Why accounts payable outsourcing is gaining popularity

As the business world becomes more competitive, companies continually look for ways to improve services and increase cash flow. Following the rationale that time is money, businesses use outsourcing to make the most of internal employee time.

The accounts payable (AP) department is a popular candidate for outsourcing. Many businesses and organizations turn over their accounts payable to specialized third-party teams to:

• Identify areas to lower costs and increase profit margins
• Enhance organizational efficiency
• Better manage cash flow and working capital

Outsourcing is popular, but it comes with some challenges alongside the benefits. What is the process for finding and implementing the best accounts payable solution for your organization? Is accounts payable outsourcing that solution? 

This article covers:

• Why an in-house accounting staff is more expensive than outsourcing AP services
• The risks and rewards of outsourcing AP to specialized outsourcing providers
• Alternatives to AP outsourcing that offer its benefits without the drawbacks

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What is accounts payable outsourcing?

Accounts payable outsourcing refers to contracting with a third-party team to manage your accounts payable process. In AP outsourcing, activities such as managing short-term debts and creditors are conducted by qualified third-party AP teams.

Other services you can outsource include:

• Accounts payable administration
• Accounts receivable management 
• Discrepancy resolution
• Sending purchase orders

The best third-party teams manage your company’s basic AP functions. This frees your in-house AP department to focus on higher-level tasks and attend to the core business processes that enhance your company's performance and improve service levels.

AP automation vs. AP outsourcing

An alternative to outsourcing your AP function is implementing AP automation. AP automation is different from AP outsourcing in several ways. When you outsource accounts payable, a third-party company runs your AP department. With AP automation, your in-house accounts payable team uses a sophisticated platform to streamline your internal AP systems.

Essentially, AP process outsourcing transfers tasks and responsibilities to another company for efficient management. AP automation uses business intelligence software to manage your in-house systems (with lower total costs on your part). 

AP Automation software frees up time spent on repetitive, manual tasks like invoice data capture, three-way matching, and paying vendors so that they can focus on more strategic work. This has several advantages, including lower costs, 24/7 operations, and lower third-party risk. 

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Why do companies outsource accounts payable?

If your business is making do with paper invoicing and optical character recognition (OCR) to manage your AP processes, you already know the challenges of outdated systems.

Upgrading old accounting systems to modern tools is costly and time-consuming. But evaluating your options with a complete understanding of what’s available leads to better business outcomes.

Let’s look at the pros and cons of outsourcing.

Pros of accounts payable outsourcing

Cost and time savings

Outsourcing AP tasks saves your company considerable money and time. According to recent reports, hiring one employee can cost as much as $4,425. Executive hiring costs climb even higher. 

Such costs stack up quickly, especially for large companies. Outsourcing minimizes the cost and time associated with recruiting, hiring, training, and compensating additional employees.

Improved efficiency

Manual accounts payable processes are prone to data entry errors. Moreover, invoice processing speed is limited by your staff's abilities and work hours. Third-party accounts management companies have modern facilities and software to efficiently and accurately accomplish tasks.  

Access to better tools

Third-party AP service providers offer professional teams and the latest software to do the job. When you outsource AP tasks to them, you gain access to excellent tools such as computer systems complete with customized invoicing, expense management, and other accounting software.

Reduced workload

Outsourcing accounts payable reduces the workload in your company. This leaves your AP team free to attend to the value-creation activities of the business. 

Increased profitability

AP outsourcing solutions put efficient systems in place that allow you to pay vendor invoices on time (or even early) to enhance supplier relationships. A satisfied supplier may offer discounts due to early payments, thus increasing your profitability.  

Cons of accounts payable outsourcing

Despite the benefits of using accounts payable outsourcing companies to relieve your internal accounts payable department, there are drawbacks to this approach. 

Lack of process control

While it is easy to supervise an in-house AP team, the same cannot be said for third-party service providers. You cannot control how they handle your accounts or run back-office processes. This may hinder transparency, communication, and efficiency.

Difficulty reporting accounting errors

When it comes to outsourced AP services, error reporting can be problematic. 

Since you are not physically present to supervise tasks, mistakes may not receive due attention. You may not even notice serious errors — such as duplication of invoice processing and exception processing — until it’s too late. Outsourcing may also make spotting payment fraud more difficult. 

Third-party risks

Outsourcing may help your company cut costs and improve services, but over-dependence on third-party providers introduces more risk. If a third-party company experiences mismanagement or bankruptcy, it may disrupt your accounting services and affect vendor relationships. 

Privacy and security concerns with accounts payable outsourcing

Outsourcing accounts payable data means sharing sensitive information such as BPO and bookkeeping details with third-party teams. This could create a potential gap in your business rules and data security systems.

Should you outsource accounts payable? 

There is no hard and fast answer to the question of outsourcing, as the individual needs of your business, your AP volume, and the structure of your current processes will help determine the best course of action. 

Outsourcing your accounts payable processes represents a significant time and monetary investment. Information collection, data centralization, provider selection, and implementation all require time and effort. When considering outsourcing, answer the following questions to get a better idea of your needs and what’s possible.

Do you need more flexibility? Outsourcing your accounts payable functions can give you the flexibility to quickly scale up or down, depending on changes in business needs.

Could you realize cost savings by outsourcing? If your current accounts payable process has considerable cash leaks or issues, moving to outsourced AP may improve budget optimization even after the cost of service fees. The average cost to process an invoice is as high as $15, and outsourcing or automation may offer up to a sixfold reduction in processing costs.

