An accounts payable process is not a new or an unknown thing for businesses. A lot of organizations use it, in fact, but that doesn’t mean they all approach it the same way. This process can be very different, depending on the company in question. Because of this, I think it’s important to delve a little into the nitty-gritty of what a typical AP process may involve in this article.
The 3 Usual Steps in an Accounts Payable Process
The simplest accounts payable process includes 3 steps.
- It starts when the AP department receives an invoice. The important thing here is for this process to be centralized. You can’t receive one invoice via email, the next through a courier and then the next one via fax an expect it to run smoothly
- Next, the someone from the accounts payable department needs to roll up their sleeves and get to work on the invoice. This can be the AP manager or a member of the department
- The invoice then gets introduced into the company’s accounting system and perhaps scanned in order to create a digital record of it.
This, however, is the most simplified accounts payable process possible and it often requires that an organization has an enterprise resource planning (ERP) system in place. In most cases, the AP process will be more or less complicated.
The more steps an accounts payable process has, the more chance you’ll have to slip somewhere. However, some of these steps may be necessary and unavoidable.
For instance, how are invoices validated to know they’re genuine and not fake, or that they’re not duplicates? Who is responsible for approving an invoice? Also, does the company approve and pay invoices automatically or does it have a specific process of doing so?
Why Use an Automated AP Process?
This is where you need to learn to balance automatic and manual AP process. For instance, an automatic accounts payable process will work well if the invoice came from a known and already approved source. After all, why bother checking it all over again?
On the other hand, for a new vendor, you may need to appoint an employee to decide whether to approve the invoice or not. But, this creates another problem. Who made the order? In a large company, tracking down the order to its source can be a difficult task and it involves a lot of back-and-forth.
An automated accounts payable process, that includes an ERP can start once the purchase order is given and an invoice matched to it. That way, a PO can be introduced automatically into the system.
This type of automated AP process has the following benefits:
- It saves money as it requires less people to work on accounts payables. Many companies don’t even have a separate accounts payable department, which means taking people away from other tasks. That’s not the case with automating AP.
- Improves and speeds up the payment cycles. As a result, the company can better optimize its cash flow strategy, avoid late payment fees and utilize early payment bonuses and rewards.
- Handles invoices better. While going through every invoice can be difficult with a manual AP, not to mention the chance for error such as paying twice for the same invoice is a lot greater, an automated accounts payable process makes this a lot smoother.
What does an accounts payable process looks like in your company? Let us know if you have any comments or questions below the article. Also, don’t forget that you can sign up to receive a free trial of our Purchase Order Plus software.