The amount a business or a party owes to their suppliers for the goods they have purchased from them on credit can be termed as Accounts payable. Businesses must be vigilant while attending to their accounts payable processes as if any failure in the same process may place the whole business in jeopardy. This can prove to be fruitful when vendors deliver already ordered goods and charge more than the agreement.
The accounts payable process can be an efficient approach to search for the corresponding purchase order, eliminating the time-consuming process, and acquiring the early discount as per the agreement. Thus this can smoothen vendor relationships with a significant impact on business’ cash flow. A streamlined accounts payable process helps businesses maintain healthy relationships with vendors, which can work to the overall advantage. As per the JPMorgan 2019 AFP Electronic Payments Survey, companies still make 42% of business customer payments by checks, which are slower & costlier for processing than electronic payments, and more prone to fraud. This article is aimed at acknowledging businesses for common account payable process challenges and solutions for perfecting the workflow for the accounts payable processes by effective identification of common problems. OURS GLOBAL’s Accounts Payable Services empower businesses in driving appropriate cash-saving policies and smoothen vendor relationships for heightening ROI and strengthening vendor relationships.
Following are the Common Accounts Payable Process Challenges:
1. Slow and Inefficient Processing
Time-consuming and inefficient internal processes that come with manual processing of accounts payable process leads to undesirable results. With the vendor invoice be approved before the payment processing, these are handled by hand or email and usually take much time. Until the payment of the invoice, the business may miss an early-bird discount or even accrue a late payment penalty. With inefficiency among internal processes, events of unauthorized purchases are also to be expected. The inability of setting rules regarding goods and services for purchasing, spending decisions, and who should be authorized for purchasing can disrupt business finances and disrupt the overall business budget.
2. Payment Errors
Businesses must also look out for duplicate payments from suppliers. As attempts for forwarding the second invoice in the event of a failure in paying off quickly, accountants can end up paying up for both. While owning a business that operates from multiple locations, confusion about which location to pay which vendor invoice can arise. Such kind of duplicate payments can negatively impact the overall cash flow and unless such payments are pointed out from your records and initiated with a refund from the vendor, the whole money will be lost forever.
3. Maintaining Manual Records
Manual processing of paper invoices adds up the company’s labor costs as even a typical purchase decision can generate two documents of vendor invoice and purchase order. These can increase in number with special circumstances with businesses scaling up. But scaling up can drive up the storage costs and the hassles for tracking up of documents.
This can further increase the complexity of retrieving invoices from the past. Storage, retrieval, and updating of records become much more tedious and time-consuming even with spotless record management. The vulnerability of paper records against natural threats can also worsen the supplier or auditor relations to the maximum.
4. Manual Data Entry
Normal Accounts Payable processes comprise of dropping in details of vendor invoices, getting approvement and then executing the payment.
With manual data entry infused into each step, there’s an increased error possibility that can drive incorrect calculations, payments, and negative effects on business finance operations. To eliminate these problems, it is critical for businesses to go through spreadsheets manually to skillfully identifying them wasting consider time, effort, and revenue.
5. Vendor Invoice Management
With puddled-up purchase transactions and incoming vendor invoices, it’s pretty much normal for businesses to lose track of invoices and their due dates. Any loss of invoices can be solved by reimbursement of the same by the vendor. But this is only possible if the missing invoices are noted promptly, resulting in events where suppliers demand immediate payment. Wrecking up the relationships with vendors, such events will reflect very poorly on the overall business and audit readiness.
6. Missing Purchase Orders
Businesses can eliminate the chances of duplicate orders and unauthorized purchases by prompt purchase order generation. Supporting businesses to keep proper track of whatever items are ordered, purchase orders also validate purchases parallel to the accurate purchase amount as per the agreement. The problem arises when business owners skip purchase orders for the reason of being difficult and time-consuming.
7. Problems in Vendor Management
Late payments always worsen up supplier relationships losing their trust and missing out on the benefits of flexible payment terms and short-notice ordering. Businesses that drive manual processing will end up spending a lot of time following up with vendors and solving damaged business relationships.
Following are the Solutions that Solves Challenges in Accounts Payable Processes:
Automation of Accounts Payable Process
Automation of accounts payable processes improves quality, accuracy, and speed. Eliminating manual processing into accounts payable operations can eliminate loss of invoices, late or double payments, negative cash flows, and all hassles related to manual data entry and errors. Suppliers who use digital invoices can enable businesses to import them immediately to accounting software rather than manual entering of the details. Using accounting software with a scan-and-pay feature can also enable businesses to upload vendor invoices and capturing as a purchase transaction. With automated payment reminders, accounting software also eliminates the possibility of late or lapsed payments. Ensuring not to lose vendor invoices, also helps in avoiding duplicate payment with proper tracking of paid & unpaid vendor invoices.
Avoiding Chances of Skipping Purchase Orders
Making the creation of purchase orders much quicker, Accounting Softwares allows businesses the easily convert purchase orders to vendor invoices and instantly matching the invoices with the purchase orders. Accounting Software also makes it mandatory for issuing purchase orders for purchase transactions. These purchase orders can be used for reviewing orders and invoices that are received from the suppliers.
Businesses must make sure in choosing the right vendors by checking their efficiency, quickness of accepting orders, and willingness to negotiate payment terms and prices. Ample time must be used for reviewing contracts and service level agreements for their authenticity.
With an efficient vendor portal, businesses can record and save vendor details including contact information, invoices related to purchase transactions. Credit and debit notes help in the effective management of vendor relationships and help them for time to time update of payment terms and discounts. These also enable vendors for checking the status of invoices, payments, and deliveries. Opening up stable lines of communication eliminates the requirement for manual follow-up on both sides.
Development of Streamlined Workflow
Smooth and hassle-free purchase transactions executed with the purchase order ensure completion of payment. Investment in Accounting software automates the accounts payable process streamlining the entire workflow. This also involves the issue of purchase orders and getting them approved, reviewing vendor invoices, and making payments. Quickening up the speed of purchase orders and vendor invoice processing, the accounts payable team can maximize their productivity.
Simplifying the complicated internal process, automation can also minimize approval delays. This also helps businesses for keeping up with purchase orders and vendor invoices, helping pay vendors on time, and eliminating late fees. Automation can also help businesses to adapt to the processes that work best for businesses through properly designed workflows that meet requirements.
Digitization of Accounting Records
Online accounting software helps businesses maintain digitized transaction records saving up on storage costs, making it easy for storing, searching, and retrieval of documents. Cloud offer security over digital records and regular backups improves legal compliance and helps business store financial records for a considerable amount of time.
Following are the tips for guaranteeing improvement of Accounts Payable Processes:
Prioritization of vendor invoices helps taking advantage of early-payment discounts and avoid charge interest or late fees.
Review vendor invoices and check items, amount, and price against vendor invoice details
Businesses who are facing issues from disorganized accounts payable processes must take these proactive measures as mentioned above. Late payments can worsen vendor relationships. Physical paper invoices create a way for payment errors such as digital payments and incorrect data entry. Errors in Accounts payable processes can damage cash flow. OURS GLOBAL’s Accounts Payable Services can garner order and efficiency to accounts payable processing with the implementation of streamlined processes and optimum reduction of errors and time consumption. Stay on top of payables and know where your business’s money is going by partnering with us. ping us right away!