Do you have the internal support to make the switch? The move to outsourcing requires internal stakeholders to champion the project and take it to completion. It also requires buy-in from your finance and executive teams. Get an idea of the internal interest before making the move. 

Could the increased efficiency of outsourcing help internally? Outsourcing allows you to focus on core operations while freeing up resources for other business functions. If your team can create value elsewhere in the business by moving to an outsourced AP model, outsourcing might make sense.

Will outsourcing improve operational costs? Some companies find that the cost of outsourcing is offset by the overhead savings created by delegating certain processes to an external provider. Conduct a cost analysis to determine if outsourcing your AP processes could improve efficiency and reduce operational costs.

Are there alternatives to AP outsourcing that could work? When considering a major change to your processes, it helps to explore all your options. AP automation (discussed later in this article) may provide the efficiency and visibility of outsourcing while allowing your company to maintain control of its processes. 

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Tips for successful accounts payable outsourcing

Choosing a reputable third-party processor is an essential step in reaping the benefits of outsourcing your AP tasks. Here are some tips to help you.

 1. Research accounts payable outsourcing businesses

Choosing the best outsourcing companies may be challenging if you don’t know what to look for. Consider these tips when looking for the best team to partner with:

• Read reviews and testimonials of the company to see what previous or present clients say about them.
• Review the company’s previous projects to see if they meet your expectations.
• Use a security questionnaire or other supplier evaluation tools to understand the company’s data security and service-level processes.

2. Prepare your in-house team for change

Outsourcing requires several changes to your in-house AP processes. These include delegation of responsibilities, implementation of new software, and changes in the submission systems. Early preparation ensures a smooth transition to outsourced services.

3. Collect all relevant data for migration and cleanse it well

Well begun is half done, as the saying goes. Before implementing a move to outsourcing or automation, get your data in order to ensure you begin your new program with a clean slate. Take time to check and cleanse data for errors, duplicates, or issues that could hinder transparency in your AP processes.

4. Use performance tools to make sure your accounts payable outsourcing team measures up

The efficacy of third-party service providers is difficult to gauge without implementing performance metrics and measurement tools. You may never know if they are billing for idle time, accessing non-work websites, accurately reporting issues, etc., if you don’t set expectations and check that they’re met.

5. Implement change management for your project

Once you’ve got your automation or outsourcing project up and running, be sure to back up its success with a strong change management system. Streamline communication between all stakeholders: vendors, internal teams, and the finance department. Create documentation to outline how updates and changes will be managed. Provide a point person to address questions or concerns and keep everyone updated. 

Consider AP automation as an alternative to outsourcing

Implementing automation software may be a cost-effective and reliable way to solve workflow issues within your AP function. Automation offers many benefits of outsourcing accounts payable without the liabilities of engaging a third-party team. 

By implementing AP automation, businesses can: 

• Improve internal processes without increasing or outsourcing the department
• Increase visibility through real-time data access and analytics insights
• Use accounts payable solutions that integrate with other systems, such as finance or ERP tools
• Create dynamic controls for every user, from departmental stakeholders to the CFO
• Implement well-designed workflows and purchasing processes unique to your business case

AP automation: Case studies and outcomes

There’s little doubt that accounts payable outsourcing and automation improve your organization through higher cost savings, better pricing, increased profitability, greater efficiency, and better data insights and tools. Automation offers all these outcomes without sacrificing the security or visibility of your AP process. 

Order.co helps high-performing clients in diverse industries increase the efficiency of their procurement process.

ZeroCater: Using Order.co, this office catering company cut its invoice volume by 50x, improved its spend visibility, and eliminated organization-wide rogue spending.

SoulCycle: This well-known fitness brand streamlined processes across its 90+ locations by creating curated ordering with preferred vendors, implementing invoice consolidation, and improving budget tracking for better spend management. 

XpresSpa: Using AP automation in its 50 locations helped the organization realize nearly 10 percent first-year savings, reduce its management approvals to 47 percent, and achieve 100 percent order compliance.

Streamline your AP process with Order.co

While accounts payable outsourcing is a viable option for some organizations, many can get the benefits of outsourcing while maintaining higher efficiency and security using a procurement platform. 

• Order.co streamlines many accounts payable functions and offers valuable insight into procurement spending. 
• It creates the efficiency of an outsourced solution while eliminating the uncertainty associated with third-party teams. 
• Order.co also provides a centralized and dynamic ordering process that empowers teams to get what they need more efficiently. 

To see how automation can improve your business outcomes with a scalable solution, request a demo of Order.co.

B2C business success brings its own headaches.

Here is the simple reason why — B2C businesses succeed by selling current and new products and services to existing customers, and then,  they sell to those customers more often. B2C businesses will also acquire new customers, and then repeat the whole process over again.
Having more customer orders means ordering more supplies from current and new vendors, and that is what causes headaches for many businesses. COVID-19 has made it worse. More people are working remotely, teams are introducing new monitoring and checking procedures, and flaws are coming to light. Managing the increased orders and deliveries leads to workload problems because much of it is not standardized and the work is done manually. Your team must then process everything through the accounting system.

The entire accounts payable (AP) process has been in place forever. It is often cumbersome, flawed, inefficient, and leads to dislocations in supplier relationships. In this article, we will discuss:

1. The accounts payable system, its shortcomings, and how to fix them.
2. How fixing problems is not just about making some improvements.
3. Specific and measurable benefits to changing the way AP accounting is done and how the AP department works.

