In the modern business environment, software is a driving force behind every aspect of success. Procurement is no different. Implementing next-generation software to automate the procurement process creates savings and scalability that dramatically enhance an organization’s financial strength.
Today we’ll discuss the benefits of procurement software and how it helps companies achieve more by answering:
- What is procurement software?
- How does procurement software differ from traditional methods?
- What are the benefits of procurement software?
- What should you look for when selecting a procurement software solution?
What is procurement software?
Procurement is the strategic process of securing the products and services needed by a business. Procurement allows companies to source, organize, and purchase products from different vendors to achieve the best financial outcomes. It enables growth through better processes and more accessible data while providing visibility into company spending that safeguards against cost inefficiencies and risk.
Procurement software solutions help achieve these outcomes while freeing accounting and finance teams from the burden of extensive manual work. It streamlines processes by allowing your company to purchase products, approve orders, and automate vendor payments all in one place. It centralizes your data, creates visibility into spending, and allows organizations to fully optimize their cash for better capital efficiency.
Choose the Right Procurement Technology With This Decision Matrix
There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.
How does procurement software compare to a traditional system?
In a traditional procurement system, the accounting department manually carries out each purchase-related task, including:
- Routing purchase requests
- Checking for approvals
- Entering tracking data
- Managing vendors
- Processing invoices
- Making payments (usually with paper checks)
What’s more, tracking these manual processes usually occurs on spreadsheets, if at all. This robs the organization of visibility and leverage when negotiating for the supplies it needs to grow.
A procurement system handles many of these manual tasks automatically by:
- Centralizing vendor and invoice info
- Using optical character recognition (OCR) for converting paper invoices
- Building automated workflows for approval and order management
- Digitizing purchase requisitions, order processing, and payment for goods
Why does my finance team need procurement software?
No matter what industry you’re in, having a single source of truth for procurement is critical for a sustainable and scalable business. Research by NetSuite shows that procurement software can automate almost 75% of accounting tasks.
Software streamlines AP functionality, enables seamless workflows, creates and tracks purchase orders, and automates contract management. It gives you the tools to analyze current spend on products and budgets—ensuring financial stability and encouraging growth. With procurement software, you increase visibility, improve controls, and standardize the purchasing process to make employees’ and vendors’ lives easier.
An intelligent procurement platform helps businesses build insight into their spending. Some functions accomplished by procurement software are:
- Centralized vendor lifecycle data (such as contracts and reports) for easy analysis
- Automatic visibility into spending, trends, and contract compliance
- Simplified procurement intake and approval processes
- Strategic sourcing to obtain the best goods at fair pricing
- Automation of repetitive tasks, which takes the burden off the accounts payable team and increases time for higher-impact tasks and initiatives
Let’s break down three ways your company can benefit from procurement software:
- Operational efficiency: By centralizing purchases and consolidating vendors into a company-wide platform, your employees make fast, systematic purchases with one click (and without manual ordering mistakes). Procurement software automates processes and gives your team more time to dedicate to improving operations.
- Transparency: Procurement software allows complete purchasing control by centralizing purchase requisitions, streamlining approvals, and providing insights on real-time purchases and purchase history. Knowing your numbers enables inventory management and helps procurement teams see where to eliminate unnecessary expenditures.
- Cost Savings: By showing what products your company is purchasing, how many of those products are purchased, and how much those products cost, procurement software provides insight into cost-effective alternatives. Procurement software displays the best prices offered by different suppliers and gives insight into areas where bulk purchasing may save money.
Companies without procurement software lack two things: organization and visibility. With procurement software, employees purchase exactly what they need with full transparency of expenses and the budget—all in one centralized system.
Choose the Right Procurement Technology With This Decision Matrix
There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.
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What to look for in procurement software
The benefits of procurement software are vast, and those benefits are only enhanced when you choose procurement management software that offers advanced options. Look for these features of procurement software that separate the best from the rest:
Accounting automation: After front-end approvals, the ideal purchasing software makes it easy for accounts payable to route, reconcile, and pay for goods and services. Purchasing software automates the accounts payable process and frees up people and resources to handle more impactful work.
