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5 Tips to Find Savings in Your Accounts Payable (AP) Department

Mohan Krishna
Go-to expert on financial engineering, Compliance management, and financial solutions.

Technology is disrupting every sector it touches, and the finance industry was the first to embrace it. Machine learning (ML), data analysis, and artificial intelligence (AI) optimize manual account payable (AP) processes for better performance.

As per industry reports, the AP automation market is projected to reach a whopping $4 billion by 2025 globally.

While the AP department was long considered a non-revenue generating one, the title remains only for manually processed departments. Technology has now brought this subdivision to the forefront as a concrete revenue generator.

This blog takes you through the challenges and tips to find savings in your account payables department.

In this blog :

Challenges in Accounts Payable (AP) Department

Managing accounts payable process can help you get accurate cash flow forecasts, reduce funding gaps (if any), and enhance your liquidity. However, it is not so easy. All of these advantages take a back seat in the absence of efficient management.

Efficient management of accounts payable nurtures your organization's goodwill in the market. It conveys a positive message of paying bills and debts in time.

Check out some of the multiple challenges you may face in the accounts payable department.

Manual Data Entry Errors and Missing Invoices

Managers inputting data manually are bound to make errors – at least a few, if not many. That can significantly hamper data accuracy and reliability. Besides, even if they recheck and fix errors, it is a pure waste of time.

Until you automate handwritten invoices, they can get lost, especially in piles of documents. Be it a small amount or big, missing invoices can lead to inaccuracies in financial information and uneven balance sheets.

Have you ever paid a supplier before your goods got delivered? Perhaps, you got the invoice but did not check the delivery status. Besides, double payment can occur due to different manual data errors and handling multiple payment modes.

Frauds, Extra Costs, and Cash Crunch

According to an Association of Fraud Examiners Report, 14% of frauds occurred in the accounting department. These primarily comprise billing, check and payment tampering, and corruption.

Besides, paper checks are slow, expensive, and more prone to fraud when compared to e-payment methods. The same goes for wire transfers. Besides, credit card surcharges also add to unnecessary extra costs.

Unexpected situations arise in finance departments more than in any other. A cash crunch or inability to meet an unforeseen expense will not only ruin your balance sheet but also hamper your reputation.

Competition and Low Financial Credibility

Late payments and overdue create a negative image in the market. If your suppliers and vendors do not trust your brand, they will choose your competitors over you for their services. Building a healthy relationship with stakeholders is necessary to watch your business thrive more than the competitors.

If you do not have a positive image, suppliers and vendors will not close deals on credit. Plus, you will have difficulty in negotiating the prices. With a negative credit score, you will also not get urgent loans approved with ease. Therefore, it hampers liquidity while also ruining your relationship with the suppliers.

Repetitive Tasks and Unstructured Data

When it comes to the account payables department, you have a host of repetitive and time-consuming tasks.

  • Chasing late payers through multiple reminders and messages
  • Answering similar support queries by suppliers and vendors
  • Entering long invoices on the computer
  • Sending the relevant reports to different teams and departments

Apart from these, dealing with unstructured data can consume a bulk of your time. Be it just recording the data, analyzing for reports, or protecting it from frauds, managing unorganized data is significantly challenging.

Most organizations sideline accounts payable process, especially when it comes to generating profits. However, managing this unit must be included in the core strategy for capital optimization.

While making profits and promoting savings is vital for business growth, efficient accounts payable management is downright necessary. It will help streamline the processes within the department while also simplifying workflow in other divisions.

From invoicing, accounting, and procurement to handling suppliers, vendors, and contractual reviews, you can easily find savings in your accounts payable (AP) department. Here are 5 tips to go about it with ease.

1. Make Timely Bill Payments and Avoid Advance Outflows

Paying bills on time helps you maintain a healthy relationship with your stakeholders while also ensuring smooth AP workflow. It’s like hitting two birds with one stone. This will let you avoid penalties and maintain your goodwill in the market. E-invoicing is one of the best ways to ensure this.

  • Define a standard procedure and duration for making payments
  • Make sure to process invoices in that period
  • Always enter the date of payment or use a date stamp
  • Develop the required channels to handle and resolve issues behind late bill payments

Note: While timely payment is essential, make sure to double-check before payment. Refuse to pay an incorrect invoice irrespective of the time crunch.

Do not make the invoice payment before the mentioned date. Due to the heavy workload, you may make an advance payment for deliveries even before they arrive. Though this will reduce your work, for now, it may lead to problematic situations later on.

If the items delivered are defective or not up to the quality, your cash could get stuck in the process. This blocks your business liquidity and forestalls your plans to use those goods.

Try not to make advance payments until it is a necessity. Doing this will help avoid frauds, maintain the cash flow balance, and minimize the chances of theft by dishonest vendors. Opting for an AP invoice automation software will process your payment in time without any hassles.

2. Review Contracts and Disputes Regularly

Regular contract reviews help you eliminate the chances of inaccuracies and frauds committed by insincere vendors and suppliers. The best way is to maintain a scorecard and measure the stakeholders’ performance against these metrics.

  • Allocate a team to check vendors meet their contracts as well as your metrics
  • Make sure your contract includes penalties in case of underperformance
  • Involve your legal team to confirm compliance

Besides verifying supplier metrics, track account variances like days payable outstanding (DPO) and other similar cash flow metrics.

Even if you have spotted the dispute in time, you may have forgotten to register it. Resultantly, your ledger does not display the correct financial information.

Not only does this reflect poor bookkeeping, but it might also disrupt the cash flow. You'll be under the impression of having less or more cash than the displayed figure in the account.

