The Business Alignment Model: How to Make it Work for Your Company In 2023
In the early stages of a company, a common pitfall is a vague or ambiguous mission. A plethora of ideas, initiatives, and projects can pull
While accounting software has been around for decades, manual processes still play a major role in many accounts accounts payable (AP) operations. From manually entering vendor bills to generating check runs and mailing payments, accounting personnel often spend several hours a day performing mundane, repetitive tasks that could easily be automated. This is highly inefficient.
The Hidden Costs of Manual AP Processes
Manual processes are time consuming, labor intensive and prone to error. They also put a strain on accounting resources, taking time away from higher-value tasks like analyzing data and investigating anomalies. Companies that rely heavily on manual AP processes also tend to have higher overhead costs, spending by some estimates nearly five times more to process a single invoice versus organizations that are fully automated.
Manual AP processes can delay payments to vendors. This isn’t necessarily a bad thing if a company is experiencing a temporary cash shortfall. If payments are habitually late, however, it can lead to higher supply costs and missed savings opportunities.
Suppliers tend to offer good customers the best prices. Purchase volume is the main consideration, but the customer/supplier relationship also plays a role. When customers don’t pay on time, it hurts that relationship. So a company that consistently pays late is unlikely to get the same pricing as one that always pays on time.
Many companies offer early-payment discounts. While it may not be feasible to take advantage of every discount, an occasional early payment still saves money. But if manual AP processes make it difficult even to pay on time, then those potential savings are out of reach.
Manual AP processes also increase the risk of errors and financial fraud. Manual data entry is a common source of errors. It’s easy to transpose numbers or leave out a digit when entering a vendor invoice or moving data between two systems. Caught in time, these errors are easily corrected, but with limited time during the close process, it’s not always possible to review every transaction.
Identifying and correcting inconsistent or misapplied accounting rules is more difficult. Companies may not even be aware they’re making these errors, but they can prove quite costly for publicly traded companies and those preparing for an IPO.
Payment fraud is a growing concern, and relying heavily on manual processes increases the risk of falling victim. Maintaining separation of duties and other financial controls is essential to prevent internal personnel from submitting and approving fraudulent invoices. Avoiding this kind of fraud requires careful monitoring of every transaction to ensure approval hierarchies and other procedures are consistently followed. Overworked controllers and managers rarely have the bandwidth to do this, however, especially if it requires sifting through hundreds or thousands of daily transactions. This makes enforcement of internal controls spotty at best.
Automation Opportunities
Automating AP simplifies invoice processing, approvals and payments; helps accounting staff keep track of invoice due dates; and reduces the risk of fraud by ensuring vendor invoices are legitimate. Automation can also save money by ensuring on-time payment of vendor bills and making it easier for companies to identify and take advantage of early-payment discounts.
Invoice capture. As previously mentioned, manually entering vendor bill data into the accounting system takes an inordinate amount of time and is a significant source of errors. Fortunately, technologies like object character recognition (OCR) and machine learning have progressed significantly in recent years, making it possible to convert PDF and image files into digital text with a high degree of accuracy.
For AP staff, this means bills in electronic format can be imported automatically into the accounting system rather than entered manually, reducing the potential for errors.
Invoice matching and approvals. It’s important to make sure goods and services have been delivered before a vendor invoice is paid. Matching the purchase order, invoice details, and receiving documents is standard practice, but the process typically requires input from multiple departments, which can lead to delays. Automating three-way matching simplifies the process. Receiving data can be captured electronically and linked to the PO and invoice in the accounting or ERP system, making it easier to compare documents to ensure accuracy.
Automation also makes it easier to ensure proper oversight of payments by enforcing payment authorization policies. Once the accuracy of a vendor bill is confirmed, it can be emailed automatically to the appropriate person or people based on the company’s internal approval hierarchy.
Making payments. Printing and mailing physical checks is time consuming, increases processing costs and makes it more difficult for companies to pay bills early. Automating the payment processes improves AP staff’s efficiency by eliminating these manual tasks. Electronic payment options give companies greater flexibility to decide how and when to make payments, allowing them to hold on to cash longer while avoiding late charges.
Automating Accounts Payable with NetSuite
NetSuite helps companies save money, reduce risk and increase efficiency by automating the entire vendor bill settlement process. NetSuite AP Automation provides a simple, fast, secure way to process invoices and make payments. NetSuite digitizes and automates the entire vendor bill settlement process, saving time by making it easier to pay suppliers and helping businesses scale their entire accounts payable process, allowing AP teams to support business growth without adding headcount.
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