Accounts Payable shortfalls

Staying on top of your accounts payable accounting system is essential. Non-standardized and inaccurate purchase order processing, inaccurate bookkeeping, and imperfect account balances all create problems for the accounts payable department and the C-suite (once the company's general ledger and balance sheet are produced), as well as for suppliers. Late, missed, or short payments caused by those inaccuracies can damage vendor relationships because payment terms are not met. It also generates inaccurate financial statements for the FD and CFO, which negatively affects cash flow and, usually, adds burdens to AP accounting team members' already heavy workload. This then impacts productive workflow and encourages more errors.

In the age of COVID-19, B2C business employees are already under stress from worry, staff absences, potential illness, home-schooling demands, family emotions, and so on. Those problems and performance shortfalls escalate.

When they are working in isolation or as part of a skeleton crew, errors can increase. This wastes time and money and strains vendor relationships.

AP accounting success

Managing AP accounting well has the opposite effect:

1. Vendor relationships improve.
2. Staff workload goes down.
3. Morale stays high.
4. Costs go down.
5. Liquidity improves.
6. You get ahead of competitors who are not on top of everything.
7. Your profits rise.

In B2C accounts payable accounting, the ordering process tends to operate differently across each outlet, studio, store, or restaurant. In addition, if all truth lies in the balance sheet, you sow the seeds in the accounts receivable and accounts payable accounting functions.

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The AP accounting cycle

Accounts payable is based on the expenditure and purchasing cycle. This, in turn, is part of the overall procurement to payment process (P2P). The steps include:

1. Customers place orders

These may be regular orders for in-stock items and services or included in regular delivery schedules. Consumer orders may be poorly explained (especially if done over the phone or by text) or may need to be corrected. Also, what could have been a bulk order often comes in parts. Servicing those orders requires that direct materials are available to meet known and expected customer demand. It also requires other items such as equipment, cleaning supplies, and office supplies.

2. You place orders with vendors

To meet display, production, customer use, or factoring demands, managers and other individuals in each outlet place purchase orders directly with vendors. Separate ordering systems develop, even if the vendor supplies other outlets Quite often, so do separate order- and delivery-monitoring systems. Vendors then deliver, often to separate sites or to one site for subsequent internal distribution to separate departments within the site.

3. Received deliveries trigger internal controls

Deliveries trigger internal controls, which result in delivery documentation receipts or vouchers. These are checked for accuracy against the original purchase order paperwork. The paperwork is then either passed for processing, or the vendor is contacted to check details or correct any errors.
Once delivery details are approved, vendor invoices are received and checked against delivery records. They are then passed to the AP accounting team for processing. Again, if discrepancies are noticed, then internal checks are made and the vendor is contacted to solve errors.

4. Documents receive approval and enter the system

After documents receive approval, AP accounting team members input invoices to the vendors' accounts as ready for payment. A single invoice for multiple deliveries, or situations in which items in a single delivery are allocated to different sites or functions, will then be analyzed and costs allocated accordingly to generate management accounts. In many B2C businesses, there are additional internal analyses and controls, all of which add to the pressure people feel.

5. Payments are scheduled and made

Unpaid invoices form part of current liabilities. So payment schedules must be prepared and approved. The purchase ledger balance includes trade payables and forms part of the liability account (which includes utilities, bank interest, etc.). Payments are then made according to the internal protocols and current liquidity.

How different B2C businesses handle AP accounting

Accounts payable accounting processes are detailed, complex, and time-consuming. Some businesses automate the entire cycle, while others process some of it manually and integrate those parts with automated financial accounting practices later in the cycle. Managing individual orders, monitoring each vendor's shipments and deliveries, handling paper invoices, and paying vendors by check is also how many B2C businesses operate now. It’s also how they see their future.

The inefficiencies systemic in accounts payable have grown because of COVID-19 lockdowns, social distancing, and basic human stress. There is a better way, and the pandemic can be the match that lights the fire of change.

Ebook

The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.

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The fire of change for AP accounting

Successful businesses approach AP accounting as an integral part of the entire process, from ordering through to the paying cycle. Integrating and automating delivers real results. It begins with ordering via a centralized and controlled system. It then moves on to monitoring logistics, managing physical deliveries, and handling delivery and purchase records. Then, accounting for those purchases continues through to payment scheduling and to final payment.

This complete-cycle system generates a level of efficiency and accuracy that a traditional ordering and accounting system cannot. This comprehensive approach is, as we have said, called "Procurement-to-Pay" or P2P.

The result of introducing a full P2P system is that the time spent processing all those records goes down — and accuracy goes up. Costs go down, internal efficiencies rise, vendor relationships improve, and the net result is greater profitability. You also gain the real ability to increase your business's marketplace footprint without all the on-the-ground stress too many people are currently living under.

Customers may still place orders in their old, inefficient ways. But the time saved on P2P and AP accounting can improve the customer experience by introducing methods to raise their game. More time can go into assessing customer profitability so you can let the costly and unprofitable ones go. This enables systems to be put in place to coach the profitable customers to place their orders in ways that benefit them, your business, and your staff.

