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 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 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.

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.

Download the ebook

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. 

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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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.

Ask any modern business decision-makers about the essence of trade accounts payable, and you'll soon realize that it's one of the greatest tasks they face. After all, businesses must pay their debts, and they cannot afford to get this wrong.

Managing invoices accurately and promptly is almost an art, and it’s the key to maintaining good vendor relationships.  It's essential to understand the critical relationship between trade accounts payable and vendor relations and its impact on your company's bottom line.

In this article, we'll look at:

1. What are trade accounts payable?
2. How trade accounts payables are intertwined with procurement and vendor relations
3. Managing the accounts payable process and its effect on profitability
4. Why trade accounts payable matters

Download the free tool: Invoice Tracking Template

What are trade accounts payable?

Trade accounts payable (also called trades payable) refers to an amount that suppliers bill a company for delivering goods or providing services in the ordinary cause of business. When paid on credit, the company enters the billed amounts in the accounts payable module of their accounting software or balance sheet.

Any amounts owed to suppliers that the company immediately pays in cash are not part of trade account payables since they are not a liability. In the accounting system, businesses record trade accounts payables in a separate accounts payable account. They also credit the accounts payable account and debit whichever account closely represents the payment's nature, such as an asset or an expense.

It is worth noting that the classification of trade accounts payables is ‘current liabilities’ since they are payable within a year. When that's not the case, the business can classify the trades payables as long-term liabilities. Since long-term liabilities tend to have an attached interest payment, the accountant is more likely to classify them as long-term debt.

Trades payable vs. non-trades payable

One significant difference between the two is that you usually enter trades payable into the accounting system through a special module that automatically generates the required accounting entries. On the other hand, you typically enter non-trades payable into the system using a journal entry.

Trades payable vs. accounts payable

It's normal for some people to use the two phrases interchangeably, but they have a slight but important difference. Trades payable refers to the money you owe vendors for inventory-related goods — for example, business supplies or inventory. On the other hand, accounts payable include all your short-term debts or obligations, including trade payables.

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Invoice Tracking Template

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How is trade accounts payable intertwined with procurement and vendor relations?

Traditionally, your procurement department is responsible for maintaining vendor relationships, including contract negotiations, the pursuit of discounting opportunities, compliance to terms, and repayment processes.

Still, it is essential to know that the trade accounts payable process also plays a crucial role in the daily business mechanisms to keep vendor relationships on a positive track.

Research reveals that 47% of companies pay one in ten invoices late, while 16% admit that they pay one in five invoices late. Only a paltry 5% of businesses assert that they always pay their obligations on time, whereas one in 12 firms never monitors its payments processes at all.

Late vendor payments risk causing disruptions in the supply chain and cash flow. Some of the causes of late invoice payments include lack of automation, slow internal processes, lack of capacity to manage invoice volume, and administrative error. Unfortunately, all these are mere excuses for poor performance. Besides, vendors shouldn't have to accommodate internal process flaws.

Supporting a strong, continuous supply chain

Business vendors are crucial to your company's success. Consider, for example, the retail and manufacturing sectors. Regular business relies on vendors to provide the necessary products, parts, and raw materials to complete their end offering. As such, these companies can't afford to lose their key vendors due to inefficient trade accounts payable processes resulting in late, lost, or faulty payments.

Automating your accounts payable workflow speeds up invoice processing and ensures your vendors receive payments accurately and on time. In return, vendors are likely to deliver goods swiftly and offer future discount opportunities.

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Invoice Tracking Template

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Profitability impact of trade accounts payable management

Just like other current assets or liabilities, trade accounts payable have a significant impact on your profitability. The single most critical thing you can ever do to maintain good vendor relations is pay your bills on time. Unfortunately, accounts payable management can get hectic and unwieldy. As your business grows, so does its suppliers and the invoices you have to pay.

Good vendor relationship management requires a mutually beneficial relationship between you and each supplier or vendor. A positive relationship is a win-win for all parties. Vendors will cut you good deals, suggest new and better products, and work with you on delivery policies and times.

