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Discover the accounts payable process: steps, challenges, and how to streamline it with AI technologies.
Accounts payable (AP) is one of the most stressful and potentially costly financial processes that businesses have to keep track of. One wrong move and a business can fall behind on vendor payments, muddle invoices, or unintentionally open themselves up to fraud risks.
In this article, we’ll break down the accounts payable steps, some of the key issues that arise with traditional AP approaches, and the best way for businesses to streamline the entire process. Accuracy and speed are crucial in AP, but how can you have one without compromising the other?
Keep reading to find out.
Before we investigate some of the hurdles with AP process, the first question to tackle is “What is accounts payable?”. Simply put, accounts payable refers to any short-term monetary commitments a business has to its creditors, suppliers, vendors, etc. that are still outstanding. The management of this, or the accounts payable process, covers everything from checking invoices to reconciling accounts and making payments according to set deadlines.
Most AP bills fall into the category of needing to be paid in one year or less, though the exact payment terms will differ depending on the agreement set up. For example, some suppliers will insist on payment upon delivery while others will have lengthier time frames. This has to be carefully checked and payments processed quickly enough so that no deadlines are missed.
Looking at a balance sheet, AP are listed as current liabilities but of course, if they’re not dealt with properly, can quickly spiral into long-term debt and cause cash flow issues. It’s why, slowly but surely, many businesses are adopting automation into their accounts payable process. According to a 2022 study, most global AP teams are only partially automated but the stress and time-consuming manner of the work is encouraging further change.
As you can likely imagine, if a bill goes unpaid or is handled incorrectly, it can trigger several issues for a business. The three major issues cause by AP processing challenges include stress to the AP teams, damaged relationships with suppliers and vendors, and delays in the delivery of purchased goods and services. This last aspect can be especially costly for a business as it can prevent them from fulfilling their own orders or customer commitments.
The accounts payable process may be just one part of a business’s accounting duties but getting it right is central to maintaining operations.
The exact steps of the accounts payable process will differ somewhat from business to business, but here’s an overview of what it usually involves and a more in-depth answer to the question, “What is the process of accounts payable?”:
Once the information is validated, an added level of authorization may also need to be dealt with as certain businesses have payment thresholds that need executive approval before transactions can be made.
The accounts payable steps, as you can likely see, aren’t as simple as receiving a bill and then paying it. It’s vital that there are checks and balances in place to ensure that payment information is validated properly and discrepancies avoided. Paying the incorrect amount can accidentally land a business in a squabble with a vendor but on the other hand, taking too long to validate an invoice can lead to a missed payment deadline.
Balancing accuracy and timeliness is the central challenge of the accounts payable process. Compromising either aspect can lead to financial losses and unfortunately, as we’ll explore further in the next section, is an issue that the traditional accounts payable process has yet to overcome.
Ideally, the accounts payable process should ensure that suppliers are paid correctly and on time so that administrative delays don’t stall business operations. The traditional accounts payable process and its reliance on manual data entry and physical documents often mean that businesses are facing something far from the ideal AP process.
These are some of the main problems that tend to arise with a traditional approach:
Manual data extraction and entry is by far the most tedious part of a traditional accounts payable process. Invoices, receipts, and records have to be combed by hand, and each bit of information entered into a central database. It’s repetitive, dull work, and more often than not, a wasted use of skilled employee hours.
Because invoices and receipts are handled differently from vendor to vendor, going through them requires keen attention. It’s a drain on employee time and, unfortunately, often not handled quickly enough to keep up with accounting and payment demands. Speeding up how fast people perform data entry only leads to more errors being made.
In contrast, solutions that help automate data entry solutions such as FormX, can speed things up without compromising accuracy. As a bonus, it also means that employees are freed up to do the jobs they’re actually needed for rather than wasting countless hours on data entry.
Even when manual data entry is performed by the most astute employee, human error remains a risk. This is stressful for AP teams as errors in accounts payable processing can lead to a business falling behind on bills, accidentally damaging a relationship with a vendor, or causing delays with goods deliveries. Automated data extraction is one of the simplest and most effective solutions to this issue, and a way to start streamlining the entire AP workflow.
Because of the errors associated with manual data entry and the sheer necessity that the accounts payable process be performed accurately, most businesses have strict approval and authorization mechanisms built into their systems. Each document in AP has to be matched with the others to confirm that everything lines up.
The problem is that checking every invoice against a payment order and/or receipt is incredibly time-consuming. As a result, it can inadvertently cause delays, especially if an error is found and the whole process is forced to start again. The great flaw here is that one of the central accounts payable steps meant to mitigate against mistakes is the very thing that can cause missed payment deadlines or delayed goods delivery.
It's why something as simple as automating invoice processing and PO data extraction, and the timesaving it offers is so valuable to AP teams. It’s also far easier to check data against each other when it’s handed digitally from a central system.
Most manual accounts payable processes rely heavily on physical documents. AP teams often find themselves overwhelmed with paperwork and forced to spend added time on filing and office organization just to stay on top of things. Excess paperwork also requires more storage and increases the risk of invoices getting missed or lost.
Fraud is one of the most significant risks that a manual accounts payable process poses to a company. Yes, there may be checks and balances in place, but it’s far easier for an internal fraudster to manipulate a manual accounts payable process than one that has automation integrated into the system
A common example of AP fraud is someone on the team creating fictional vendors and invoices that get paid into their own pocket. Vendors and suppliers also need to be monitored carefully. Once a relationship is built with a business, it’s surprisingly easy for vendors to start inflating prices or slipping added services or goods onto invoices that were never actually purchased.
This is why inconsistencies are so important to keep track of and unfortunately, something that a manual accounts payable process continues to struggle with. Human error is one aspect, but human greed is yet another that makes businesses and their AP teams vulnerable to fraud.
“Too much data entry” and slow invoice approval processes have been counted as the chief concerns of most AP teams. Our automation solutions at FormX directly tackle both issues so that the entire accounts payable process is more streamlined and less prone to errors or fraud.
Our intelligent document processing (IDP) tools use AI and OCR technology to automate the extraction of data from invoices, receipts, purchase orders, and any kind of documents with fixed or dynamic layouts.
How our solution works is that people can send images of scanned invoice, PO, or receipt to FormX via API and our technology will return the extracted data as JSON files to your accounting software for further AP processing and automation. The data is extracted far more quickly than it would be manually, which means fewer delays, while never compromising on accuracy. Vendors get paid on time, business relationships are protected, cash flow is easier to manage, and it’s harder for fraudsters to manipulate the system.
If that sounds simple, it’s because it’s designed to be. Our tools can be integrated into existing accounting and financial management software easily via single point of API, or simply use our desktop app for batch processing and upload the csv file generated by FormX. It is also flexible enough that you can build your own no-code extractors, which now requires as little as one to three sample to train, to suit the exact documents and formats your business is grappling with.
If you’d like to take your AP approach to the next level and stop compromising accuracy for efficiency, click here to see FormX in action or chat with our team.