The practical benefits of fully automated and integrated AP accounting

It is easy to talk about increased efficiency and lower costs, but where do they show themselves? Consider these two different B2C examples, one in Japan and one in the United States. 
MINISO Is a retail business with 33 locations selling beauty supplies, household items, and fashion accessories. By introducing a consolidated vendor order and invoicing system, the process became streamlined, managers became more conscious of expenditure, and their hands-on involvement increased. Apart from obvious efficiencies, everyone saw better control, more staff involvement, and a feeling of empowerment. This boosted morale and created a real sense of camaraderie.

[solidcore] is a health and wellness business. It originally had 25 locations. By automating its AP accounting process, it then expanded to 50 locations. The company saved approximately 356 labor hours a month by not having to manage and reconcile separate purchase orders placed independently by studio managers operating their own accounts with common suppliers.

These two examples show that — by centralizing purchase orders and logistics management, and by automating accounts payable — real savings are there for the taking. It is much easier for individual staff members to contact a central hub online to place orders, check progress, and monitor processing using appropriate accounting software than for them all to do it separately and with no comprehensive standards to work to. Having all of that managed and controlled for them doesn't just relieve pressure. It also reduces the stresses associated with operating in lockdown isolation and eases the feeling of "it is all on my shoulders."

Delivering the solutions

Accounts payable accounting has always been bound up in complex inefficiencies. The way COVID-19 impacted businesses and team members made those inefficiencies worse. It was easier for many businesses to hunker down and hope.

There is an old adage in business, "Winners make it happen. Losers let it happen." Making AP accounting happen in ways that deliver worthwhile savings, greater efficiencies, greater accuracy, and better vendor relationships make financial planning easier and more certain. It also helps raise team member morale. Your marketplace footprint grows, and competitors are left behind.
In summary, when you link your AP accounting with Order.co's purchasing process — coupled with integrated payments and consolidated billing — you will:

1. Simplify your purchase order and AP accounting process.
2. Lose the traditional AP processes problems.
3. Shorten the whole accounts payable cycle.
4. Increase control over orders, supplies, the company's cash, payments, and reconciliation processes.
5. Lower operating costs and improve vendor relationships.
6. Boost team member morale.

Order.co's platform excels in maximizing the benefits of effective order processing and accounts payable systems. Request a free demo to learn more about how your business can remove AP processing problems and get the benefits. We look forward to working with you.

Whether small businesses or global giants, all companies must follow the same basic accounting principles — the Generally Accepted Accounting Principles (GAAP) standard in the US or International Financial Reporting Standards (IFRS) abroad.

Accounting according to these principles helps companies dutifully manage their cash flow to maintain stability and give employees confidence in the future of their workplace. These standards also protect investors and banking institutions by creating a trustworthy reporting standard for financials.  

These standards reassure current and prospective suppliers that your company is trustworthy for supplying goods on credit. This makes it easier to develop relationships and negotiate mutually beneficial deals. Without these partnerships, it becomes difficult for the business to maintain growth. 

A healthy accounts payable balance starts with an accounts payable audit program. This helps growth-minded companies detect and avoid damaging financial irregularities such as misreporting, overspending, and fraud.

To help AP audit procedures run as smoothly as possible, it’s integral to modernize your workflow. This article answers the following common questions about implementing an AP audit program: 

• What is an accounts payable audit program? 
• Why is an accounts payable audit program important to your business?
• How is an accounts payable audit conducted? 
• What standards should you adhere to when conducting an accounts payable audit? 

What is an audit program for accounts payable?

An accounts payable audit is a research activity that certifies the accuracy of financial statements. It ensures your accounts payable transaction reports are accurate representations of the financial activity in the company.

Typically, audits are conducted by professional auditors, certified public accountants (CPAs), or internal accounting employees. External audits are sometimes required for publicly traded companies to certify financial activity to investors. These audits are reported using an SEC reporting website called Edgar. 

Why are accounts payable audit programs important?

Audit procedures are used by the AP department to verify the amount of money listed in the balance sheets and accounts of companies. Any discrepancy or lack of information will cast a poor light on your company if the problems aren’t caught and resolved. Therefore it's important to support auditors and give them the best resources for their job. 

Accounts payable can be a particularly high-risk item to audit because of its subjectivity. This can lead to financial misstatements due to intentional fraud or accidental errors. Without proper internal controls, things like unrecorded liabilities, expense fraud, and duplicate payments could happen at any time — in businesses big and small. 

While the traditional methods of crunching these numbers are still fine and good, now is the time to modernize the process into something more efficient, more accurate, and more cost-effective than using a paper-based system. 

Moving to a totally paperless format can be difficult, and some companies aren’t in the position to do so. But even moving some of your accounts payable processes to a digital space will benefit your company.

Here’s why going paperless is so essential and how to enact these changes within your business.

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What is the most important objective when conducting an accounts payable audit?

The goal of every audit, internal or external, is the same — a “clean” audit result. Clean audits are achieved when the auditor certifies that there are no material misrepresentations or issues with the review of the financial statements. 

Depending on the type of audit, companies may also need to demonstrate the effectiveness of their internal controls. For instance, a Sarbanes-Oxley (SOX) audit result (called an opinion) certifies that the company uses sufficient internal controls in handling financial information and transactions.

How to conduct an AP audit

Before beginning an internal AP audit, it’s important to schedule a meeting with management and other stakeholders to nail down the scope and desired outcome. Planning ahead creates an outline for use during the fieldwork, reporting, and follow-up stages. 

