How to Get the Most out of Accounts Payable Software
The accounts payable department must perform numerous time-consuming and tedious activities. From vendor invoice processing to the approval of payments, each activity requires its own workflow. Streamlining these workflows with accounts payable automation software is crucial to efficiency and productivity. Most importantly, it leads to a better bottom line.
8 Tips for Using Accounts Payable Software
Read below to learn eight reliable tips for getting the most out of your AP automation software. These tips have the potential to expand the long-term viability of your business and improve vendor relationships.
Accounts Payable Stats You Need to Know (1)
- Manual invoicing involves an average of 15 steps before the final posting is completed.
- Manually processing invoices can cost 20 times as much as automated invoicing with accounts payable software.
- You can save as much as $16 per invoice with accounts payable software.
- Only 14% of paper invoices are inputted on the same day they are received.
- It takes more than five days for an invoice to reach the accounts payable department in businesses that exhibit low levels of automation.
- Investing in accounts payable software will usually pay for itself within six to 18 months.
- Businesses using accounts payable software tend to process four times the number of invoices when compared to those without the software.
- Accounts payable software can slash the invoice processing time by as much as 17 days.
- The majority of corporate fraud takes place within the accounts payable department. Accounts payable software reduces the risk of fraudulent activity.
1. Define Approval
Give accounts payable department employees a clear explanation of their expected duties to improve the AP process. For example: Designate certain employees to approve budget spending and others to pay invoices related to completed work. Some workers may have no approval authority and will simply input invoices. Outlining each person’s role minimizes confusion and ensures you get the most out of AP software.
Using the RACI model is an effective way to outline everyone’s responsibilities:
- The person(s) Responsible for each AP activity;
- The person(s) Accountable for final approval decisions;
- The person(s) to be Consulted before approval is given;
- The person(s) to be Informed once the approval has been made.
2. Create Standardization
The faster the AP department can complete AP tasks, the quicker the invoices can move from the input stage to a paid status. All invoices should be matched and added to the AP software on the day that they are received. Creating a standard that keeps them organized according to the closest due date optimizes your ability to pay them on time. Use an AP aging report feature to achieve this goal and to pinpoint overdue invoices.
If you have already implemented an ERP system, this process will be considerably more streamlined.
3. Review the Supplier Database
AP automation software reduces paper invoices, but it can still get messy to work with when you don’t clean it up from time to time. Have the AP team review the supplier list every three to six months to see which suppliers have become inactive; these are suppliers that haven’t been issued a payment within the past year. Next, remove these suppliers from the supplier database.
Before removing them, though, make sure they appear in the supplier registry. You will need their names and contact information for tax purposes. Use the AP software’s data archive feature to store supplier information offline.
4. Set up Reminders
Gone are the days of the AP department having to contact the marketing manager again and again to approve an invoice. AP software sends reminders to the appropriate entities for you. Make sure reminders are set to be issued on an every-other-day basis a week before the invoice is due and on a daily basis once it has become past due.
5. Use the 5W1H Approach
The 5W1H approach — who, what, where, when, why, and how — is an analytical strategy the AP department can use to promote transparency. When applied to AP software, the 5W1H approach provides insightful answers to the following questions:
- Who is doing what?
- Where are they doing it?
- When are they doing it?
- Why are they doing it?
- How is the software helping them do it?
Knowing the answers to these questions provides better visibility across AP workflows. You can use them to make rule changes and ultimately improve the AP process.
6. Make Approval Easy
No one wants to approve an invoice when it involves multiple steps. Setting up the AP software to simplify the approval process will motivate workers to approve invoices quicker. For example: Set the AP software to send out an email at the beginning of the week that alerts the payer of all invoices due within the next seven days. The payer can click on a button within the email that directs him or her to the software dashboard, where an “Approve All” button exists. This simplifies the approval process.
7. Create a Category for Early Payment Discounts
Some vendors will provide discounts for early payments. Make sure to create an “Early Payment” category in the AP software and input applicable invoices there. This provides a clear picture of where you can save money. This is particularly important if you do repeat business with a vendor. Paying the invoice early every week or month could save a significant amount of money.
8. Create a Cash Reserve
Use your AP software to create a cash reserve. Allocate money to the reserve to pay invoices that are nearing past due. You may have months go by when you don’t need to tap into it, and then you may have a month where it covers all of your invoices. You can use early payment discounts as a funding method for the cash reserve.
Conclusion
Using AP software that allows mobile on-the-go access is another way to boost AP department productivity. You might find the whole “streamlining your AP workflows” to be a daunting task, but it certainly improves the efficiency of your operations. Most importantly, it increases profits by lowering overhead AP expenditures and creates a work environment where no one dreads approving an invoice.
Sources
- https://www.vansystems.com/2016/09/27/20-shocking-accounts-payable-stats/
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