If any discrepancy arises, make sure to follow up and confirm if it has been resolved. At least one member of the account payables department must check for such inconsistencies every day. They must take the necessary action of rectifying the records to prevent misconceptions and cash flow hitches

3. Focus on Preventing Loss and Check for Frauds

While focusing on the money lost is essential for the accounts payable department, preventing this loss is the key to save.

The three-way matching system is by far the best option to recheck invoices and prevent loss. Pay bills only after verifying them with the Payment Overdue (PO) and receipts to rule out any inconsistency. Apart from PO reconciliation, you can monitor multiple other concrete metrics to prevent loss.

  • Calculate the cost per invoice
  • Track the time taken to complete one invoice cycle
  • Check the frequency of invoice approvals
  • Monitor which invoice format is the most beneficial
  • Note the reasons behind interventions in the invoice to eliminate them in future
  • Record errors and study the pattern to prevent repetition
  • Check if your invoice per staff is efficient or is your team’s potential getting wasted

Be it an unreliable internal member or an external fraudster, accounts payable frauds put you in peril. It can be your employee creating fake vendors, a hacker disrupting your account, or an error by the invoicing team.

You must construct concrete processes or systems, either manual or automated, to mitigate these errors. You can do this through the following measures:

  • Set up a new vendor or supplier in the system only after a solid proof
  • Restrict individuals handling the accounts payable process
  • Ensure at least two or more reliable individuals are handling billing and invoice payments

4. Avoid Extra Fees and Avail Discounts Through Healthy Vendor Relationships

Did you know organizations make about 42% of client payments by check? Paper checks are one of the major causes of unnecessary expenses. The same applies to additional fees on other payment methods like credit card surcharges, wire transfer fees, etc.

For example, Steve Dean, the owner of Mocha Moment Café and Roastery, saved about $1,500 every year by avoiding a credit surcharge. A Californian coffee importer charged Steve a surcharge of about 3%, making him opt for making payments with e-checks.

Apart from avoiding such fees, you can save by using discounts wherever possible.

  • Ask vendors and suppliers if they offer discounts for any particular business activity
  • Look for banks that offer rebates to business
  • Try to negotiate longer terms for payments

You can get all of this done if you automate paper invoices and maintain positive relationships with the vendors.

From negotiations to timely delivery and discounts, vendors can greatly influence your account payables management. If you do not ensure a smooth vendor management process, these stakeholders may not agree to be flexible during your contract term.

You can maintain a beneficial vendor relationship by openly discussing potential payment plans. Be ready to display flexibility on your part before expecting from them.

Try to make timely payments and inform them in case of delays. Transparent communication will make way for a fruitful professional relationship.

5. Maintain a Cash Reserve and Embrace Automation

Accounts payable can significantly hamper the cash flow of your organization. If you pay for a fraudulent invoice or, worse, pay for the same invoice twice, you will incur an unnecessary loss.

To deal with such a crisis, maintaining a cash reserve is an excellent solution. Create a dedicated business savings account, so you have liquid cash when in need. You need not fill it with a large sum at once, but doing so gradually can prepare you to face unpredictable situations.

Besides, a manual process is bound to lead to a few miscalculations, if not many. Managing accounts payable with automated software will ensure accuracy and high-level efficiency. From conducting repetitive tasks quickly to ensuring each bill gets paid on time, it can foster productivity and growth. Besides, it helps maintain transparency throughout the company.

According to a report, the accounts payable automation market is projected to grow at a CAGR of 11% from 2019-2024. Organizations embrace automation to ensure security against thefts and fraud, maintain healthy supplier relationships, and foster a smooth cash flow.

Apart from automating manual procedures, invoice automation solution can help enhance visibility to business-critical data. Implementing techniques like AI and ML can give you greater financial insights to optimize the current strategies and build new ones.

  • Automate settlements to ensure real-time ap processing and updating of records
  • Computerize entries to minimize the chances of manual errors using invoice AI and invoice ML
  • Switch to electronic payments to eliminate additional costs and ensure smooth multi-channel invoice delivery
  • Automate invoices to avoid errors

Wrapping Up

The advancement of IT and the introduction of cloud ap processing has made ap automation adoption substantially easy. Whether big or small, every business can implement automation, which has become necessary for the current business landscape.

Through end-to-end ap automation, the accounts payable department can mitigate frauds, recording errors, and ensure a smooth cash flow. Besides, streamlining processes will boost your relationship with stakeholders and give your business an edge over competitors.

Find Savings from Account Payables with Calpion and Hermes

At Hermes Accounts Payable Automation, we help you streamline the AP management process through AI, ML, and RPA (Robotic Process Automation). With this revolutionary system, you can automatically process vendor invoices 24/7.

This invoice automation tool uses the latest technologies to verify invoices according to the set rules. What’s next? Hermes invoice processing will automatically send out the invoices to your financial system, thus, promoting savings.

Besides, this system helps reduce ap cost by eliminating human errors, increasing employee productivity, and boosting scaling. It will substantially reduce data breaches while also providing crucial data for studying the patterns and strategizing for the future.

Sounds surreal, doesn’t it? Well, Hermes is the one-stop solution to all the account payables department challenges.

So, what’s the hold? Embrace automation in your account payables department and witness your savings boost!

Hermes Account Payable Automation

Mohan Krishna

Go-to expert on financial engineering, Compliance management, and financial solutions.

Mr. Mohan is the Vice President of Finance at Calpion Inc. He brings over two decades of experience in financial solutions, compliance, taxation, and funding.

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