Collect essential work documents

Some examples of essential work documents include:

• A review of existing internal controls for accounts payable
• A detailed period-end accounts payable ledger
• A comparison and comprehensive analysis of budgets as compared to expense reports, with clarifying information on any unexpected deviations
• Complete documentation of any unrecorded liabilities
• A detailed risk assessment of AP and expenses
• A summary of potential weak points in accounts payable controls
• An overview of planned audit procedures for accounts payable
• Documentation related to any fraud investigation required by weak or absent controls

Ask questions

You can also ask internal questions to further detail the goals of the audit:

Process questions

• What is the company’s annual expense budget?
• Who receives budget and expense reports?
• Is there a policy in place to ensure all payables are recorded within the proper period?
• Are purchase orders digital, physical, or both?
• What is the numbering system used for POs?
• Who authorizes purchase orders?
• Are purchase orders made by any methods other than PO? If so, what other methods are used in the payment process?
• Does the accounts payable department have a clear separation of responsibilities for approving, paying, and recording payables, as well as reconciling bank statements?
• How are new vendors evaluated and added to the approved vendor file?
• Who can authorize adding new vendors to payables?
• Are purchases limited to approved vendors?

Technology questions

• Is there a software solution in place to simplify the audit? If so, does the system support three-way matching?
• Is the software used in conjunction with a purchasing policy that follows generally accepted accounting principles (GAAP)?
• Are credit card purchases recorded and tracked by the system to avoid invisible spending? If not, how are credit card purchases approved, and what considerations are in place to limit or eliminate maverick spending?
• What methods, such as Automated Clearing House (ACH) or wire transfers, does the company use to make electronic payments?

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Financial audits gives companies an objective read of their financial statements. Use this checklist to get started.

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Accounts Payable audit assertions

An accounts payable audit can also include tests for these four main audit assertions:

1. Audit for completeness

Auditing for completeness focuses on the most fundamental auditing objectives and procedures during the accounts payable auditing process. Auditors use cut-off tests, reconciliations, and audit trails to verify the proper recording and calculation of AP documents. 

Reconciliation procedures determine if accounts payable ledger transactions are identical to summary figures in the general ledger. Purchase and cash disbursement cut-off tests determine if a company’s end-of-year financial statements include all transactions for the fiscal year.

Auditors use accounts payable audit trails to match payments to recorded payables. They look for open files with unmatched documents. 

2. Audit for validity

Auditors use accounts payable audit procedures for validity to ensure the legitimacy of AP transactions. The most common way of accomplishing this is to reach out to vendors and suppliers to get a confirmation request.

The number of requests sent out varies depending on the business. Most auditors contact regular vendors and suppliers regardless of whether there is an outstanding balance. 

If there are one or more open invoices, they will also reach out to a percentage of the business's partners. 

3. Audit for compliance

When evaluating compliance, auditors must discover proof that GAAP for AP transactions is being followed. This proof is often found by working backward, starting with the inspection of end-of-year financial statements like purchase orders, balance sheets, journal entries for both AP and inventory, and cash flow statements.

Auditors then choose random entries in the general ledger to trace back to their origin, creating an audit trail. This form of tracing allows auditors to examine the exact path of a transaction. They can then evaluate if the accounting procedures were used. 

4. Audit for disclosure

The final step of the accounts payable audit process is to ensure that your accounts payable balance is properly disclosed in your year-end financial statements. Auditors do this by inspecting financial statements to verify things such as current liability. They also verify if purchases are included in the cost of goods calculations. 

Using footnotes provides additional details regarding unusual transactions that may require further explanation beyond simply recording the transaction. 

A final method auditors use is asking a business to disclose a mandatory management representation letter attesting that all their financial statements fully represent accounts payable and purchase figures. 

Why going paperless is the present and the future

All of these steps are easier to complete via a paperless process. But going paperless is a real challenge.

Transitioning the entire department all at once isn’t always practical, and you may find out that your business isn’t equipped to go completely digital. But the benefits of a partly paperless accounts payable system are too substantial not to use.

Going paperless helps your company in the following ways:

Cheaper processing and storage costs

Fees to keep paper records storage add up fast, and records take up valuable space if stored on-site. It also takes more time and money to process physical invoices.

Incorporating automation to digitize vendor invoices allows your team to focus their energies on more important daily matters. 

Records are easier to access

Even if you have the best filing system in the world, finding that one piece of paper you need can take a frustrating amount of time. It takes even more time if you keep your records at an off-site location. Invoices can also get lost in the AP department and lead to:

• Unpaid orders
• Late fees
• Accounts payable audit issues in the future

By changing to a paperless system, information is easily accessible through a search engine built to serve up digital documents at a moment’s notice. Automated systems also initiate much faster invoice processing than doing so manually. 

Environmentally friendly processes

Going paperless isn’t just good for business — it’s good for the environment. A substantial amount of the paper used in accounts payable processing eventually ends up in the landfill once it’s no longer useful. Moving to a more digital system means fewer trees are harvested to support paper-based systems.

Use Order.co to bring automation to your company

AP automation is the best way to give your accounting team the ability to stay ahead of the competition and work in a less stressful environment. 2022 is the year to drop the paper trail. 

Order.co provides the perfect tools to automate and simplify many aspects of your business and allow you to focus on more pressing daily operations:

• Automatic general ledger (GL) coding for correct accounts every time 
• Three-way matching to ensure accuracy in the procurement process
• Vendor payments and consolidated billing to handle hundreds of payments with just a few clicks

These features decrease the number of invoices and other paperwork you’ll need to conduct your business, making the auditing process smoother than ever. If you are ready to take your accounts payable program to the next level, request a demo of Order.co.