It is prudent to cultivate good supplier relationships because they also mean increased company efficiency. To do this, always ensure that you:

1. Pay your bills on time.
2. Don't cut off suppliers without a valid reason.
3. Keep open lines of communication.
4. Elicit trust with all of your vendors and suppliers, regardless of how many you have.

In return, a good vendor could respond by offering you their best trade credit terms possible, hence maximizing your profitability.

One critical metric in any business's financial management process is its cash flow, which comes from business operations like financing and investing. It's worth noting that you generate profit from sales after paying all expenses.

Inadequate monthly cash flow means you won't have enough cash at hand to pay your bills on time, which means trouble with your suppliers. Often, vendors offer cash discounts if businesses pay within a specified number of days, like three months. That discount can have a significantly positive effect on your profitability.

Now, imagine getting cash discounts from all of your vendors and having enough cash on hand to take them. It will result in a significant effect on your net profit margin.

Why accounts payable management matters

The accounts payable management process focuses on ensuring that you pay your bills timely without choking cash flow. It further ensures you have sufficient liquidity to fund process optimization, investment opportunities, and product innovation to reduce your ongoing costs.

It's critical to optimize your accounts payable management, particularly for small business owners who rely heavily on their working capital compared to larger companies. Below are some reasons why accounts payable matter:

1. Accurate and efficient workflows in your trade accounts payable system provide transparency and accuracy in your cash flow tracking and planning.
2. Better cash flow management allows for more accurate budgeting.
3. Effective management provides actionable insights that you can leverage to enhance contract negotiations and strategic sourcing. It also allows you to build stronger vendor relationships that give you access to better discount payment terms.

How do you audit trade payables?

The best practice to follow is to review the recorded cash disbursements subsequent to the corresponding balance sheet date. It allows you to determine which period to apply the related payables and whether it belongs to the previous one. Identifying unrecorded trade accounts payable enables you to manage all your current liabilities. You can also make payments on time to safeguard your vendor relations.

Trade accounts payable is among the essential tasks to get right. The risks of failure are too significant to leave to chance. A poor trade accounts payable process can damage your vendor relations and open you up to fraud risk.

Order.co helps finance and operations teams spend less time placing and managing orders. Peloton, Hugo Boss, XpresSpa, SoulCycle, and WeWork all use Order.co to:

1. Place orders from one cart and approved catalog automatically across every vendor.
2. Track real-time spending.
3. Make actionable purchasing decisions.

Order.co automates your purchase orders, tracks delivery issues, saves you money, offers spend tagging and visibility, consolidates billing and vendor transactions, and unifies all your trade accounts payable data under one platform. To get started, schedule a free demo today.

Accounts payable (AP) and notes payable (NP) are often used interchangeably, but in reality, they operate differently and serve distinct purposes within your financial strategy. 

To properly manage either payable category, granular spend visibility is essential. Without it, the benefit of strategic financing can be diminished or even become a vector for financial risk.

We will define and contrast accounts payable and notes payable and illustrate how financing strategies offer maximum growth opportunities when paired with a dynamic procurement management tool. First, let’s get a clearer understanding of the differences between AP and NP. 

Download the free tool: Financial Audit Preparation Checklist

Accounts payable and notes payable defined

Accounts payable and notes payable are liabilities recorded as journal entries in a general ledger (GL) and on the company’s balance sheet.

Accounts payable refers to short-term liability accounts incurred for purchases with vendors and suppliers on credit. Notes payable are long-term liability accounts incurred through financing by banks and other lending institutions. Many business owners and managers assume accounts payable and notes payable are interchangeable terms, but they are not.

Let’s look more closely at the differences:

Accounts payable (AP)

• Short-term debt resulting from purchasing goods and services. These credit purchases are due for repayment within a year or less. (In practice, most suppliers seek Net 30 repayment terms.) 
• Purchases do not incur interest within the repayment period and discounts may be offered for early payment. 
• These short-term loans are non-collateralized. As long as invoices are paid promptly, suppliers will continue to fulfill new orders.

