We all know that the accounts payable process isn’t a straight and narrow path. Several small steps can make a big difference when it comes to paying vendors on time—invoice entry, approvals, and handling different payment methods. These steps aren’t all that simple, especially with paper.
Paper is the reason for most problems plaguing finance departments. Common obstacles that stem from paper include hours of manual labor, errors, and fraud risks that could cost your business thousands of dollars.
The time and money spent solving these problems are one of the many reasons why finance decision-makers are considering a paperless accounts payable process—AP automation solutions.
Currently, there’s a lot of buzz around finance departments transforming from paper to paperless accounts payable processes. They want to reduce the time spent on manual tasks and streamline the process without missing critical steps. Businesses want flexibility, visibility, and security when paying vendors, which just isn’t possible often enough with paper.
If your finance staff is facing any of the typical payment problems, we have a few simple solutions to ease the pain.
Your paper-based accounts payable process makes it impossible to improve long-term strategies and visibility.
Even though paper-based accounts payable processes and strategies may be working just fine for your finance department, they’re not the best. Storing invoices, receipts, and managing vendor information in a file cabinet makes it nearly impossible to predict financial problems or opportunities accurately. Chances are if you’re analyzing payment data with piles of paper and Excel files there’s a high probability of errors and limited visibility into ineffective spend or vendor costs over time. Not to mention the amount of time spent analyzing information, rummaging through file cabinets, and looking for lost printed invoices and vendor records.
Think about all the time spent managing printed documents to pay one vendor. AP departments that rely on paper for payables devote the majority of their day manually entering invoices and sending checks and correcting common errors. It’s nearly impossible to spend time evaluating the current accounts payable process to improve strategies and visibility.
To kickstart a more efficient AP department, consider appointing a strategic manager to explore accounts payable solutions. For most finance departments, these responsibilities are best suited for the AP manager or controller. Payments Journal recommends creating this strategic role to regularly evaluate your AP department’s processes.
“With a strategic AP manager or director in place, a steady hand in charge can ensure that the more significant aspects of your AP processes are tended to in regards to sensitive circumstances like your budget and supply changes.”
With the paper-free accounts payable process, finance leaders have easy access to historical payment information and customized reports to make well-informed decisions without paper or manual labor. The AP staff has information needed for audits, tax season, and month-end closing, in one cloud-based SaaS. AP automation’s increased level of visibility helps finance leaders stay ahead of potential overspend based on payment history.
You’ve established poor vendor relationships thanks to problems with paper.
Let’s face it: vendors dread calling your accounts payable department checking on invoices or payment statuses. Reality is, they just want their payments on time. AP specialists waste hours combing through piles of paper to answer these emails and phone calls from vendors.
Paper-based accounts payable processes often lead to late payments. Think about the life of a printed invoice and the steps it takes for payment disbursement. Usually, most of the workday is spent manually entering each invoice into the ERP or accounting system, then correcting entry errors. The next biggest time-consuming step is approvals. Handing off printed invoices to the appropriate manager or department and waiting for approvals can take days, sometimes weeks. A recent PayStream Advisors report shared that lengthy approval cycles are the top cause of late payments. Thankfully, the number one improvement from an AP automation solution is quicker invoice approvals—25 percent.
Late payments and lack of communication often lead to poor vendor relationships. From a supplier’s point of view, they’re counting on your business’ payments from their sales to avoid debt and effectively manage their budgets just like your business. With paper-based accounts payable processes, it’s nearly impossible to provide vendors with real-time updates and visibility into your finance department’s accounts payable process.
The best solution to keep the supplier happy is a paperless AP process. AP automation solutions allow companies to log in to the supplier portal to get real-time updates on each invoice and view payment history without phone calls and emails. Many AP automation solutions also have the option to pay vendors in batches when using electronic payments. According to the 2018 Payables Report, 56 percent of surveyed businesses say that their AP management system includes electronic payments, which are proven to get to vendors often safely and quickly. In fact, 72 percent of companies prefer being paid electronically (via ACH or VCC), while less than 25 percent favor a paper check.
There’s also less worry about managing different payment types. For example, the AvidPay Network handles the heavy lifting of contacting vendors to verify payment types to save your finance department time and money.
You’re stuck in the Stone Age of paying with paper checks.
If your finance department is clinging to paper checks, it’s time to let go. Paper checks are a leading cause of fraud. PayStream Advisors found that 49 percent of surveyed companies still rely on checks as the primary method of payment.
Why are businesses still clinging to the Stone Age with paper checks? For most finance departments, it’s convenience and cost savings. However, the Association of Certified Fraud Examiners (ACFE) pointed out a recent alarming statistic. Almost 70 percent of surveyed businesses fell victim to check fraud. Organizations that use paper processes often rely on internal processes to double check for fraud, but that’s not enough. Finance departments that stick to paper run the risk of duplicate invoices which can lead to duplicate payments. Or even worse, they may mail a paper check to a scammer who sent a fake invoice.
With paper checks, finance departments are left in the dark wondering if the vendor received the mailed check or if the check was duplicated. To reduce these worries, organizations are starting to rely on ePayments as the preferred method of payment with AP automation solutions. Even though most companies favor ePayments, AP automation solutions provide fraud protection for those that prefer to be paid via check. With some AP automation solutions, a fraud report is generated for every paper check. So, even if your supplier prefers paper checks, you’ll still reduce paper and security worries with streamlined, automated payment workflows until it’s time for payment disbursement.
Your finance department is spending more than expected on payment processing.
Most finance leaders don’t invest in AP automation solutions because they’re afraid that they won’t see a return on the investment. There’s the common misperception that AP automation solutions is for larger businesses that have high payment volume. So, naturally, these companies stick to paper-based accounts payable processes that don’t seem to cost as much money, but in fact, paper processes cost more. On average, companies are paying $22 to process a single paper invoice. According to Due.com, some companies are spending as much as $40. If your company handles at least 500 invoices per month, you may be spending as much as $11,000 to process your payables.
Paper checks also have their high costs. According to PYMNTS.com, processing one check can cost your business almost $10. That doesn’t include manual labor costs and hours spent. Multiplying these costs by the number of payments received each month can add up quickly. On the other hand, AP automation solutions cut accounts payable costs by as much as 60 percent for many businesses.
For many finance departments, the number one goal is to save money. Maybe AP automation isn’t in the budget for this year, but it’s important to build a case based on numbers and facts. CFO.com provided companies with a tip to improve costs while making a case for AP automation.
“Set a recurring annual goal to get ever more efficient at processing invoices. Break the process down into individual steps. Find out how much your competitors perform this process, or better yet, learn from industries outside your own that have it down to a science.”
Here are a few other factors to figure when building the case for a paper-free accounts payable process:
- Evaluate the total cost of the AP process from receiving the invoice through payment.
- Figure the cost it takes to process a paper check versus other payment methods from start to finish. How much are you spending? How can you save?
- Determine the bottlenecks for manual approval and payment disbursement that impact the overall time and money spent during the payment process.
- Figure out how much your finance department is wasting in late fees and how to expedite the accounts payable process to avoid penalties and poor relationships.