The inefficiency of Accounts Payable (AP) departments has its origins in history. The use of papers that stack up on the inside of your desk with paper invoices, lengthy email chains to get approvals (many with slow responses) and some misplaced forms means the system has been running around with its legacy way from the old days of “snail mail!”
In modernity’s competitive environment, AP needs to go from being a cost center to a strategic function. This modernization doesn't only mean to reduce paper use, but also speed and accuracy, and make most use of relevant data. Here is a how-tos for rebuilding the AP infrastructure from the traditional slow pace of the work to the fast practice.
Digitize the Starting Point: Intelligent invoices collection
The main hindrance in conventional AP flows is the manual information recording process. They need to be collected and entered into using paper, and when they're received, paper invoices are manually recorded and entered into the Enterprise Resource Planning (ERP) system, which leads to misfolds.
- Plan Step: Implementing Optical Character Recognition (OCR) Technology. It screens both paper and digital invoices (PDFs), automatically scraping for the relevant name of the vendor, date, amount, and line items.
- Advantage(s): This significantly reduces processing times while eliminating up to 70% of human data entry errors, ensuring that invoices are entered into workflows in a timely manner.
Standardize the Workflow Process: The Automated Workflow
Once an invoice is captured, you need a clear path to payment. AP departments do not get the job done at this stage, and rely on physical signatures or email approvals that are untested for quality auditing.
- Blueprint Step: Create a rules-based digital workflow process by means of your ERP or one built on AP with a predefined framework to automatically send your invoices to approved budget owners according to certain factors – dollar amount, department, vendor.
- Advantage: Applications can be filled any time on mobile or desktop with no time lag of days or weeks on end, but even hours as you can create an entirely auditable record on a transaction and not need to look for papers.
Improve Verification Mechanisms: Three-Way Matching
Before making payments, it’s important to verify the fact that invoices are comparable to purchasing documentation for purposes of both fraud prevention and accuracy. This verification method — referred to as Three-Way Matching — helps to make sure that payments are made only for items or services that were ordered and received.
- Step Blueprint: Leverage automated Three-Way Matching functions embedded in your system to facilitate proper alignment of invoices and Purchase Orders (PO) and Goods Received Notes (GRN) or service acceptance documentation.
- Advantage: By flagging discrepancies (such as if the invoiced quantity exceeds ordered quantity) for a human review, it enables seamless processing for any of the right matches — and a substantial reduction in errors/leakages in the payment process.
Digital Payment and Reconciliation Streamline Payment Processes
The last stage of AP — payment execution and bank reconciliation — continues to be hand-held by many organizations, which have to print checks or participate in tedious processes for electronic transactions.
- Your Payment Solution: Create centralized payment hub by managing multiple payment styles (ACH, virtual cards, wire transfers) and directly interfacing with financial institutions. Generate digital remittance guidance by default.
- Advantage: Payments are processed quickly to reduce payment penalties later, while enhancing relationships with vendors. This system does this by keeping the invoice status up-to-date in the ERP when payment is made automatically by submission of invoice statuses and through creation of reconciliation reports, hence saving a lot of time on the month-end.
Following this modernization framework, AP progresses from being just an administrative body into a data-filled, agile, and timely tool enabling real-time visibility into cash flow management (at a rate necessary due to the fast-changing business environment).
FAQS
1. What does modernizing Accounts Payable mean?
Shifting from manual, paper processes to automated digital systems for faster, more accurate payments.
2. How does AP modernization help businesses?
It cuts costs, speeds up processing, reduces errors, and improves cash flow visibility.
3. Is it hard to transition to modern AP systems?
No. With the right tools, the shift can be smooth and minimally disruptive.
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