Finance Manager, Imelda Sweeney, has identified a number of red flags that are often present in accounts payable (AP) departments and indicate the need for improvements in AP processes. This post discusses the process and technology issues that arise in inefficient AP departments. It is the second in a three-part series that also covers the people and governance red flags that highlight the need to reform existing AP processes.
1. Manual aspects of work
Manually inputting invoice data into the financial system(s) often results in human error, which contributes to mistakes in financial records being held. The data is presumed to be correct, and uninformed financial decisions off the back of the data can be made.
An accounts payable automation solution incorporates intelligent character recognition, which directly reads data from an invoice when it’s scanned. Alternatively, suppliers can opt to directly upload invoices into a portal or send them via email which are then retrieved by authorized users. This eliminates the need for AP team members to key in invoice data or scan the invoices into the system at all. So instead of inputting the data numerous times, the information is shared across all relevant systems: financial systems, ERP systems etc. (read more on this below).
2. Multiple systems at play
Dealing with many disparate systems and manually inputting data results in errors and leads to poor quality records. Apart from the increased risk of human error, the time it takes to input data into one system can be lengthy, but the repetitious nature of and the time needed to input data into numerous different systems can be extremely damaging to productivity and team morale.
Another issue that arises in a manual environment that relies on manual data input, is that multiple, disparate systems will most likely not talk to each other. The data won’t pass automatically from system to system in real time, so by the time the data is inputted the information may already be out of date for informed decision-making.
Also, it takes much longer to try and get a complete view over the entire AP process if important information is split between different systems. A manager or decision-maker will have to manually scrutinize the systems one-by-one in order to get an idea of what’s happen in the AP process, or to develop and update important KPIs for reporting. In this scenario, it could take hours or days to put together a report, such is the time-consuming nature of pulling information manually from multiple systems.
Fig. 1. An AP automation solution gives full visibility over each stage of the AP process
AP automation integrates with existing financial systems to give a full view of accounts payable processes. Users can track the progress of invoices from the time they enter the system to the moment they are approved for payment. The system can also deliver leading and lagging indicators that should be used to improve efficiency and drive continuous improvement across the end to end process, for example, the cost per invoice, days payable outstanding (DPO), processing time per invoice per FTE, the rate of match failures disrupting straight through processing (STP), and user behaviors that impact the end to end.
3. Volume bottlenecks
The inefficiencies of a manual-based transaction processing function are highlighted during specific busy periods of the year, for example at month-end and financial year-end. During these busy times, manual processes can result in volume bottlenecks. Invoices may remain on desks for days or weeks before finally being approved by the business due to their busy schedules at certain points in the year.
With an effective process for AP, and simplified, automated workflow for invoice approval and payment, volume bottlenecks can be reduced at a minimum or prevented completely.
You’ve identified red flags… Now what?
If any of the above red flags are applicable to your organization, process improvements by way of review, re-design, and automation may be necessary steps to take. By reviewing processes, you can identify inefficiencies that may have previously gone unnoticed. By re-designing processes to address the inefficiencies, you can ensure a much more standardized, secure, and controlled environment. Automating these re-designed AP processes maximizes efficiency, ensures compliance with internal controls and external regulations, and provides management with full visibility and control over the end-to-end AP process. These benefits allow your organization to achieve a best-in-class AP function; to seamlessly absorb additional volume and tasks without the need to hire, as well as highlight areas for continuous improvement.