Curation options: Decision-making is easier when users have a list of preferred options. Look for a tool that offers curated vendor catalogs and preferred vendor support. The ability to encourage strategic sourcing within the app also increases supply chain resilience.
Flexible workflows: Every organization has different needs for vendor onboarding, approvals, and reporting. Look for a procurement management system that supports your individual needs with flexible workflow options. Choose a tool that enables fast decision-making with automated approval routing and notifications to shorten approval times.
Intuitive design: Users won’t adopt a tool if they can’t quickly learn the system. Find a tool with a well-designed UI that helps users get what they need quickly and easily.
Integrations: Procurement software operates best when it’s part of an ecosystem of tools that manage the financial story. Look for an option that offers integrations with other vital finance tools in the accounting stack.
A tool that meets all the above qualifications makes achieving procurement goals easier and paves the way for optimized spending and savings processes.
How does Order.co help companies thrive?
Order.co allows companies to strategically source products for the best pricing, automate vendor payments, and gain insight into company spend.
Before Order.co, BLANKSPACES, a coworking company based out of Southern California, struggled to bring efficiency and reproducibility to their purchasing process. Their non-centralized purchasing process made ordering, tracking, and reviewing purchases difficult.
Facilities Manager Elizabeth Nowlin reveals how, at BLANKSPACES, “it was not rare that someone would ask ‘who ordered this?’". Her staff was “constantly running out of supplies”. She credits those issues to their disjointed, arguably non-existent, procurement system.
Now that they’ve implemented Order.co, BLANKSPACES has a central, go-to platform for sourcing the best pricing on products, managing purchases, and simplifying vendor payments. Elizabeth explains, “We are now able to place one, massive order in one cart for all our stuff—kitchen supplies, reception supplies, desks, and planters. It is so easy; there is one credit card, one order, one everything.”
Choose the most reliable procurement software
Order is the all-in-one procurement hub for companies—providing robust features, capabilities, and support into a single procurement software solution.
Using Order, your procurement team has the tools to improve operational efficiency and savings:
- Supplier management and quick order features that make ordering and replenishment easier
- Automatic purchase coding to record transactions correctly in the general ledger every time
- Tools to analyze spend management, improve spending, and simplify accounts payable activities
Procurement automation is a must for any organization that wants to achieve its goals faster, make its teams more productive, and reduce the inefficiencies that come with manual processes.
To realize these benefits within your organization, request an Order demo today.
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Getting a handle on procurement spending is a heavy lift. The competitive landscape is constantly changing, and the occurrence of third-party vendor risk is increasing. Securing the lowest price doesn’t always mean getting the best price — or the best experience.
How do you guarantee you get a good price on the things your business needs without sacrificing quality or opening your business to liability? The answer is strategic sourcing.
Companies use strategic sourcing to ensure competitive pricing, high-quality products, and exemplary service. This holistic approach helps companies avoid the pitfalls of race-to-the-bottom pricing while reaping the rewards of working with select suppliers.
This article provides the information you need to implement strategic sourcing in your procurement process.
Download the free ebook: The Procurement Strategy Playbook
What is strategic sourcing?
In simple terms, strategic sourcing is precisely what it sounds like — it’s the practice of applying advanced strategy and analysis to the sourcing stage of procurement. Strategic sourcing aims to procure goods, products, and services at the lowest total cost while keeping in mind product price, quality, value, logistics costs, overall savings, and product reliability.
Strategic sourcing is often treated as just another term for procurement. While strategic sourcing is an aspect of procurement, the terms aren’t synonymous and shouldn’t be used as such. Strategic sourcing focuses on the process and data behind purchasing. It is used to build a resilient supply chain and help companies adjust to market shifts and changing economic conditions.
Strategic sourcing optimizes the purchasing process by allowing businesses to assess specific product needs and enabling them to procure high-quality products in the most cost-effective way.
Why is strategic sourcing important?
Your business is only as efficient as its supply chain. Through strategic sourcing, your company reaps the benefits of total cost savings, improved vendor relationships, and better supply chain management — aligning every purchase with long-term business objectives.
