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This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.
As you plan ahead for the year, you may be following up on any outstanding debts to your business or paying outstanding bills of your own to vendors and suppliers. Automating your accounts payable process can help manage your cash flow, keep track of purchase orders, and organize your invoicing process, among other benefits. According to a Business Insider Intelligence Report, 44% of businesses are looking to add automation to their payables process for efficiency, cost cutting, and fraud prevention. Here are some ways you might approach automating that process and the benefits that come with it.
What are accounts payable?
Accounts payable is money owed by a business to suppliers and vendors. These show up under Liabilities on your balance sheet. Accounts receivable, on the other hand is when money is owed to a business, for example, if a customer owes you money. These show up under Current Assets on your balance sheet.
Examples of accounts payable include raw materials purchases, transportation or logistics costs, equipment, travel expenses, licensing, leasing, and more.
Accounts payable automation benefits
There are a multitude of ways you can automate accounts payable, from using software to a bill-pay functionality. The range and scale of which parts of the accounts payable process you automate for your business is in your hands. Here are a few AP automation benefits you might encounter:
- Early payment discounts: Automating your accounts payable process may unlock early payment discounts from vendors.
- Favorable payment terms: By paying consistently, you may have the opportunity to leverage paying on time in exchange for better payment terms.
- Have related paperwork on hand: Many accounts payable automations will also help you generated related paperwork that can be relevant to other business related tasks like valuing the business.
- Avoid duplicate payments: Automated accounts payable software can not only help you catch duplicate vendor payments, it can also help you spot any discrepancies, like paying the right bill but for the wrong amount. Some vendor invoices may be incorrect or incomplete and software could help catch those errors.
- Closer integration: Integration of your vendor invoices and payments into your accounting system could make it easier to see a holistic picture of your accounts payables. In addition to this, you might have access to a multitude of ways to send payments securely, from direct pay to check or credit card payments.
- A central hub: From convenient, pre-stored vendor information that makes it easy to look up details quickly to allowing staff to use that same system without duplicating your efforts, having a central hub for information can cut down on any confusion.
- Account security and compliance: Digitizing and automating your AP process typically comes with compliance and cyber security offered by the software you are using. Catching duplicate payments and incorrect notifications can help you combat fraud and suspicious activity as well.
Ways to automate accounts payable
- Manage your invoice process: With electronic invoicing, you can automate sending a vendor invoice by email or text. This invoice can help avoid delays and added costs. You can also digitally keep track of invoices that have been paid and those that remain outstanding. In addition to this, AP automation software may offer invoice matching and reconciliation.
- Automated payments to vendors: You can automate vendor payments and easily update payment and vendor information. Some AP automation systems can match purchase orders against goods and services delivered as well, helping you identify any mistakes or duplicate orders.
- Seamless accounting: Software can support automated data entry as well as reporting metrics. It can also extract line items and track expenses and profit and loss. When it comes to tax filing, these software packages can help keep track of information as well as integrate with other applications like Quickbooks.
Accounts payable process
The accounts payable process can be time consuming. From managing payment terms and cycles to vendor information, there are a lot of details you need to keep in mind. Typically, an accountant or accounts payable department will have a system for managing the process. This may include making payments, receiving and verifying invoices, and keeping records up to date.
Accounts payable automation software
Using an accounts payable automation software can help reduce the paperwork, files, and forms you might typically need to fill out when it comes to paying bills. There are different tools and software on the market to consider when automating your accounts payable processes, including: SAP Concur, Oracle NetSuite, Sage Intacct, and more.
Many of these options will automate certain parts of the AP process rather than the entirety of it. While this can help decrease human error and manual work, they can be used as more of an aid for an accounts payable department, accountants, or managers monitoring and managing the process. Some of these may cater to small businesses or large businesses, self-employed business owners, businesses with teams, or freelancers.
Streamlining your AP process can optimize your cash flow management and relieve yourself or staff of hands-on time and manual work they may otherwise be burdened with.