Notes payable (NP)

• Longer-term obligations to vendors or lending institutions. They have specific terms and maturity periods of either one year or less (short-term) or more than one year (long-term). 
• Backed by written promises to repay (called promissory notes) that outline payment terms. Notes include the principal amount issued by the lender, interest payable, payment interval, and security or collateral terms. These elements are encapsulated into a formal lending agreement between the borrower and lender. 
• Notes payable are customarily funded by banks, but they may also be paid to other financial institutions.
• Specific due date and repayment schedule. Notes payable are recorded and reported differently from accounts payable.

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Financial Audit Preparation Checklist

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

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What are the benefits of long-term notes payable? (LTNP)

Leveraging financing can be an effective way of getting needed supplies and creating growth in the short term for companies that can generate revenue and adhere to repayment terms.

A long-term notes payable agreement helps businesses access needed capital attached to longer repayment terms (12–30 months).  

• LNTP agreements are repaid with a set interest rate (like short-term notes payable). 
• Long-term notes can be non-collateralized loans used for purchasing supplies or equipment. This gives businesses the funding they need without relinquishing any control over how those funds are used and without needing pre-approval from investors. 
• Long-term notes payable provide the capital to invest in future growth, product development, and innovation, freeing up current assets for current operations. 
• The LTNP is a low-risk financing option. It increases a company’s debt capacity and, therefore, displays deeper financial stability. 
• Interest due can be deducted from the current year’s tax liability, lowering the overall cost of capital financing.

LTNP funding allows businesses to plan beyond day-to-day operations and fund innovation and growth. Using LTNP credit, you improve everyday control while building products and features to increase future revenue.

Pairing a financing strategy with a procure-to-pay solution

Leveraging the power of financing within your business allows you to grow faster, bring products to market within shorter timelines, and get needed supplies and equipment into service without waiting to raise revenue or constraining cash flow.

To make the best use of this strategy, you need strong visibility into procurement activities, and a granular understanding of your current liabilities. Without a process of strict budgetary control, the advantages you gain in securing long-term financing may be lost in poor cash management—you risk overspending on short-term liabilities and finding yourself unable to make payment obligations on your loan agreement when the bills come due. 

Strong procure-to-pay (P2P) management helps companies keep a rein on spending and creates an audit trail and a business case for every purchase. Procurement software can build these guardrails into the ordering process so your stakeholders can get what they need without overspending. 

You’ll get four basic areas of improvement from a good P2P process:

• Better visibility to optimize spend
• Reduced or eliminated maverick spending
• Streamlined supply chain management to avoid production delays
• Integrated invoice approval and payments to avoid fees and enable discounts

When you procure needed supplies using financing and ensure an effective budgetary process through P2P, you immediately see higher cash flow stability and lower costs. These conditions improve working capital to support growth further. 

How does procure-to-pay (P2P) work? 

Many businesses operate across several sites and via separate departments that replicate similar activities. It is common for the same goods and services to be needed by these separate departments and sites. Without an established P2P process, each location may end up generating its own supply chain, which often leads to frequent errors. 

P2P systematizes every step of the procurement process:

• Requisitioning goods and services
• Selecting and evaluating suppliers
• Receiving and reconciling shipments
• Invoice approval and supplier payments 

Goods and services can be requisitioned from the same suppliers across all departments, cleaning up your supply chain and greatly reducing errors.

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Financial Audit Preparation Checklist

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

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10 Steps in the procure-to-pay (P2P) process

When each purchase follows a procurement plan with the following steps, it establishes accountability and ensures your business operations are transparent and efficient: 

1. Identify goods and services to be ordered.
2. Raise a purchase requisition.
3. Review and approve the requisition.
4. Select the appropriate supplier based on known pricing, quality, and delivery standards.
   • If there are no existing suppliers, create a list of potential vendors and issue requests for bids.
5. Integrate requisitions to create a complete purchase order with specific order and delivery details for each site or department.
6. Issue the purchase order to the supplier.
7. Receive and approve deliveries.
8. Check and approve supplier invoices with three-way matching.
9. Pay supplier at the business’s discretion.
10. Evaluate supplier performance. 

While these steps are possible using a manual process, the volume of accounts and invoices in most companies requires automation to fully realize savings and control.

Using technology to power P2P success

When you understand the difference between accounts payable and notes payable, it is easy to keep them separate and use that difference to your advantage, meeting immediate capital needs and improving value creation.

