Accounts Payable Process – The 2021 Guide
Accounts payable is the total sum of all the payments your business has to settle for short-term debts it owes, typically to your suppliers, but not excluding government agencies, etc.
Although accounts payable is money leaving your business, it’s critical to your business’s growth and welfare. When your suppliers are assured that they’ll eventually get paid for their goods and services, they’ll be happy to provide them on credit.
Secondly, accounts payable makes it easy for organizations of all sizes to settle business debts without losing money to fraudulent claims.
What that equals is that a good understanding of how accounts payable works will help your business to:
- operate more efficiently,
- eliminate fraud,
- better manage cash outflow and above all,
- increase cash flow.
Here’s the definitive guide to accounts payable.
The accounts payable process
The accounts payable process is a step by step outline of how invoices are moved through your organization from when they’re received until they’re completed and marked as paid. They determine how fast and efficiently you can handle your accounts payable, and more importantly, how accurately you can manage them to avoid fraud.
This is a breakdown of what the accounts payable process typically looks like for most organizations.
When an individual or a team within an organization needs some goods or external service to get their work done, they forward a purchase requisition to the procurement team, detailing the input they need, why they need it, and the quantity and quality they require.
With the details received from the relevant team within the organization, the procurement team reaches out to an applicable supplier and makes a purchase order for the input requested.
Receipt of goods
The supplier(s) delivers the requested goods in the quantity and quality requested.
Inspection of goods
The procurement team inspects the received goods and confirms it meets their ordered requirements.
Invoice receipt & verification
Upon delivery or shortly after, the supplier sends over an invoice for the goods or services delivered. The accounts payable team receives an invoice for the delivered goods or services and verifies that the information provided in the invoice is accurate.
Once the delivered invoice is verified, it can be authorized for payment.
A payment staff within the organization completes payment on the invoice.
With the invoice settled, the accounts payable team can reconcile figures in their books to record the outgoing cash.
Manual AP Processing Challenges and Risks
In a manual accounts payable system, there’s simply too many moving parts and opportunities for things to go wrong and for bad actors to exploit the human factor to defraud your business. Here’s a breakdown of the challenges and risks you can encounter when managing accounts payable manually.
In a system where it’s difficult to determine whether an invoice received by your organization is accurate and legitimate, fraudsters can take advantage of this to issue fraudulent invoices that might get approved unnoticed, alongside other legitimate invoices.
And if you’re thinking it can’t be your company, you might want to think again.
The FBI reports that scammers targeted over $12b via email invoice fraud just last year, with incidences being as high as $500,000 per crime. If you still manage accounts payable manually, there’s little preventing your company from being one of those.
In the world of laser-fast fiber internet, if you still manage invoices manually, you not doing something right. Typically, you’d receive invoices via email or mail, with the latter requiring that you scan the invoice into your computer before sending over to the appropriate staff. The appropriate staff would need to run checks and reviews to ensure the invoice is legit, and on and on until it gets paid.
Manually processing accounts payable creates a lot of moving parts that can easily be skipped by an intelligently designed tool.
Slow accounts settlements
When you’re running accounts payable for a handful of suppliers monthly, it can be easy to manage everything manually. But when you have suppliers in the tens or hundreds, it can get confusing. Manual AP operations require that everything is done from scratch every single time. Even if you’re constantly adding more and more staff to your AP team, it’ll be impossible to keep up for long.
Benefits of Accounts Payable Process Automation
Having looked at the numerous letdowns manual accounts payables offers, what can you expect with automated AP processing?
Here are some of the benefits you can derive from using an automated AP processing solution.
The biggest benefit of automated AP processing is that the amount of time needed to move invoices from received to paid is effectively cut down to a fraction of what it was. With an automated AP processing tool, you can eliminate several manual tasks such as moving invoices across team members for approval, vetting delivered goods and services, keeping track of accounts payable volume, etc.
Factor all that in and you get invoices processed significantly faster than a manual system can offer.
In our context, efficiency simply means that you do more with less and as a result, use up fewer resources. An automated AP solution quickly manages a lot of tasks that would have required lengthy layers of human input to resolve and frees your accounts team to focus on more productive responsibilities.
Automated AP solutions are set up to follow certain rules that cannot be countered by anyone except top management. As a result, chances of invoice fraud drop to zero or near zero when you’re using a solution that can’t be bypassed, hacked, or spoofed into disbursing unauthorized and illegitimate payments. On top of that, AP solutions like Kissflow are built with 128-bit encryption that keeps all your accounts data super secure from hackers and bad actors.
For the functionality they offer, automated AP tools are cheaper than it would cost you to manually receive, review, vet, authorize, and settle invoices with layers of input from your entire organization. An automated AP tool simplifies the AP process and empowers you to do more at less cost.
How Kissflow Procurement Cloud can help with your AP automation?
When you’re moving over from Excel or Google Sheets to an automated solution, there’s a lot you want to get right the first time.
You want an account payable solution that’s fast, accurate, efficient, and above all, easy to get started with. That’s the only way you don’t end up confused with the complicated solutions that the market offers.
Maybe you’ve been using Excel for years now or you’ve been managing it all manually, Kissflow Procurement Cloud offers a simple AP solution that you can set up in hours, and works out of the box. Kissflow Procurement cloud is designed to offer:
- Intelligent automations that link with the other tools you use,
- quick information processing and operations,
- secure data processing for your accounting records, and above all,
- one simple center of truth to organize all your accounts payables.
Kissflow Procurement Cloud simplifies accounts payables so you can manage incoming invoices quickly, intelligently, and smartly avoiding fraud and lengthy, tiring back-and-forth.
Take Kissflow Procurement Cloud for a spin here.