Accounts Payable: Challenges and Solutions For Smooth Financial Operations

Effectively managing accounts payable functions is crucial for businesses, but it can also be a challenging task. Late payments, strained vendor relationships, and delayed book closings can become the norm, leading to a significant decrease in cash flow. The difficulty level increases even further when manual AP processes are involved. Manual processes are not only inefficient and time-consuming but also exhausting for your AP team.

In this blog, we will delve into the common challenges that arise while managing accounts payable processes and explore highly effective solutions to overcome them. By streamlining your accounts payable with the right tools and strategies, your business can experience smoother operations, improved vendor relationships, and better cash flow management. Let's dive in and discover the transformative potential of accounts payable automation software.

Common accounts payable challenges

Businesses commonly encounter a variety of accounts payable challenges, some of which include:

Manual data entry

Manual data entry might have been the sole method to process payables a few years ago, but it can result in critical issues that cannot be ignored. Such an approach often leads to errors in invoice data and subsequent overpayment. Even after catching these errors, correcting them remains extremely difficult and time-consuming, often identifying them only after the vendor has been paid. Consequently, businesses face significant losses in cash flow that could have been easily avoided, along with wasted time that could have been better utilized.

Slow processing

Even after data entry is completed, obtaining approvals from relevant business heads through paper documents or lengthy email threads can significantly delay the payment process. As a result, early payment discounts are missed, and in some cases, late payment fees may be levied. Moreover, delayed payments can strain supplier relationships and potentially harm your business, particularly during supply chain shortages.

Fraud risk

Manual processing not only proves inefficient and slow but also significantly heightens your business's vulnerability to fraud. Managing sensitive invoice and payment data through paper or spreadsheets exposes you to potential security breaches. Without robust payment approval systems and controlled data access, fraudulent activities could be occurring unnoticed within your organization.

Even check payments, once a common transaction method, are not immune to fraud. Insecure storage and manual tracking of checks make them susceptible to loss in transit or theft from inventory. The difficulty in tracking checks compromises payment security, providing opportunities for fraudulent activities to fly under the radar.

Duplicate payments

Duplicate payments can occur due to various reasons, all of which lead to the same undesirable consequences - delayed cash flow or loss of funds. Identifying and rectifying such instances can be a challenging task. Additionally, requesting a refund from the vendor can be cumbersome and, in some cases, even overlooked, causing further complications.

These occurrences can happen for several reasons, such as errors in data entry, vendors accidentally sending the same invoice multiple times, multiple vendors listed in the vendor master, or failing to mark an invoice as paid on the spreadsheet. Inadequate streamlining of processes and poor communication can exacerbate this issue, making it even harder to detect and resolve payment duplications.

Physical documents and record storage

Streamlining accounts payable processes can be a considerable challenge when managing paper invoices. The cumbersome nature of paper invoices makes storing and tracking them a daunting task, increasing the likelihood of misplacement or loss before payments are made. Moreover, circulating paper invoices for approval can lead to a paperwork avalanche, causing delays or overlooked payments. Finding secure space to store these physical documents adds another layer of complexity, often resulting in space crunches and storage complications. These challenges call for a more efficient and modern solution to ensure smooth accounts payable management.

Solutions for accounts payable challenges

The accounts payable challenges discussed above can be addressed by taking care of and implementing a few key measures.

Automated data entry

It is no secret that manual data entry is time-consuming and can lead to significant errors in invoice data. By embracing invoice automation software, not only can you reduce errors, but you can also free up your accountant's bandwidth, enabling them to concentrate on more crucial tasks. This software utilizes advanced optical character recognition technology, which automatically extracts data fields from invoices and accurately matches the extracted text to the appropriate fields. Whether you have an invoice in PDF format or a paper copy, you can effortlessly upload it onto the software or even snap a picture of the paper invoice. The digital storage within the software eliminates the hassle of managing physical invoices, making everything easily accessible and well-organized.

3-way matching

A 3-way match is a crucial step in the accounts payable process, involving the comparison of invoice details with the corresponding purchase order and receiving report. By performing a 3-way match, businesses can ensure that the information on the invoice aligns perfectly with the goods or services that were agreed upon and received. This meticulous verification process serves two vital purposes: Firstly, it helps prevent overpayment, ensuring that you only pay for what you received. Secondly, it acts as a measure to avoid data entry errors before they cause complications.

Regularly analyzing KPIs

Establishing and monitoring Key Performance Indicators (KPIs) can play a crucial role in reducing processing time and identifying the root causes of payment delays and missed payments. Key metrics such as Average Processing Time, Percentage of Late Payments, Percentage of Early Payment Discounts Utilized, and Average Time Spent in Approvals should be carefully chosen to gauge the efficiency of your accounts payable processes. By closely tracking and analyzing these KPIs, you can optimize your accounts payable functions, leading to better cost control and improved financial management.

Vendor master cleanup

Duplicate vendors within the vendor master can significantly contribute to duplicate payments, leading to unnecessary financial losses. Consequently, it becomes imperative to keep the vendor master record immaculate to ensure a streamlined and efficient accounts payable process. Auditing the vendor list regularly is crucial to identify duplicate entries, inaccurately recorded vendors, and "zombie vendors" with no recent transaction history. This thorough examination provides a more accurate and up-to-date representation of vendors, minimizing the chances of payment discrepancies.

Moreover, alongside vendor data, it is essential to maintain vendor contracts diligently. By doing so, businesses can proactively track and manage their contractual obligations. This measure helps prevent uncontracted expenses from slipping through the cracks, avoiding potential disputes and ensuring better financial control.

Accounts payable audits

Regular AP audits play a crucial role in identifying any overlooked errors or potential cost-saving opportunities. Moreover, they serve as a critical tool for detecting and preventing fraud within your system. By conducting AP audits, you gain valuable insights into the efficiency of your payables processes, allowing you to pinpoint areas of improvement and establish further guidelines to rectify inefficiencies. Embracing the practice of regular AP audits empowers your business with greater financial accuracy, security, and the ability to optimize your accounts payable operations.

Choose a comprehensive AP automation solution

AP automation software solutions, such as ClearTech, offer comprehensive end-to-end accounts payable management, streamlining the entire process from invoice digitization to payments, all within a single user-friendly platform. With a powerful combination of OCR and technology-enabled managed services, ClearTech achieves an impressive 100% data extraction accuracy, leaving no room for errors. Additionally, ClearTech's automation capabilities extend to GL and cost center allocation, along with the automatic assignment of approvers based on your specific workflow policy.

ClearTech goes the extra mile to safeguard your finances with its advanced features, such as anomaly detection and duplicate invoice checks, ensuring that you never overpay your vendors. Approvals become a breeze as ClearTech enables business heads to review and approve invoices via email, while the platform takes care of timely follow-ups with approvers, keeping things moving smoothly.

Get a comprehensive overview of your accounts payable performance and expenditure with ClearTech's built-in AP and savings dashboards, offering insightful analysis, all accessible from a centralized platform. Moreover, ClearTech creates a perfect audit trail, ensuring compliance and transparency in your financial processes. Say goodbye to cumbersome manual tasks and welcome a new era of efficiency and accuracy in your accounts payable management with ClearTech.