Picture your accounting department at the end of every month — is it calm or chaotic?

If your staff is scrambling and cash reconciliation is always a nail-biter, your AP workflow may be broken. Accounts payable automation is the best way to avoid month-end madness and bring visibility and efficiency to accounting processes.

Automated AP workflows allow you to see issues in advance and access information that drives good decision-making. You can scale your department without increasing headcount, eliminate errors by reducing manual tasks, and accelerate your financial operations, approvals, and payable processes.

But what does an automated process look like, and can technology ensure you pay the right vendors on time without issues or delays?

To help you understand AP workflow automation, this article addresses the following questions:

• What is accounts payable automation?
• How does AP workflow software work?
• What are the benefits of automating AP workflows? 

What is AP workflow automation?

AP workflow automation uses technology to process your accounts payable activities, such as invoice coding, invoice matching, vendor payments, and month-end reconciliation.

A smooth accounts payable process ensures you stay on top of your debts by paying the right vendors at the right time. AP automation software streamlines your invoice management, payment process, approval workflow, accounting process, and procurement operations. 

Traditional versus automated AP workflows

In a traditional AP workflow, your accounts payable department handles various business operations by manually processing all steps from intake to payment. There is no continuous flow of information or centralized AP data source for visibility, verification, and auditing. 

Manual processing through traditional AP is slow — the average AP clerk can process about five invoices per hour. Human data entry also increases the occurrence of errors. The manual invoice exception rate averages around 23%. 

These issues result in late payments, missed payments, or even duplicate payments. This creates a continual backlog of payments and data, which makes it difficult for Finance to report accurate financials or plan future budgets. It’s expensive, too — profit margins decrease due to fees and increased hours. 

An AP automation software solution provides a single platform for your AP department and the rest of the organization. All supplier and vendor information is automatically collected. When invoices are transmitted, AI algorithms match them to the purchase order, detect and flag mistakes, and code the invoices for processing. 

The system also automatically routes payments to the correct approvers and provides access to bank accounts for fast payment processing. Automatic payment scheduling avoids cash flow deficits and ensures early payments. All taxation and payment details are stored for compliant documentation and easy auditing. 

In essence, AP automation provides Finance with all the information it needs to compile accurate and timely financial statements.

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The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.

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The benefits of AP workflow automation

AP workflow automation takes the stress out of processing invoices and lets your AP team focus on higher-level projects that drive value. It also offers various other benefits, such as error handling, risk reduction, vendor management improvements, and better profitability.

Preventing overpayment

A traditional AP workflow is complicated and lacks automated checks that prevent overpayment. Without checks for invoice duplicates, supplier changes, or purchase order details, your AP department may overpay its vendors, resulting in losses. This disrupts critical cash flow necessary for business expansion and timely payments (which are essential to retaining vendor relationships). 

Software is the solution that introduces e-invoicing and digital purchase orders, all available on a single platform. With fewer paper invoices and manual processes, your AP department has increased visibility, accuracy, and control.

Improving your business’s credit score

Early payments and positive cash ratios indicate your business is capable of handling its finances and is likely to repay future debts. Both vendors and financial institutions look to your financial reporting when extending credit and continuing business relationships. 

A streamlined payment process reduces late payments, which boosts your creditworthiness. When it’s time to change suppliers, request credit, or ask for a business loan, a good credit score helps you access the necessary credit at lower interest rates.

Creating positive vendor relationships

Your business relies on suppliers to process purchase orders and deliver goods promptly in the agreed volume and condition. Vendors may be less willing to deliver if you pay late or have outstanding debts — and could terminate business altogether. Early payments motivate vendors and encourage discounts. 

Automated AP systems help you track all your invoices, as well as schedule and approve payments on one interface. You can check if you’re paying for goods supplied as ordered or withhold payment if necessary. 

Reducing financial fraud

AP fraud schemes are challenging to detect if you don’t have adequate data and don’t know what to look for. In the 2020 AFP Payments Fraud & Control Survey, 81% of companies admitted that they were AP fraud targets. Even large companies such as Google and Facebook have fallen victim to AP fraud scams and paid millions to individuals. 

Fraud happens through false billing, fraudulent checks, overpayments, and wrongful manual data entry. Automating your AP tasks helps you fight AP fraud at various levels, with processes such as: 

• Setting budgets and administering approvals through automatically routed invoice processes 
• Automated invoicing through artificial intelligence (AI) and machine learning (ML) to capture and match invoices to purchase orders
• Electronic audit trails for your accounting team and external auditors

Creating better audits

Audits are never pleasant, but they can be easier with a reliable AP platform and accurate data. With fully-featured electronic AP systems, auditors track invoice data to the proper purchase orders, approvers, and payments.

You avoid bottlenecks caused by manual data entry and lengthy paperwork reviews. With accounts payable automation, everyone benefits, including the procurement team, accounting teams, approvers, auditors, and the CFO. 

Ensuring better profitability

When your AP workflow is automated, you eliminate fees and control your overhead costs, which boosts your overall profit. An automated system requires fewer AP staff to manage the process, which reduces your hiring costs while scaling your operations. 

How automated AP workflow works

Your AP workflow is one of the most important business processes you’ll implement for keeping purchasing and invoicing on track.

