An organisation that manages its invoices promptly and accurately is one that maintains good relationships with its suppliers. Prompt payments keep businesses running smoothly, but businesses do not always have cash available readily to make payments at the time of purchases.
Most businesses purchase products on credit and keep track of the payable amount through invoices. The payments are made at a time when the organization has the amount required to make the payments.
How well these invoices are tracked and how promptly the payments are made affects how the company interacts with suppliers and the credit rating of the company.
AP Process, or accounts payable process is the practice of companies tracking invoices in order to make payments outside their payroll. The AP process may be done by a single bookkeeper or a dedicated AP team depending on the size of the organization and the number of payments and the amount payable on an average every month.
The AP team must strictly follow every detail related to invoices in order to make the payments correctly and promptly. If the AP team does not function correctly, shareholders, suppliers, and clients will have the wrong image of the financial state of the organisation and could prove detrimental to the company and its operations.
What are the steps in an AP Process?
● Completing purchase orders:
The first step in the AP process is the preparation and distribution of purchase order documents. A purchase order is a document that contains details about the goods or services that were purchased such as when they were purchased, from which supplier they were purchased, the mode of delivery, and the expected date of delivery. The general practice is to distribute the Purchase Order documents to several people, within the AP team, the receiving team as well as the supplier. This is done in order to ensure the information on them is accurate.
● Process receiving reports:
The next most important set of documents are receiving reports. Receiving reports is what enables the AP team to track goods and services after they have been delivered. Receiving reports or receipts contain information about when the goods were delivered, what quantity was delivered, and in what condition. This information is compared to the information contained in the purchase order and the vendor invoice eventually. This is done to ensure they have received exactly what they ordered.
● Three-way matching:
Three-way matching is the AP practice of validating vendor invoices. This is important to determine the actual payable amount. The AP team attempts to match the details on the purchase order, receiving reports, and the vendor invoice. If the information on all three documents is found to be matching, the AP team enters the invoice into the amount payable in order to be scheduled for payment.
● Processing timely payments:
After completing any additional verification processes, the AP team must process these payments on or in advance of the due date. This due date of payment may be predetermined by the vendor or the purchasing company. Sometimes, vendors prefer particular modes of payment or offer discounts. Processing payments on time is important for maintaining good relations with suppliers. Good relations with vendors translate to recommendations to other vendors or better goods and services in the future.
● Closing accounts:
Once payment has been processed, it is the duty of the AP team to close the vendor ledger account. This is done in order to eliminate the liability created when the goods or services were purchased. The amount which is shown as “payable” will be reflected as “paid”. The AP department then updates all related records.
Benefits of AP Process
● Cost savings
Accounts payable software allows businesses to process invoices faster, increasing operational costs and productivity. Companies can also eliminate paper and manual labor, avoid punctual payment delays, and take advantage of discounts.
Accounts payable automation streamlines processes such as invoice coding, invoice workflow, invoice collation, dispute resolution, and global tax compliance.
● Increased productivity
Contactless processes allow the accounts payable team to focus entirely on exception handling or engage in value-added tasks. By increasing invoice processing speed by 71%, accounts payable automation solutions increase productivity and provide well-defined workflow results.
● Analysis and insights
AP automation provides practical data and built-in analytics, making the accounts payable team knowledge-driven. Accounts payable software helps identify process bottlenecks, predict and prevent payment delays, effectively set KPIs, and monitor progress.
● Fraud prevention
The lack of transparency in manual processes increases the risk and likelihood of fraud. Accounts payable automation solutions protect your company from duplicate payments, lost invoices, and erroneous payments.
It helps in making sure the approval is properly documented and protected for auditing. In addition, businesses can keep their budgets down and avoid overruns.
● Improving relationships with suppliers
Accounts payable automation solutions give vendors a variety of options for sending and receiving invoices. In particular, there is also a free portal for tracking orders, invoices and payments with automated invoice processing. This helps strengthen relationships with suppliers by guaranteeing on-time payments.
Steps to managing the AP process efficiently
Accuracy and attention to detail are paramount in managing the AP process efficiently. The following steps can be taken to ensure smooth operations.
- Setting up reminders to process payments on time.
- Making processes traceable allows the AP team to trace the purchased product at every step in order to substantiate the payments for reviews and audits later.
- Maintaining good relationships with vendors through process automation. Process automation allows for best practises at each stage of the process and also eliminates the need for physical documents.
AP process is an important process required to maintain good relations with vendors. AP process tracks the amount payable to vendors for purchased goods and services through invoices and purchase orders. AP teams verify the amount at each stage and schedule the amount for payment. The payment is then made on or before the due date while satisfying the conditions put in place by the vendor.
Automate AP process, improve decision making, and mitigate compliance and fraud risks with intelligent and contextual data extraction, interpretation, processing and accounts payable automation using AI driven OCR and IDP solutions with KlearStack. To get a free demo, contact our representative today!