Transforming Accounts Payable: Opportunities, Challenges, and Next Steps


Many business owners feel manually approving and processing invoices a mundane job that consumes a lot of time too. According to the Institute of Finance and Management (IOFM), about two-thirds of businesses invest in AP automation. 88% of companies likely to remove more than one-fourth of the paper-based supplier invoices within the coming three years.


Given the always-increasing growing competition, businesses are determined to manage accounts payable accounting efficiently. For this, they need to streamline AP functions, manage outbound cash flows better, focus on limiting expenses, and increasing financial agility.


Opportunities You Can Lock by Managing Accounts Payable Effectively


Have a proper system in place to manage payments, and here, the most important thing is accuracy. When it comes to AP management, you must ensure you are paying only accurate and legitimate invoices. This way, you will not pay extra money for duplicate or repeated invoices. Whenever you process invoices, always ask yourself the following questions;


·      Is the invoice reflecting the exact item your company ordered?

·      Has your company received the order?

·      Are item units and cost calculations correct?

·      Is tax added correctly?


Make sure these details are right so that this information will help you ensure your AP process’s integrity and accuracy. If this information is correct, you will get opportunities to save a lot by not paying extra due to any mistake or error or avoiding late payment fees by making payments on time.


Common Challenges Faced by Businesses while Managing Accounts Payable


1. Errors in Valuable Financial Information


Data entry is one of the most tedious and time-consuming tasks in AP besides approval and payment processing. Although manual data entry seems a very easy-to-do job, it requires many resources and is prone to several errors/mistakes.


If your company relies upon paperwork at all stages of the AP process, human errors are likely to be exponentially more.


2. Data Management


AP activities generate a large number of essential documents that you need to store for a long time due to compliance requirements. The bigger your business is, the greater the number of documents you need to keep. Document management is costing you a lot of money, but with time, it might become more difficult for you to track and manage necessary data you will require in times of need.


All of this might negatively impact your AP staff’s efficiency in the long run, leading to a reduction in financial transparency.


3. Complicated Invoice Processing


Purchase orders may require the approval of multiple authorities, involving several departments, making the chain of approvers long; this is where things can get complicated and slow down the payment process, increasing internal processes and communication costs. A purchase order may pass through 5-6 people.


Meanwhile, the information can get distorted, leading to business/financial decisions made based on data that is not sure-short accurate.


4. Payment Delay


Paying your suppliers late can hamper your relationship with them. The supplier may not do business with you again or may put a penalty for late payments. If not, it will damage your company’s reputation in the market and the trust your customer base has in you. This is a big reason why several businesses outsource accounts payable services to reliable accounting firms.

5. Cybersecurity Threats


You might be familiar with technologies that help you manage financial accounting for your business, or you might be using a few. However, you also must know that your accounting system’s digitization doesn’t mean your financials are totally safe.


Your company’s accounts and financial information is always prone to cyber fraud. For example, scammers/fraudsters can hack your business accounts by sending a tricky email to your AP staff and sending your money into their accounts in just two minutes.


Next Best Steps – Improving the Below-discussed Processes to Manage AP Better


1. Vendor Selection


One of the initial steps you can take toward having a robust AP system is to set up a list of suppliers you prefer. This will help you prevent making low-quality purchases and get your company in a position to negotiate buying terms that would be most favorable to you. Improve your vendor selection process;


·      Set priorities for vendor negotiation, and make sure you involve all key people and decision-makers of your company; for instance, CFO and CPO.


·      Always look for opportunities where you can negotiate better pricing. For this, you can ask suppliers to offer lower prices as provided to others, or you can negotiate for discounts on large volume orders.


2. Set-up a Supplier Master Data


After negotiating terms with suppliers, it becomes necessary to capture and maintain all supplier data properly. Remember that inaccurate data can lead to poor decisions and prevent you from leveraging discounts available, or may also disrupt the supply chain.


·      Make sure all SLAs – service level agreements are clearly mentioned in your supplier management systems.


·      Besides other information, the master data must reflect product/service details, delivery timelines, quality standards, supplier obligations, and all other regulatory compliance mandates that are generally applied as per your locality.


·      Store supplier contracts properly in a secure place.


·      Online document management systems can help make this process streamlined and make it easier for you to search for information when needed.


3. Contractual Review


You might want to prevent fraudulent activities in your billing process, which may lead to duplicate payment or overpayment. To do this, you need to review contracts regularly.


·      Create a master data team responsible for checking the accuracy, order completeness, and compliance with terms. 


·      Apart from that, this team should also review suppliers’ performance so that the suppliers always meet contractual terms.


·      You should also include clauses that hold suppliers accountable for penalties if they are underperforming.


·      You should do periodic supplier contract reviews on time and compare their performance with each other, in addition to comparing contracts with others in the industry.


4. Invoice Processing


Properly managing the entire invoice processing is a great way to improve liquidity. Inaccurate invoices should be sent back to suppliers; you may refuse to pay invoices that contain wrong costs, item quantities, postal address, etc.


·      Process invoices on time and prefer to include a date stamp to validate it.


·      Make sure you complete invoice processing while keeping in mind the defined internal SLAs – for example, processing invoices within a week of receipt.


·      Regularly review the AP aging lists in order to determine if the appropriate follow-up actions are being taken or not.


·      Have an EDI system to allow suppliers to send invoices electronically.


This way, you will also be able to track invoices easily against their associated Pos, validate and approve payments, and maintain accurate AP records.


5. Financial Accounting & Reporting


Before you focus on managing your payables, you need to make sure that your accounting statements, reports are correct and up-to-date and your financials are reflecting the AP balances fairly. In the absence of this information, your company may lack visibility into how much you make payments to your suppliers and when.


To improve your financial accounting and reporting process, follow the below-described tips.


·      Ensure billing accuracy – for this, you should validate invoices against contract terms.


·      Automate reconciliation work – improve real-time reporting capabilities and make sure to continue them in the long run.


·      Have the same team to prepare and review the reconciliation work in order to reduce the chances of overpayment and duplicate payments.




By making improvements in AP governance, setting up clear policies and management processes, and consistently following key metrics, your company can streamline almost all business processes. If approached correctly and effectively, you can strengthen cost management, eliminate process complications, reduce financial fraud risks, and enhance supplier contract compliance and relationships.

With complete support from executive-level employees, these above-discussed points can help you do way more efficiently than just managing the AP process. Besides, all of this can help you bring greater liquidity, leading to better business performance and a healthier bottom line.


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