Here are some of the top benefits of pairing strategic financing with P2P solutions:

Better finances: Good financing strategies with a solid procurement management system ensures your long-term plans are supported with smart short-term spending controls. 

More stability: This comprehensive process keeps cash flow smooth and efficient. 

Transparency: Automation and centralized data help accounts payable teams retain total visibility through every stage, from requisition to final payment. 

Higher accountability: This standard of budgetary control ensures every purchase meets operational standards, adheres to corporate compliance, and stays within budget.

Tighter supply chain: Improved efficiency benefits both the company and its suppliers. P2P makes it easier for suppliers to meet delivery deadlines. This reduces their costs and allows you to renegotiate better prices and terms.

Better liquidity: Your working capital is less strained and more available for other immediate needs. It can also be allocated to future budget plans, including settling promissory notes.

By knowing the differences between notes payable and accounts payable—and learning to leverage each correctly— you can improve your cash flow and grow more effectively. Pair this with a robust P2P platform, and you’ll be set to optimize your finance function and further accelerate success. To learn more about leveraging financing and putting procure-to-pay to work in your procurement practice, watch our on-demand Finance and Automation webinar.

What if you discovered that as much as 2% of your business’s payments are duplicates, charged for the wrong amount, or contain some other error? According to industry survey data, that’s the case for many businesses. 

Businesses must ensure their accounts payable (AP) departments verify the legitimacy and accuracy of every invoice they pay. That’s where three-way matching comes in. Companies use this reconciliation method to detect fraudulent invoices, embezzlement, computer glitches, or human error. Then, they can prevent unauthorized payments. 

In theory, it’s an entirely valid solution—however, in practice, the process used to implement this cost-saving system often has glaring flaws. For many companies, manually verifying payments is more expensive than just paying the occasional erroneous invoice.

Considering that the entire purpose of three-way matching is to increase payment accuracy and avoid maverick spending, it’s essential to carry it out as efficiently as possible.

In this article, we’ll cover the basics of three-way matching:

• What three-way matching in accounts payable means
• The benefits of a three-way matching process
• How three-way match automation addresses payment accuracy issues without costing more than the problem it solves
• Why the right automation software can provide additional benefits

Download the free tool: Invoice Tracking Template

What is 3-way matching in accounts payable?

In accounts payable, three-way matching is an internal control process that ensures invoices, purchase orders, and receiving reports all have consistent line item details. 

The goal of this approval process is to ensure that each invoice is consistent with the products and amounts ordered, as listed on the purchase order. Then, it ensures this matches the goods delivered to the receiving department and listed on the corresponding receiving report.

This AP process guarantees that what is delivered matches the original order every time.

The difference between 2-way, 3-way, and 4-way matching

Two-, three-, and four-way matching are all accounts payable approval processes—however, each version takes the matching process to a different degree. 

Two-way matching is the most basic approval process, where the vendor’s invoice number and details are checked against the purchase order (PO) number to ensure that these documents match. 

Three-way matching adds the receiving report or receipt of goods as a further verification method.

The most complex, labor-intensive, and time-consuming invoice matching technique is 4-way matching. The supplier invoice is matched against the PO and the receiving report, which is matched to the packing slip or order receipt.

Ebook

Invoice Tracking Template

Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.

Download the tool

Why should you use 3-way matching?

The main goal of implementing a three-way matching process in your purchasing department is to cut costs. It is a money-saving measure to ensure companies don’t overpay. Three-way matching makes sense for several reasons:

• It eliminates invoice errors. Even if both parties in a deal are careful, mistakes can happen. Supply chain fluctuations may create backorders and substitutions, or manual entry could introduce discrepancies into a price calculation. Three-way matching creates a system of accountability that everyone can benefit from.
• It helps identify fraud. Tying every shipment back to its purchase and invoice documents makes it more difficult for bad actors to move phantom or inflated invoices through the process. It makes spotting these issues easier and creates an audit trail for researching procurement fraud. 
• It eliminates double payments. Tying invoices to accounting data creates a clear chain from purchase to fulfillment to payment. By ensuring every invoice has a home, businesses can avoid costly duplication and the time and research involved in seeking a refund.
• It creates confidence in your numbers. Disorganized processes lead to doubt and frustration. By creating a clear internal control for each purchase, accounting and finance teams can trust the numbers they deliver in their reporting, and executive teams can rely on the financial statements created from this data. 