Strategic sourcing also saves money by consolidating your suppliers into a preferred vendor list. With a smaller pool of suppliers who offer competitive pricing and terms, you save on costs and leverage volume pricing while maintaining high quality and efficiency in your supply chain.
The Procurement Strategy Playbook for Modern Businesses
Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.
How does strategic sourcing help companies succeed?
The benefits of strategic sourcing extend far beyond bringing down the cost per unit. Using a systematic approach, companies realize many quantitative and qualitative benefits, allowing them to improve business processes and drive profitability in a scalable way.
Strategic sourcing helps companies:
- Increasing cost savings: Strategic sourcing compares supplier prices against the quality of their products — saving companies the hassle of price-hunting while providing them with superior products.
- Improving top-line metrics: Better quality goods and reduced delivery timelines have the added effect of improving revenue. These improvements result from faster time to market (TTM) for products and improved product quality, resulting in higher margins and revenue potential.
- Reducing risk: Strategic sourcing optimizes your vendor network and improves risk management by pre-vetting and approving suppliers based on financial stability, ability to fulfill purchase orders, and corporate values alignment.
- Improving supplier selection: Building long-term relationships with a preferred group of suppliers yields better cost outcomes and resilience compared to chasing the lowest-cost alternatives. It also improves communication, negotiations, and fulfillment. In fact, 60 percent of respondents to the 2022 State of Flux report said that conducting joint activities with suppliers was the best way to mitigate supply chain issues.
- Streamlining internal processes: Fewer vendors translates to fewer accounts and fewer invoices flowing into the AP department. It also means fewer contracts for legal review and approval. All these factors reduce your internal stakeholders' workload and contract-management efforts, optimizing employee value and allowing contributors to focus on other initiatives.
7 Steps for implementing strategic sourcing
Implementing a strategic sourcing practice within your organization streamlines processes and delivers better bottom- and top-line results. Sourcing strategies help reduce cycle times and ensure the company responds to contingencies and market changes with agility.
Here are seven steps to ensure a strong procurement process through strategic sourcing:
- Understand the market: Conduct market analysis to prioritize the key cost drivers and considerations for the product or spend categories you’re trying to fulfill. Find out what benchmarks and standard pricing data are available to inform cost analysis and negotiation.
- Evaluate the supplier landscape: Get a better understanding of major suppliers to help you create a sourcing plan and select the best options for specific products or needs. Consider the upstream costs and challenges driving vendor price and terms. This step helps negotiators understand what is achievable within current market conditions.
- Short-list suppliers: Narrow down the field of potential suppliers by conducting preliminary due diligence and understanding each vendor's offering and value proposition. Consider the business outcomes you are trying to achieve beyond cost reduction to narrow your options.
- Solicit bids/quotes: Begin the request for proposal (RFP) or request for quote (RFQ) process with shortlisted vendors. Clearly define the expectations and specifications of the project. Consider using an eSourcing marketplace or platform in specific categories to gain access to competitive bids quickly.
- Negotiate and close: Engage with suppliers to reach an acceptable purchase price and fulfillment terms. Once terms are established, move to close and begin the fulfillment process.
- Track delivery and fulfillment: Negotiating the deal is only the first step of the supplier relationship. Once a contract has been executed, create a quality control workflow to follow the delivery and conduct a quality assessment of the process and the product. Note any exceptions to terms or promised delivery parameters for future vendor evaluations.
- Report and benchmark: Tracking supplier performance over time is an important part of the ongoing strategic sourcing process. Conduct regular life cycle evaluations for vendors, practice category spend analysis, adjust where needed, and commit to another competitive analysis when the contract term or project ends.
Best practices for strategic sourcing
When implementing strategic sourcing within your organization, these best practices ensure every aspect of the program brings optimal results. All these practices create objective environments for analyzing the price, performance, and quality of every vendor. This is more important than some may believe, as over 30 percent of procurement teams admitted to cutting corners in sourcing criteria and suppliers to secure supply, according to research from Procurious.
