accounting academy weekly ledger accounting academy weekly ledger

Automation in the Back Office: How to Construct Profits in AP

Ralph Perdomo

In 1994, the American Society of Civil Engineers compiled a list of the Seven Wonders of the Modern World. From the Empire State Building to the Golden Gate Bridge, these feats of construction were a testament to men pushing the limits of technology. Technology in the back office for most construction firms has not kept pace with the impressive creations born from its labor.

And that's unfortunate because the back office—AP in particular—is ripe for an infusion of technology.

blueprints read: state of payables construction

Automating even a single workflow in accounts payables provides a competitive advantage to any construction firm. But aside from the cost-reducing measures found in workflow automation, automating payments, in particular, offers efficiencies in expediting payments which serve as a potent negotiating tool to better nurture subs- and supplier relations.

The current state of payables in construction

At its core, accounts payable is responsible for invoice capture, processing and approval, payment disbursement, and supplier follow-up.

These steps are the pillars of the AP department:

  1. Capture (also referred to as the entry stage): This is where the invoice is keyed or digitized (either by scanning, or faxed indirectly from the supplier) and readied for processing.
  2. Process (also referred to as the processing, or matching stage): This is where the invoice is matched to its corresponding PO. Since many approvers may be out on the job site, the AP clerk may need to wait for a manager to be back in the office, or may have to drive off to the remote site and secure a signature.
  3. Pay (or payment stage): The pay stage is initiated once the prior capture and processing stages are completed.

It’s no stretch to see how part of sending faster payment involves getting to this pay stage faster.

A faster way to pay

Constructions firms can typically expedite the actual payment process by paying through electronic means. This comes in the form of ACH/EFT or Card.

ACH/EFT:

ACH (automated clearing house), sometimes referred to as an EFT (electronic funds transfer), offers the universal acceptance of a check with the speed, safety, and convenience of a card.

Plus an ACHs cost is low. There are no additional hard costs such as envelopes and postage which is typically associated with conventional checks. And when paired with positive pay or payee (services sold separately through banks) ACH provides a level of security comparable to cards.

Card:

Paying by card is fast. In fact, subs and suppliers are usually more receptive to accepting card payments for invoices, due to the faster speed at which card payments travel. And aside from shorter processing time, invoice card payments can introduce other benefits as well.

Cards offer increased security measures. This comes typically in the form of virtual cards, or single-use numbers, which allow only specific approved transactions to occur.

After the payment

An often overlooked component of the pay stage is remittance advice—the notification sent to the payee stating what’s been paid. Without automation, the remittance can complicate matters when sending an electronic payment for both the construction firm and the supplier. Payments arriving without the remittance advice impede the supplier’s ability to apply the payment correctly and leads to errors and support calls for the construction firm.

Any convenience gained by sending electronic payment (ACH/EFT or card) is lost once the automated workflow halts, forcing the AP staff to send a separate email attachment, fax, or print and mail remittance advice.

The post-payment stage covers any procedure accounts payable performs in verifying payments processed by the supplier. This reconciliation requires the accountant to regularly log onto a bank portal’s website or pore over paper bank statements to confirm a transaction.

Conclusion

Technology shows us there’s untapped revenue sitting in departments never before considered profitable—and this is especially true for accounts payable. Payables has come a long way from the days of “the check’s in the mail.” AP—once considered a cost center—now has the potential to generate revenue.

Adopting ePayables technology in the AP department of a construction firm has the benefit of lowering the overall cost and time required to process an invoice payment. This streamlined process pushes bids in your favor because it enables payment of subs and suppliers faster.

 

read more downlod ebook