Structuring the Optimal Accounts Payable Department
The accounts payable department streamlines its operations by using accounts payable automation software. The way that accounts payable handles core business processes is changing rapidly. To get ahead of the curve and adapt to these changes, consider a new organizational chart structure for the AP department. Shifting roles for AP better aligns with financial management’s analytic and strategic goals.
The accounts payable department is responsible for:
- processing and paying approved vendor invoices,
- obtaining W-9 or other tax identification information from suppliers,
- processing and paying valid and approved business-related travel reimbursements or small expense reimbursements not charged on a business P-card) to employees, and
- preparing financial reports related to accounts payable.
The overriding objective in structuring or restructuring your accounts payable department is preventing fraud through the separation of duties both inside and outside the accounts payable department structure. Proper segregation of duties is a requirement for good internal controls. Another objective is matching responsibilities and roles with a redefined automated accounts payable process workflow.
Both objectives will save your company money and improve cash flow. The second objective also yields impressive time savings:
- by reducing or eliminating manual invoice processing for each account payable,
- stopping repetitive vendor inquiries about invoice payment date requiring follow-up,
- and removing inefficient workflow process bottlenecks.
Accounts payable automation software works for a broad spectrum of business sizes, from small businesses to enterprise companies. The seamless integration of a SaaS software app with your accounting software system scales up with your company as it grows.
Segregation of Duties of Accounts Payable Department and Good Internal Control
Although achieving strong internal controls is the goal for businesses of all sizes, it’s more difficult for smaller businesses. Startups and businesses with a limited number of employees can’t separate duties to the extent that larger, more established companies can. As they’re growing, startups will hire to adequately staff departments, achieving better internal controls.
Separation of duties should include the following to prevent paying fraudulent invoices and expenses:
|Task||Outside Accounts Payable||Inside Accounts Payable|
|Issuing purchase orders||✓|
|Establishing vendor master file and adding vendors with vendor name and contact information||✓|
|Preparing receiving reports as goods are received||✓|
|Processing and collecting accounts receivable||✓|
|Processing vendor invoices in the payable system||✓|
|Matching invoices, purchase orders, and receiving reports||✓|
|Approving vendor invoices for payment||✓|
|Evaluating which early payment discounts make sense||✓|
|Communicating with vendors (suppliers)||✓||✓|
|Paying vendor invoices in batches or via “bill pay”after vendor payment approvals (with good early payment discounts or timely payment terms considering due dates)||✓|
|Generating financial reports for cash requirements and cash disbursements||✓||✓|
|Reconciling accounts payable to the general accounting ledger||✓|
|Receiving, processing, and monitoring W-9 supplier tax forms for compliance||✓||✓|
|Handling the petty cash fund, including small cash disbursements as business expense reimbursement||✓|
|Monitoring, approving, and bookkeeping for the petty cash fund||✓|
|Preparing checks to replenish the approved petty cash fund requests (with expense reimbursement vouchers attached)||✓|
|Approving travel reimbursement reports||✓|
|Paying travel and business expense reports payments||✓|
|Approving and reconciling purchasing cards (P-cards) for office supplies and other business expenses||✓|
|Paying purchasing card (P-card) credit cards or debit cards||✓|
The above table also answers the question: What are the duties of the accounts payable department? Checked items in the Inside Accounts Payable column cover the entire accounts payable cycle. These internal control considerations include both businesses that perform manual data entry of vendor invoices and companies that run efficient and secure AP automation software using electronic documents.
Accounts payable automation software offers not only time-saving and cost-saving but also improved internal control features. Ten Internal control enhancements from AP automation software are:
- improved system security,
- supplier verification through a KPMG system,
- self-service supplier onboarding, submission of contact information and W-9 forms, and uploading of vendor invoices,
- the reduction of data inaccuracy caused by human error,
- better (automated) recognition of duplicate invoices,
- improved identification of inactive vendors in the vendor master file for recommended deletion to lessen fraud risk,
- a stronger approval process for payments,
- better visualization of spend management,
- automatic reconciliation of accounts payable to the general ledger for more timely and accurate financial statements,
- built-in audit trails.
This list of internal control improvements from accounts payable automation software is not all-inclusive. You’ll discover more ways to improve internal controls.
Guide to Running an Efficient Accounts Payable Department with AP Automation Software
Changing the accounts payable department structure requires buy-in at the CFO or Controller level and the accounts payable management level. It may also require approval at the CEO level in smaller companies.
Another term for this type of organizational restructuring is business process re-engineering (BPR).
Change management means excellent planning and communication with everyone in the organization who will be affected. Planning includes the selection of Tipalti as the best SaaS accounts payable automation software. Watch a Tipalti demo and accounts payable tutorial, read Tipalti FAQs, and look at Tipalti’s online 24/7 Knowledge Base user guide to understand the AP automation features. Then you’ll have information to focus on roles, change accounts payable job descriptions, and reduce the staff hiring budget to reflect labor hours saved through automation. If you need more information, contact Tipalti.
AP automation software uses robotic process automation (RPA) by applying standard rules to routine accounts payable processes. Automation and robots may scare some members of the accounts payable staff who fear the loss of their jobs when work is automated with new systems. The communication should focus on how accounts payable automation software will eliminate many frustrating tasks that prevent the AP team from getting their job done. Accounts payable examples of time drains are:
- responding to constant hounding of incoming vendor calls about when they’ll receive payments,
- following up repeatedly with approvers to get invoices approved,
- chasing down lost paperwork,
- manually keying in data, including invoices, and
- requesting missing W-9 information from vendors.
These challenges in the accounts payable department can be easily overcome through AP automation to reach accounts payable department goals and objectives.
When communicating, share stories about how the accounts payable team can elevate its job. New functions of the accounts payable department include monitoring the RPA and payables processes and analyzing data to suggest potential cost savings.
The time and cost savings will convince finance and accounting. Time savings include not having to reconcile accounts payable to the company’s balance sheet (general ledger) and closing the books faster. Cost savings translate to positive software investment ROI. And the CFO will save time on vendor invoice payment approvals and improve cash flow management.
Positive ROI from using the Tipalti AP automation app easily justifies the investment. AP automation software can save 80% on supplier invoice processing and help accounting close the books 25% faster. That frees up more time for value-adding strategic initiatives, decision-support, and financial analysis & planning (FP&A). Your company will also save money by taking worthwhile accounts payable discounts (like 2/10 net 30) and not paying duplicate or fraudulent invoices.
The next challenge is how to structure the accounts payable department optimally when using an AP automation software app. Try using these 7 steps for how to organize the accounts payable department in a new small business or restructure your existing accounts payable organization:
- Assign each designated accounts payable task or role in the above table to a job.
- Update each accounts payable job description to remove manual task processing from necessary automated accounts payable department duties.
- Add new RPA and payables monitoring and analytic responsibilities to the accounts payable department functions.
- Decide how many hours will be saved in performing accounts payable department responsibilities by each job.
- Assign the number of AP staffers required to fill each job role.
- Reassign current staff to new positions in accounting or other business departments if their job is downsized.
- Revise your budget to reflect future hiring reductions, offset by increased staffing you’ll need to process and pay for more supplier purchases as your company grows.
Managing the accounts payable department through the implementation of AP automation software is a small challenge. You’re on the way to achieving substantial cost savings and internal control improvements for your business.