Conduct a needs assessment before making changes
It’s easier to optimize your strategic sourcing practice if you know your starting point. Conduct an analysis of current procurement and strategic practices. Identify what’s working well, what could use improvement, and which goals your procurement practice should focus on.
For even greater effectiveness, establish key performance indicators (KPIs) that align well with your goals. Track these metrics regularly. This practice creates a continuous improvement cycle within the procurement function.
Download the free ebook: The Procurement Strategy Playbook
Use an approval workflow
An approval workflow enables all other strategic sourcing activities by streamlining decision-making and creating a rationale for every purchase. Approval begins with a structure and criteria for the selection, evaluation, and procurement of goods and services. The approval framework ensures businesses don't miss important steps or skip due diligence when committing to a purchase.
The approval workflow also creates accountability within the selection process and ensures all decisions meet interdepartmental selection criteria (such as legal requirements, security minimums, and finance guidelines). Once established, approval workflows save time and money on every transaction.
Streamline your vendor pool
Reducing your total number of suppliers helps increase efficiency and enable volume discounts. To begin, evaluate existing vendors you use, and eliminate any that aren’t providing good value or high-quality services. Consider consolidating vendors for similar products or services to maximize buying power and ensure cost savings. When assessing new vendors, use a scorecard to ensure objectivity in decision-making.
Monitor contract performance
Performance monitoring means tracking KPIs to measure how a vendor meets the terms of an agreement. Regular reviews of vendor performance identify areas for improvement, such as cost, quality, delivery time, or service levels. Compliance checks ensure that vendors are fulfilling their obligations as promised. If vendors are out of compliance, the buyer has information and recourse for corrective action.
Use supplier benchmarking
Benchmarking prices is essential to strategic sourcing decisions. It allows companies to compare vendor pricing and performance and ensure rates remain competitive. To begin, examine historical data from current suppliers and gather recent market intelligence from future potential vendors. This helps you better understand the competitive environment and ensures you get the best possible deal for your budget. It also helps identify patterns in pricing across different vendors to be leveraged for savings.
The Procurement Strategy Playbook for Modern Businesses
Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.
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How Order.co’s strategic sourcing saved XpresSpa thousands
When thousands of invoices, slow manual processes, poor spend management, and lack of visibility hampered progress for innovative wellness provider XpresSpa, the company turned to Order.co to implement automation and help them get a handle on procurement at their 50+ locations.
The company: XpresSpa offers air travelers fast, professional massage and spa services to make travel more comfortable and enjoyable. The company has over 750 employees across 50 in-terminal locations in 21 airports.
The problem: Hosting spa services across many locations requires thousands of orders for supplies and equipment. Offering these services inside an airport is a great competitive advantage, but it makes procurement and logistics challenging and expensive.
The solution: XpresSpa implemented Order.co as its procurement and sourcing solution. Centralizing procurement into one dynamic platform allowed the company to consolidate its vendor list, reduce the burden of processing over 1 million annual invoices, and escape the logjam of manual AP processing.
The outcome: With Order.co’s help, XpresSpa realized nearly $70k in procurement savings in the first year alone. They reduced management approvals by nearly half and raised their catalog compliance rates from 70 percent to 100 percent.
Improve strategic sourcing with Order.co
Order.co allows companies to meet their unique challenges and realize significant savings without sacrificing quality or agility in a changing market. It gives companies confidence in their purchases, saves money, and encourages strong relationships with quality vendors. Our network of over 4,000 vendors allows companies to find the high-quality products they need at the lowest total cost.
Strategic sourcing reduces supply chain risk and clears the path toward your long-term business goals. You know where that path leads — Order.co helps you get there.
Schedule a demo of Order.co to learn how you can automate strategic sourcing for your business.
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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.
Download the free tool: Financial Audit Preparation Checklist
Financial audits gives companies an objective read of their financial statements. Use this checklist to get started.
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?
Download the free tool: 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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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.
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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.
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.
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:
- 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.
- 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).
- 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.
- 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.