Here are the basic steps of accounts payable workflow automation:

1. Order submission: Accounts payable receives an approved purchase order created during the larger procurement process. After a Finance review, AP transmits the purchase order to the vendor for fulfillment. AP enters the information into their centralized vendor information database to begin the invoice automation process. 
2. Processing and fulfillment: The vendor processes the order and submits an invoice to AP. Electronic invoices are automatically routed to the system. This can happen directly within an automated platform, electronically through an email address, or by capturing a paper invoice with optical character recognition (OCR) technology. The system codes the payment automatically for entry into the general ledger (GL).
3. Three-way matching: The system checks the invoice, purchase order, and receiving information to ensure they match. In an automated workflow process, this process happens automatically without human data input or interaction. 
4. Invoice reconciliation: Once the matching process is complete, the system reconciles the invoice and sets it up for payment. Vendor payment is submitted through an electronic invoices payment workflow according to the payment terms outlined in the invoice. 
5. Vendor payment: Payment information is recorded in the accounting system and (if integrated) into ERP systems. Finance teams have full visibility into the transaction. 

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The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Download the ebook to learn how to avoid this lethal pitfall.

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Best practices for AP Workflow

Use these best practices in your current workflow to increase your efficiency and results.

Implement spend analysis

With full data visibility, Finance is empowered to identify spending patterns and use them to your advantage. Spend analysis can identify spending patterns by department, role, category, or location. This information can be used to adjust budgets, bring excess spending under control, and identify issues or potential problems in the company’s finances.

Establish a checks and balances system 

Manual tasks and paper invoices reduce your audit trail efficiency and open your business to accounts payable fraud. AP automation software enables three-way matching from invoice, payment, and reconciliation. You can easily monitor and track the cash flow to check for suspicious behavior, whether alone or with an audit team. 

Accounts payable software also creates automatic routing to the right approvers after integrating with your ERP. You can track each invoice and purchase order to the approver during audits. What’s more, you can separate those who write and approve checks to monitor their approvals. Lastly, you can suspend, authorize, or delay payments depending on your budget and demand. 

Increase cost savings

AP automation eliminates redundant work, such as invoice matching, payment processing, and checking for duplicates, which optimizes your AP staff’s workflow. By removing these manual processes, your team can spend time on higher-value work, such as improving future contracts and benchmarking costs to realize savings.

FAQ on AP workflow automation with Order.co

Accounting and Finance often have questions about automating their workflow process. Here are some answers to common questions: 

How do stakeholders submit requests? The AP intake system is different for every company. Some companies choose an email or web-form intake process. Others use procurement software to fully automate the purchasing process. With a platform like Order.co, stakeholders purchase goods through their own vendors or a network of 15,000+ pre-approved vendors. 

What happens if vendors send multiple invoices? All invoices are entered into the system with all identifying information in appropriate fields. This means a vendor file contains all the necessary information to process the payment. Individual vendor invoices are identified by their invoice number. Duplicate invoices are automatically detected to avoid duplicate payments. 

What if there’s an issue with an invoice? Suppose the system detects problems with an invoice, such as incorrect or incomplete information, unusual activity, or duplication issues. In that case, the AP team receives a notification to review the information and remedy the problem. These types of issues are drastically reduced using an automated electronic system.

Is AP automation worth the money? The cost savings in employee time, wages, and vendor fees, paired with the potential for discounts from those vendors, give you net savings when you invest in an AP workflow automation tool. 

Automate your AP workflow with Order.co

The time is right to reap the benefits of a fully automated purchasing and AP workflow. With Order.co, buyers get access to the goods and supplies necessary while AP supports impactful business goals (instead of just processing invoices). 

Order.co has all the features needed to automate and digitize your AP workflows: 

• Centralized purchasing for stakeholders
• Automatic line-level GL coding for purchases
• Three-way matching capabilities for processed orders 
• Electronic payment of approved invoices
• Integration and exporting for better data visibility

To learn more about automating your AP workflow for greater efficiency and savings, check out the Finance Automation Guide. It provides in-depth information about centralizing your AP payment process, increasing visibility, and maximizing the savings potential of your accounting process.

Making money is the primary goal of any company—but earning is only half the battle. The other half is reducing expenditures that eat revenue. While overhead spending of up to 35% of annual revenue may be considered normal, this percentage is only relevant in relation to net profit. If you’re only looking at 5% profit after all is said and done, you need to rethink your spending strategy. 

One of the first areas to look? Identify the inefficiencies in your process. No matter how much money your teams bring in, you can’t outrun a process that’s creating cash leaks.

Download the free ebook: How Automation Can Solve Finance Teams’ Biggest Challenges

Accounts payable (AP) is one of the best areas to start improvements. Traditional AP departments limp along with expensive challenges such as invoice exceptions, data entry errors, ineffective fraud prevention, lost cash, inefficient data storage, and slow processing.

Companies are turning to automated accounts payable procedures to eliminate redundancies and improve organizational efficiency. As of 2019, the AP automation market was worth $1.9 billion—and at a compound annual growth rate (CAGR) of 11%, the sector is projected to reach a valuation of $3.1 billion by 2024.

Demand for controlled user access, which helps reduce payment-related fraud, is one of the primary catalysts for this growth. However, the sector faces challenges such as a lack of awareness of AP process automation and digital literacy skills. As digital literacy and awareness of AP automation increase, the growth will only continue.

In this article, we will look at some key aspects of the AP process:

• How the traditional accounts payable process works 
• What an automated accounts payable process looks like
• The benefits of accounts payable automation

What is the accounts payable process?

