When you run a business, there’s little more important than cash flow. Many business owners and managers focus on bringing money in through a well-run accounts receivable (AR) process, but it’s important to keep an eye on accounts payable (AP) as well.
In fact, upgrading to automated accounts payable may save your business time and money while alleviating manual data entry. Automated AP processes may help businesses of any size capitalize on improving how they pay the bills.
How automated accounts payable systems works?
Automated AP doesn’t mean handing all control over bill payments to a computer. Instead, automated AP is an approach that uses computers and rules you put in place to reduce the human effort required for AP processes.
While AP may not seem like a major cost center for your business, if you map out the full timeline from purchase order to invoice payment, your business likely has plenty of opportunities for improvement. Tasks like opening envelopes, taking forms to managers for approval signatures, and printing and mailing payments may all be eliminated with automated AP.
Here’s a brief look at how an invoice may be handled in an automated payment process:
1. Invoice is received from a vendor via email
Instead of mail, invoices may come in electronically via email or electronic data interface (EDI) applications. When the invoice arrives, the system automatically imports a digital copy of the invoice and looks for matching purchase orders (POs).
2. Payment approval
If an invoice is an exact match to an existing PO, it may be automatically approved for payment. Depending on the rules you have in place, the system may automatically generate a message to approving managers, prompting them to log in and sign off on the payment. Depending on your chain of approvals, multiple managers could be notified to approve the invoice.
3. Payment processing
Paper cheque and postage are a thing of the past for many businesses. Once approved, invoices are queued for automatic payment via electronic payment or a vendor’s bill payment system. Again, depending on the rules you have in place, payments may be ushered off quickly to capture early-payment discounts or delayed until the due date to preserve cash.
This simplified process is a lot easier than relying on people to open the mail, type in invoice details, hunt down managers for approval, print a cheque, get someone to sign the cheque, stamp or meter envelopes, and finally send them out in the mail. An automated process may cut down on the excess and help you process payments faster.
Saving time with automated AP
In business, time is money. Every minute you or your team may save handling payments may be spent on value-adding activities that improve your business’s overall profitability. Here are examples of time savings through AP automation:
Less manual data entry
Data entry is a tedious and error-prone activity. Traditional AP systems often require staff to look at invoices and type the details into a bookkeeping or payment system. Every time a person has to enter data, there’s always a possibility of a typo or other innocent mistake that could disrupt the payment flow or lead to sending an erroneous payment.
Customized approval processes
If your business uses a chain of command to sign off on expenses as they grow in size, you may fully automate the approval process to take your accounting or bookkeeping staff out of the equation. Once an invoice is properly entered and has the right accounts or payment codes added, a series of emails or other messages may be automatically sent to managers for approval. Once they check the box, the next manager is notified until the payment is fully approved according to your organization’s standards.
Automatic payments
Paper cheques, envelopes, and postage are not free. They also take time to prepare. With automated AP, your vendors may log in and add their bank account details for electronic or wire payments based on the invoice due date, vendor agreement, or other rules you put in place.
Fewer manual errors
While we’ve already noted that manual data entry may lead to human error, cutting out errors offers time savings on the back end as well. In addition to avoiding problematic payments, automated systems remove the need to research and fix mistakes made earlier in the process. That’s a win-win for business efficiency.
Improving cash flow with automated AP
When you may reduce the time it takes to process invoices and payments, you may save on staffing costs or redirecting your staff to more valuable activities. In addition to helping your business save money, automated payment systems may also help improve cash flow.
Here are two examples of how cash flow could improve with a newly implemented AP process:
- Granular control over payment timing: CFOs and controllers often like to have fine control over cash going in and out. With a click of a button, it’s possible to delay payments to preserve cash.
- Capture early payment discounts: Timing payments to take advantage of discounts or otherwise meet your business’s best interests is much easier with automated AP. Plus, you may set the payment date well in advance and have it sent later without needing to remember.
This isn’t an exclusive list by any means. Viewing all of your payment information in one central hub may also help you manage payment methods. For example, you may add a setting to pay a specific vendor with a favorite business credit card to earn rewards or extend your payment due date. Once you have a system in place, you may implement creative solutions to maximize your cash flow or reach business goals.
Learn more: Accounts Payable Automation from American Express
No business is too small for accounts payable efficiency
It’s easy to see how large corporations benefit from automation, but these benefits are not limited to large enterprises. Even small companies with just a few employees, or even just you, may benefit.
Whether you handle fewer than five invoices per month or dozens, automated AP may save you time and money and improve your cash flow. With so much to gain and little to lose, nearly any business may benefit from automated accounts payable.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.