- Vendor payment: Payment information is recorded in the accounting system and (if integrated) into ERP systems. Finance teams have full visibility into the transaction.
The Hidden Risks Behind Your AP Balance Sheet (Some Will Surprise You)
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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.
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Procurement seems pretty straightforward: A company needs something, and the procurement department figures out where and how to buy it. The difference between surviving and thriving as a company, however, is in how strategic and intelligent your procurement process is.
Intelligent procurement, or the strategic process by which companies manage their vendor-related spend, is key for companies that are looking to succeed, particularly in a macro environment defined by uncertainty.
As companies look to an unpredictable future, they should prioritize the implementation of intelligent procurement, which helps them cut costs, reduce inefficiencies, and mitigate risk.
What is procurement?
Procurement is the process a company follows to obtain the supplies and services it needs to run its business.
There are two main types of procurement: direct and indirect. Together, these account for most of the purchases made within the company. Effective direct and indirect procurement requires a strategic process and transparent oversight of organizational spend.
What are the types of procurement?
Direct procurement: Direct procurement (also known as direct spend or direct cost) is, according to GEP, “the process of obtaining raw materials, resources, goods and services that are utilized in the core operations of a business.” If you run an ice cream shop, for example, the cost of ice cream and cones would be considered direct procurement. Companies optimize direct procurement by strategically sourcing the most reliable and cost-effective vendors, automating purchases of frequently used items, and buying in bulk to achieve the lowest possible unit price.
Indirect procurement: According to SutiSoft, indirect procurement involves “the expenses incurred for materials, services and maintenance required to operate [your] business.” At that same ice cream shop, the cost of freezers, air conditioning, and email marketing software would be considered indirect procurement. According to McKinsey, “most companies do not have mechanisms to monitor indirect categories and reflect their performance on financial statements.” Without the ability to identify exactly where employees and departments are spending money, companies cannot hope to control and curtail that spend. Thus, effective indirect procurement processes require organization-wide spend visibility for procurement teams.
Choose the Right Procurement Technology With This Decision Matrix
There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.
What procurement isn’t
Procurement is often used interchangeably with “sourcing” or “purchasing,” but it shouldn’t be. Each is a distinct component of the overall procurement process. Both sourcing and purchasing are most effective when implemented as part of a holistic intelligent procurement process.
Procurement vs. sourcing
Sourcing is one component of procurement. It refers to the process of selecting a supplier or vendor. Identifying an item or service to meet a business need, culling a list of vendors, and comparing prices across vendors are all part of the sourcing process. The ultimate goal of sourcing is to minimize purchasing costs so the business can achieve its ultimate goal: maximizing ROI.
Sourcing is most effective when combined with intelligent procurement, which eliminates repeat purchases across departments, centralizes sourcing tasks, and automatically compares costs across vendors. Strategic sourcing, which allows companies to identify cost-saving opportunities and mitigate risk, is a key element of intelligent procurement. Order.co’s software helps companies source strategically.
Procurement vs. purchasing
Purchasing is another component of procurement and refers to the distinct act of buying goods and services for your business. It does not refer to a formal process or policy as procurement does. Purchasing can add costs and inefficiencies to the business when conducted independently of a strategic procurement plan. Impulsive purchasing by various employees who have not conducted appropriate cost comparisons or due diligence can lead to cash leaks, data security breaches, and even business-continuity disruptions.
Like sourcing, purchasing is most effective—and most controlled—when combined with intelligent procurement. Intelligent procurement tools like Order.co streamline haphazard purchasing, add controls on employee spending, and improve the purchasing experience for all parties. By implementing Order.co’s single catalog and cart for all its purchasing, for example, BLANKSPACES was able to achieve 93% faster ordering and ensure perfect spend compliance.
Procurement = sourcing + purchasing
At its core, procurement is the combination of sourcing and purchasing. It is, according to Thomasnet.com, an “all-encompassing strategic array of processes that includes both purchasing and sourcing.” The development of a strategic procurement process implements safeguards—like strategic sourcing and controlled spend—that protect against some of the risks inherent to sourcing or purchasing alone.
