May 31, 2017 Ralph P
Much like Fight Club's one and only rule of not talking about Fight Club, there's also only one rule to accounts payable automation: avoid ways of breaking out of the automation cycle.
And that's all there is to it.
But getting to the holy grail of accounts payable—a fully automated accounts payable department—is a challenge with all the suppliers, invoices, and different payment methods.
That's why, the best practice to payables automation is to go over every individual component within the payables workflow, and ask: Is it automated? Can it be automated? IIACIBA (pronounced ee-AHH-see-ba) for short.
But unlike Fight Club, we will be talking about IIACIBA.
Here are four accounts payable best practices to create a fully automated payment workflow. These are commonly overlooked components hindering performance in AP.
The supplier portal
One best practice for a company's AP automation process is to cut out distractions. And fielding payment status calls is one of the biggest distractions faced during the AP process.
Online supplier portals are where suppliers can check the status of their payments. Automating the response to "When will we receive payment?" eliminates the distraction from having to answer payment status calls. Suppliers, then, can quickly find out if the invoice has been acknowledged and when payment is scheduled for disbursement. And since a history of all invoice and payment information is recorded in the supplier portal, verifying vendor invoice income is much easier and well controlled for everyone.
Best of all, these supplier portals can also be used to upload companies' invoices—meaning the entry of invoices can be automated, removing the manual process of scanning and matching invoices.
Then again, it wouldn't exactly be an automated accounts payable department if this vital function wasn't performed.
We touched upon it above, but in reality, a supplier portal is a multi-faceted tool that accomplishes much more than just responding to payment status. The supplier portal also prepares the invoice for the next step of processing payment—matching.
Automating invoice matching—which is now being uploaded by the supplier—to its corresponding PO (in the case of a two-way match) and its packing slip (in the case of a 3-way match), shaves valuable time off the payables process.
When matching (and by proxy OK'ing invoices for payment) is automated, the accountant can focus on higher-level operations—such as investigating the exceptions automation flagged.
Automating the matching process handles the “lowest hanging fruit" of invoice processing.
Created by Ryan Mason
Sharing is caring
If AP is automated, chances are other parts of the organization are automated as well. But, is data being shared automatically?
Data siloing, the term referring to data locked within a particular application or department, stymies the decision making ability of managers, executives, and C-suites. And in the case of payables, freeing this data can help secure better terms and pricing.
AP's honeypot contains data such as how fast AP can pay supplier invoices or even the unit cost of raw materials after dynamic discounting has been applied.
Imagine the deals procurement can strike when it can perform at a level that guarantees payment within four business days. Or better yet, how it can learn from past invoice discounting and apply the information during purchase negotiations to get suppliers to compete over the cost of goods.
Sharing data, then, should be an integral part of the automated organization.
Back office tools of the past worked to make the invoice paperless. The bane to AP, however, is the paper check.
Until recently (in AP terms, that is) payments were tied to the paper check. That changed with the passage of the Check Clearing for the 21st Century Act in 2004, which severed the link between payments and paper. Even with a 13-year head start, though, accounts payable was still living in the 20th century.
Simply put, payment automation systems enable AP to send vendor payments with a single click—free from its paper check analog. No longer does that click print a paper check, requiring a separate run to the post office. A click now sends an electronic payment—either by ACH, card, or wire transfer. Payments can be approved online and remotely, as well, creating a seamless, electronic process. AP is finally freed from the paper check and its associated liabilities.
Adoption hasn't been as swift. Maybe due to manual payments workflows, or simply not knowing this type of automation is possible.
But this could easily be remedied by asking a pair of simple questions: Is it automated? Can it be automated?
So what will you do to improve your payables workflow?