human errors. In the long run, simple mistakes can quickly become costly. Correcting these mistakes will require added time and costs, thereby reducing business efficiency.

Solution: Automated data entry helps reduce errors and decrease processing time significantly. Optical character recognition can scan and digitize paper invoices while electronic invoices can directly be imported into the accounting software. Furthermore, e-invoices make it easier to review, approve, and collaborate with different team members, especially in today’s remote working world.

7. POTENTIAL FRAUD & THEFT

According to Association of Certified Fraud Examiners (ACFE) report, a typical organization loses 5% of its revenue to fraud every year, with a median loss of $125,000. This clearly shows that fraud is a pressing issue that negatively impacts AP functions. Check fraud and email scams are two major threats faced by AP teams. Lack of relevant security measures and utilization of legacy systems along with manual processing further increases risk of fraud, which in turn can cause significant financial loss for a business.

Solution: Automation utilizes custom controls to enforce payment-related policies and triggers that will notify a business of suspicious activity. Additionally, fraud detection features enable businesses to have greater control over preventing frauds. By weaving security controls into the software, you can make sure that the AP team rigorously adheres to the best security practices.

8. MATCHING ERRORS

AP teams match invoice data with company data, like purchase orders and delivery receipts, using a process called invoice matching. Generally, matching a single invoice with multiple documents containing multiple line items can further increase processing time and potentially cause several mistakes. Duplicate payments, missed payments, and incorrect payment amounts are a few common problems caused by matching errors.

Solution: Three-way matching can help reduce matching errors. In this process, each invoice will be matched against the purchase order and the actuals of goods or services received by a business. Automating this process ensures that the matching happens rigorously and with high levels of accuracy. The automated software can align and automatically approve matching invoices and flag exceptions once purchase orders, receipts and invoices are entered into the system. This will allow AP teams to schedule approved invoices for payment and focus more time on dealing with exceptions.

Conclusion

Relying on manual accounts payable processes can be extremely time-consuming, costly, and labor-intensive, which can in turn hamper business efficiency and productivity. Digitization and automation can enable businesses to optimize their AP functions and in turn, improve bottom lines.

Are you on the lookout for a partner who can help automate your accounts payable function? QX can support your AP automation and F&A transformation initiatives.

Learn how QX transformed the accounts payable process for one of the world’s largest beverage producers & distributors here.

Get in touch with our experts for personalized advice on how to transform your accounts payable function.

Originally published Aug 10, 2021 11:08:18, updated Jul 02 2024

Topics: Accounts Payable Automation