Effective procurement doesn’t need to be complicated. It’s essentially the combination of a few important steps:
- Evaluating spend across the business
- Identifying opportunities for cost-savings
- Creating policies and controls around future purchasing
- Establishing a system for approvals
- Implementing a vendor selection-policy
Companies that complete these necessary steps are on their way to developing an intelligent approach to procurement. Businesses that utilize intelligent procurement optimize sourcing and purchasing, mitigate risk, and cut unnecessary costs.
What is intelligent procurement?
Intelligent procurement is the process by which companies manage all aspects of their vendor-related spend in one central digital place so they can gain a holistic view of that spend. Companies that implement intelligent procurement gain better insight into and control over their spend.
Digital transformation has accelerated the rise of intelligent procurement by leveraging software and automation to reduce costs and risks with minimal human oversight. Intelligent procurement platforms like Order.co connect businesses to thousands of vendors via one centralized platform, implement rules and restrictions to reduce rogue spending, streamline invoice management, automate ordering, and more.
Intelligent procurement protects against supply-chain risk and empowers companies to become more sustainable.
Transparent, holistic insight into total spend makes procurement easier. Procurement departments that know where and how the organization spends money can more easily cut costs, make decisions, and identify potential problem areas. The ultimate result of better control over organizational spend? Greater efficiency, lower costs, and reduced risk.
To their detriment, most companies do not apply an intelligent, dedicated strategy to their procurement process. Most companies handle spend in silos, which creates confusion, inefficiency, and unneeded expense for the organization.
Why is intelligent procurement so important?
The main benefit of intelligent procurement is to save companies money. This, however, is far from the only upside of an intelligent procurement process. When applied strategically, intelligent procurement also protects against supply-chain risk and empowers companies to become more sustainable.
Intelligent procurement helps companies save money
By definition, procurement is a massive cost center: it is the hub of corporate expenditure. But managing spend more intelligently has multiple benefits. Companies that implement intelligent procurement can improve their bottom line.
Moreover, intelligent procurement helps protect companies from macro trends and events that create uncertainty for the business. According to McKinsey, companies with high-performing procurement departments have historically recovered from economic crises more quickly. The companies succeed thanks to their ability to respond to supply-chain disruptions, reduce costs through automation, and make more agile business decisions due to insights gleaned from digital tools.
As procurement leaders at The Future of Customer Engagement and Experience write, unpredictable events happen—the past 10 months exemplify that fact all too well—and businesses should prepare for them: “The solution is not planning for every possible contingency. How could we? Rather, it’s gaining visibility into your systems—increasing efficiency and flexibility—to create resilience.”
Intelligent procurement mitigates supply-chain risk
Supply-chain management is a critical responsibility of the procurement department. Intelligent procurement can ensure business continuity when the supply chain is disrupted.
Supply chains are inherently risky. According to McKinsey, “today’s complex and long supply chains are almost inevitably subject to disruption.” Multiple factors—from trade disputes and natural disasters to human error and shortages caused by events like the COVID-19 pandemic—cause these disruptions. Then, because every supply chain comprises multiple links, a domino effect of trouble (and costly delays) occurs when even one is disrupted.
How intelligent procurement creates an efficient, risk-free supply chain
To minimize risk, companies need a holistic view of their spend and their vendors in order to identify the origin of supplies and make adjustments as needed in the face of disruptions. Intelligent procurement platforms like Order.co provide this transparency, which enables agile action by procurement departments when business continuity is jeopardized.
Intelligent procurement helps protect companies from macro trends and events that create uncertainty for the business.
Moreover, intelligent procurement tools allow procurement teams to immediately identify and cost-compare new or replacement vendors so unexpected hiccups don’t result in exorbitant costs. Order.co’s intelligent procurement solution, for example, connects businesses to thousands of vendors and automatically sources out-of-stock or lost items from comparable sellers with comparable prices, ensuring business continuity even amid disruptions.
Plus, intelligent procurement platforms keep track of deliveries, so companies can easily identify delays and problem-solve more quickly.