Three-way matching has the added benefit of simplifying bookkeeping and audits. With all your historical ordering and matching data centralized, you surface other purchasing insights, refine your reporting process, and get to the bottom of issues and exceptions more quickly. 

The real cost of a manual 3-way matching process

Companies that choose to employ three-way matching do so to reduce mistakes, catch illegal activity, and save money. However, with a manual process, even when trying to avoid overpaying, businesses can often end up with much higher processing costs. 

Take a look at some findings of a recent study by Ardent Partners regarding AP and invoice processing:

• The average invoice costs $9.25 to process manually
• More than 20% of invoices have exceptions, costing time and money to correct
• Four in 10 (38%) of businesses surveyed reported business fraud within the previous 12 months

Expenses from manual invoice matching could amount to thousands or even millions of extra dollars in processing costs, all while trying to avoid overpayment.

How 3-way match automation can help

Businesses that have switched from a manual procurement process with paper invoices to a completely automated system have seen some unbelievable results. They have more than proven the value and efficacy of automating the three-way matching process.

Take a look at some of the data from businesses that have shifted from manual to automated 3-way matching:

• Savings of 90% on accounts payable costs
• Accounts receivable expenses reduced by nearly half
• Instances of invoice errors reduced by 37%
• Lower invoice processing costs by 29% on average
• Businesses with 10k+ monthly invoices saved $300k

Ebook

Invoice Tracking Template

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Case studies: 3-way match automation in the real world

While AP automation saves businesses thousands of dollars on manual approval process costs, that’s not the only benefit to automation. The right platform can save you time on needlessly complex procurement processes that eat up your schedule. This allows you to efficiently do more of what needs to be done. 

Many businesses have trouble keeping track of which suppliers are approved, where everything was ordered from, and when deliveries are due. Ordering from multiple vendors on different sites and completing several checkout processes can lead to disorganization and confusion. These issues are easily addressed with the right automation solution.

See how the following businesses used the Order.co platform to streamline their workflow:

WeWork: Total visibility and order continuity

The co-working unicorn WeWork faced significant challenges in streamlining ordering and payments across their 800 global office locations. By implementing an integrated ordering and payment system, the company increased visibility into its AP processes and eliminated maverick spending. Replacing their manual 3-way matching with an automated process allowed them to process millions of invoices with ease. This move brought the company better ordering continuity, improved leverage with suppliers, and considerable cost savings.

Zerocater: More process efficiency and fewer invoices

Zerocater had a complex, inefficient, and time-consuming invoicing process. They had limited visibility and little control over ordering. AP had trouble keeping track of suppliers, and they spent days on invoicing. Using the Order.co Chrome Extension, the team could shop anywhere, check out across vendors, and consolidate their invoices. Zerocater now has a much more efficient system, with 50x fewer invoices, freeing up their time to focus on what they do best.

XpresSpa: Vendor compliance and cost savings

XpresSpa had a chaotic list of vendors, products, and carriers, only 70% of which complied with their corporate standards. Using Order.co’s platform, they streamlined their procurement workflow, increased their vendor compliance to 100%, and saved a total of $68,000 in the first year.

Automate your 3-way matching process with Order.co

Three-way matching is a great system when implemented correctly. Using an automated system for your invoice processing, procurement, and other systems saves time, realizes better cost savings, and leaves more energy for accounting teams to perform higher-level tasks.

To automate three-way matching as part of your procure-to-pay process, you need a system with some key functionalities: 

• Centralizing order and supplier data into a single platform
• Creating purchase orders directly through the system
• Accepting electronic invoices automatically
• Conducting automatic three-way matching between POs, delivery forms, and invoices
• Automating the invoice approval and payment process 
• Reporting on all these activities from within the platform

Order.co gives you one platform for purchasing, vendor management, and automating your AP processes to save you the time and expense of manual data entry and human error.

To learn more about implementing automated three-way matching in your procurement process, schedule a demo of Order.co today.