Business operations are based on the flow of expenditure and revenue within a company. Accounts payable procedures manage the expenditure and purchasing side of things. Their primary function is to ensure company expenses are paid. 

The AP process involves capturing data on invoices for all invoice formats (digital and paper), ensuring invoices are coded with the correct accounts and costs, matching the invoices to purchase orders, and processing the payments.

The manual nature of the traditional accounts payment approach increases the risk of human errors, redundancies, and time wasted. With inefficient processes, the procure-to-pay (P2P) cycle can take up to three months. 

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The consequences of inefficient accounts payable 

Disorganization in the accounts payable process can lead to many negative business impacts:

• Fines and late charges
• Vendor relationship challenges
• Employee burnout and turnover
• Supply chain and distribution delays
• Manufacturing and shipping disruptions
• Credit and funding issues
• Cash flow fluctuations

There are also other challenges with manual accounts payable processes:

• Expense reporting and tracking
• Susceptibility to risk and third-party fraud
• Increased spending on AP team wages
• Lack of data visibility
• Communication delays 
• Payment exceptions

What does an automated AP process do?

An accounts payable team is responsible for collecting invoices, confirming three-way matching, and conveying payment. Due to the number of stakeholders involved, cycle times for purchasing and payment are usually long and riddled with challenges.

An automated accounts payable process eliminates the bottlenecks. Through automation, your accounts payable department benefits from increased efficiency and accuracy, cost savings, and reduced exception rates. 

7 Major benefits of automating your AP process

Change can be hard, but it’s necessary. In a volatile economic landscape, enhancing efficiency in your accounts payable procedure plays a crucial role in your potential growth. 

Here are seven key areas where AP automation improves the process:

1. Time savings

Time is money, yet nearly two-thirds of companies are throwing away AP budgets with manual processes. Automated processes make it possible to do more repetitive tasks with fewer AP staff hours. Many tasks can be converted into touchless processes through automation:

• Scanning vendor invoice headers and line-item data using optical character recognition (OCR)
• Routing purchases orders and payables through predetermined business processes
• Handling three-way matching with no human involvement

2. Streamlined invoice processing

Approximately 3.6% of all invoices entered manually have errors or discrepancies. Through automation, your purchasing department can set internal controls that make its AP processes streamlined and accurate, requiring minimal oversight. This increased efficiency comes with several key benefits:

• Virtually no human errors
• Ease of budgeting, sending and receiving reports, and auditing and preparing financial statements
• Reduced risk of overpaid, miscoded, duplicate, or late payments
• Automatic exceptions flagging for invoice approval, review, and reconciliation

3. Greater operational control

With the traditional AP process, it’s easy to lose track of invoices due to miscoded documents or misplaced paperwork. With such limited operational control, business owners end up paying late fees for missing or delayed invoice payments.

Accounts payable software solutions eliminate these challenges in a few ways:

Automation: Creating automated workflows for accounts payable procedures eliminates invoice exception risks. Since everything takes place in the system, losing invoices becomes a thing of the past. The platform handles invoices in the order your team uploads them. The time saved through automation can instead be directed toward other activities that increase organizational efficiency.

Exception handling: With the process improvement that comes with automation, resolving errors in vendor payments is easy and fast. If there is a problem with a particular invoice, the system will automatically flag and reroute it to the appropriate person immediately.

Risk avoidance: Fraud is one of the primary risks of manual payment processes. Identifying fraudulent invoices is an elusive task, as is rectifying them once an incident occurs. A manual system makes it difficult to conduct thorough audits. In an automated accounting system, all the necessary invoice data is in one place. Unverified or suspect payments are easier to identify and investigate.

4. Discounts on early payments

Delays in the accounts payable approval process lead to supplier fines. Conversely, timely payments result in discounts. While 42% of respondents to a recent study cited early payment discounts as a top priority, achieving this objective with a manual process is nearly impossible. 

An automated AP process streamlines invoice processing, allowing you to take full advantage of early payment discounts.

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How Automation Can Solve Finance Teams’ Biggest Challenges

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5. Integration solutions

Operational efficiency is improved when your procurement function integrates with your larger tech stack. Through integration, accounting can share data with other vital systems such as financial planning and analysis (FP&A) tools, enterprise resource planning (ERP) systems, and other internal databases.

6. Increased productivity

Talent plays a significant role in the success of a company. Organizations look beyond credentials to pursue innovative personnel with leadership qualities that can help steer the business forward.

In building a modern procurement team, creating an environment that maximizes each member’s potential is essential. AP automation solutions remove redundant processes so team members can focus on core business functions to increase revenue.

7. Improved vendor relationships

Delays in the processing and payment cycle lead to difficulties with supplier relationships. An automated accounts payable process improves supplier relationships in several ways:

• Helping you adhere to payment schedules and supplier payment terms
• Enabling invoicing through email, electronic delivery, or paper
• Automating renewals and enabling lifecycle evaluations

Next steps to automating your accounts payable process

An automated AP process benefits you and your suppliers. The AP process is fast and accurate when teams use automated accounting software, saving time and avoiding potential losses from fraud or duplicate payments. For your suppliers, efficiency eliminates delays for accounts receivable. Automation ensures strong, long-term relationships with your most important suppliers.

To learn more about using best-in-class accounts payable automation software to increase operational efficiency, download our Operational Efficiency Handbook.