Intelligent procurement can lead to sustainable procurement
When you implement intelligent procurement, you’re more likely to reach sustainable procurement, which, as we said in our piece on the topic, ensures all the way down the line that “your suppliers—and your suppliers’ suppliers—are proactively seeking ways to minimize waste and reduce their carbon footprint.”
It’s important to aim for sustainable procurement because, according to IBM research, a full 62% of consumers would be willing to change their shopping habits to support more sustainable businesses. That effectively means that companies cannot afford not to be sustainable. Those companies that pursue short-term savings might find themselves losing revenue when discerning customers and investors take their dollars elsewhere.
Sixty-two percent of consumers would be willing to change their shopping habits to support more sustainable businesses.
Companies can augment their approach to sustainability by taking a long-term view of their procurement efforts. Business leaders tangibly demonstrate their values to key constituents when they source from sustainable companies and institute sustainable practices.
How intelligent procurement can help achieve sustainable procurement
Companies can achieve sustainable procurement by leveraging procurement tools to identify and cost-compare sustainable vendors. An intelligent procurement system, which gives companies holistic insight into their spend, reveals which vendors are sustainable and allows companies to track that information in one central place, so they can more readily source and purchase from such vendors going forward.
Sustainable procurement is an excellent example of the necessary teamwork between intelligent procurement tools and the intelligent humans who compose an effective procurement department. Individual employees can leverage the benefits of intelligent procurement platforms to make needed department-wide policy decisions that bolster a company’s reputation, generating value that transcends simple dollars and cents.
Choose the Right Procurement Technology With This Decision Matrix
There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.
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How to achieve intelligent procurement
There are several components of an intelligent procurement process. To achieve it, procurement leaders must do the following:
Deploy an effective procurement strategy and process
Intelligent procurement requires strategic planning. Leaders need to devise an effective procurement strategy — a plan for purchasing business supplies that achieves two core objectives: risk reduction and cost-efficiency. Then, they must implement a repeatable procurement process.
Why is an effective procurement strategy and process important?
Procurement is inherently risky. Procurement departments necessarily rely on third parties over which they have little control. Without an effective procurement strategy, procurement departments find themselves constantly putting out small fires: recurring purchases made by an employee who has since left the company, for example, or duplicate purchases made by members of different departments. They may find themselves navigating relationships with unreliable, noncompliant, or cost-ineffective vendors. They may be constantly policing maverick spend among employees. And, inevitably, they will devote more of their own team members’ time to handling inefficient manual processes.
A defined strategy and process help mitigate these risks. Moreover, an effective strategy helps the department run more smoothly by keeping information organized, simplifying invoicing, and creating a transparent spend management environment. Perhaps most importantly, an effective procurement strategy helps build a lean operating model that decreases wasteful ad hoc spend.
How to craft an effective procurement strategy
Procurement departments need to first identify all sources of spending within the organization. Spend management software tools like Order.co can help companies organize their spending sources in one central place, so they can easily identify and analyze spend across departments.
Procurement departments can more easily predict future costs and identify opportunities to reduce them once they’ve identified sources of spend within the organization. Order.co’s software lets teams automatically compare prices across vendors, so they can guarantee they’re getting the best value for each product and service they purchase. They can also implement policies that control maverick spending by employees and grant the procurement department greater control over the organization’s total spend.
Without an effective procurement strategy, procurement departments find themselves constantly putting out small fires.
Companies can devise a strategy that safeguards against unknown expenses by gaining a comprehensive understanding of the organization’s costs and identifying potential risks that could increase them. Effective procurement departments work closely with finance teams to allocate budgets to various departments while making sure to include a cushion that protects against unknown future expenses.
Today’s best procurement strategies incorporate technology, which increases efficiency by minimizing human busywork (and associated human error) and reduces costs. Automation improves procurement strategies in multiple ways: by easily comparing costs across vendors, bundling orders, organizing information, and reducing time spent on purchasing, among other benefits.
Leverage procurement technology and procurement software
Technology is perhaps the single most important contributing factor to an intelligent procurement department. Procurement technology and software drive efficiency by automating processes and providing holistic insight to spend across the organization.
Why use procurement technology and software?
Historically, procurement requires a lot of time and manpower. The work of sourcing, reviewing and approving purchases, managing vendor relationships, and keeping track of invoices is both necessary and repetitive. When conducted manually, these tasks monopolize employees’ time and introduce more opportunities for human error.
Procurement technology automates much of the unwieldy and inefficient manual work that claims so much of employees’ time. Moreover, implementing technology reduces risk by eliminating human error.
Ultimately, companies that leverage procurement technology and software can reduce their overall spend. Technology automatically compares vendor costs, identifies instances of duplicate or off-budget spending, and offers detailed analytics that allow companies to evaluate their spend in real-time. According to a BCG study, companies that use digital procurement tools can decrease their annual expenditures by an average of 5% to 10%.
Technology is perhaps the single most important contributing factor to an intelligent procurement department.
The rapid pace of technological innovation has yielded a bevy of tools that procurement teams can add to their arsenals. Today’s companies face an unprecedented need to manage their spend and maintain control over an increasingly distributed workforce. Technology and software can help.
Procurement departments that automate elements of the procurement process can reallocate their employees’ time to higher-value initiatives that help protect the business from risk. Truly intelligent procurement combines technology’s speed and scale with humans’ instincts and knowledge to yield a process that’s efficient, cost-effective, and risk-reductive.
How to implement the right procurement technology and software
To choose the best tools for the business, procurement teams must first identify their overarching procurement challenges. Common obstacles include the following:
- Too much or not enough time spent on sourcing
- A fragmented, inefficient purchasing process
- Management of multiple vendors
- Confronting and reducing maverick spend
- Vendor errors that risk disruption of business continuity
Once they’ve identified their main challenge or challenges, teams can more easily research and select the technology needed to solve those problems.
Most teams will face more than one challenge. Rather than purchase multiple tools and cobble them together in a fragmented way, procurement departments can rely on Order.co to confront each of their concerns. Among industry-leading solutions, only Order.co’s platform can automate and improve every element of the procurement process, from strategic sourcing and vendor API integrations to purchasing and invoice reconciliation.
Companies that have decided to purchase procurement technology need to feel empowered to implement the tool(s) in a way that maximizes ROI. Even the best procurement technology would be ineffective if it could not integrate with a company’s existing tech stack.
Before deciding to purchase any procurement software, procurement departments should first consult the IT team to ensure API compatibility, then confirm company data-related vendor guidelines with the compliance team. Once they’re assured that their preferred tool can integrate seamlessly with the company’s API and that it will not violate data security policies, procurement teams should prepare to ask the right questions of vendor sales teams. To help in this endeavor, we’ve created this Decision Matrix, which helps procurement teams quantify their choices and make a data-driven decision when selecting procurement technology.
Intelligent procurement is key now and in the future
Effective procurement is anything but simple in modern companies. For one thing, 81% of non-executive employees can influence purchasing decisions, according to Think With Google. Additionally, oversight of increasingly distributed teams has become difficult, and unprecedented macroeconomic uncertainty threatens business continuity in new and unexpected ways.
The result, at most companies, is a siloed procurement process. Purchasing is fragmented and haphazard across the organization, which steadily increases unnecessary costs and exposes the business to needless risk.
81% of nonexecutive employees can influence purchasing decisions
It doesn’t have to be this way. Procurement can be a tool businesses deploy to help them become leaner, more efficient, and more risk-proof. Forward-looking companies can use procurement to protect their organizations and bolster their bottom lines.
To get there, companies need intelligent procurement. They need the tools and technology that streamline systems, offer organization-wide oversight, and automate historically inefficient procurement tasks. Companies that implement intelligent procurement can cut costs, increase efficiencies, reduce risk, and operate more sustainably. Order.co can help.
Procurement is a vital component of healthy, efficient, and cost-effective organizations. Companies that take a thoughtful, strategic approach to procurement will be more likely to succeed—both now and in the future.
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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.
Invoice Tracking Template
Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.
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
Invoice Tracking Template
Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.
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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.
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