Defining Accounts Payable & Mastering the End-to-End Process

Authors: Vice President of Treasury Services Product Strategy Jason Hagan & Matt Carrico, Director, Product Management

The first step toward managing accounts payable more efficiently is gaining an understanding of what the end-to-end process entails. Every accounts payable process can be broken down to four distinct steps — invoice capture, invoice approval, payment authorization and payment execution. Manually managing these four steps increases the chances of input errors, creates drag on resource time, limits visibility into invoice payment status, and limits control over short-term cash flow.

In this article, we examine each of the four steps that define the accounts payable process, along with the challenges they create for businesses managing them manually. We will also discuss how automating the four steps enables businesses to elevate accounts payable activities to the strategic level, by helping to manage cash flow and strengthen vendor relationships.

The Four Step, End-to-End Process

Maximizing cash flow and maintaining strong vendor relationships are vital to long-term business success. The former is the lifeblood of company growth; the latter lays the groundwork for how well you can deliver products and services to your customers. How you perform in both areas is directly influenced by how you manage the accounts payable process.

Efficiently processing and paying invoices in a way that maximizes cash flow while also helping maintain strong vendor relationships goes beyond the receiving of invoices and cutting payments. The entire end-to-end AP process spans four distinct steps that involve interactions among multiple frontline resources and management-level personnel:

1. Invoice Capture - The invoice arrives via email, regular mail, fax or a vendor website portal and has to be coded into the accounting system. The manual transfer of data creates the possibility of input errors as numbers are rekeyed. The process can also slow down considerably depending on the complexity of reconciling invoices with purchase orders, and the ratio of frontline resources to the number of invoices that come in each month.
2. Invoice Approval - Invoices then need to be routed, typically via email, to the business unit that utilized the vendor’s products or services to verify delivery and to confirm the time has arrived to issue the payment. The invoice may need to travel through multiple people before it arrives in front of the person who actually needs to sign off on the approval, and this can drag the invoice payment process out for weeks.
3. Payment Authorization - Once the invoice is approved, it now needs to make its way back to the finance team and eventually the CFO or the controller to authorize cutting the check and the issue date. This too can extend the timeline if the authorizer is travelling or on vacation with limited access to email.
4. Payment Execution - Once the payment is authorized, the invoice makes its way to the person who will cut the check or execute the online bank payment. If the due date is not closely monitored, it’s easy to miss payment deadlines and lose out on early-pay discounts.

If the flow of the invoice and the payment lingers during any one of these four steps, the AP team may then have to field calls or emails from the vendor. These follow-up vendor inquiries divert the frontline AP team from their regular tasks.

How Automating the AP Process Streamlines Each Step

Businesses can reduce costs by taking a holistic approach to accounts payable and automating the end-to-end process. AP automation produces several key capabilities that reduce the number of errors and the amount of human intervention in managing the AP process:

• During the Invoice Capture step, physical invoices are recorded digitally and go directly into the ERP system—line items, amounts and coding are automatically extracted using optical recognition technology. Invoices are populated and synced back to the ERP/accounting system with no data entry required.
• For Invoice Approval, automated workflows send approval requests with the invoice attached as a reference; approvers are predetermined based on vendor and invoice amounts.
• At both the Invoice Approval and Payment Approval steps, approvers can accept or reject invoice payments from any device.
• When Payment Execution occurs, approved payments go out immediately on a scheduled date, and two-way sync closes invoices in the ERP system. Approval records, invoice copies, receipts and payment records are all attached to the invoice record.

Every business needs control and insight into cash flow and AP automation solutions also make it easy to manage and monitor the process of invoices and identify any that need special attention.

The Payoff: Optimal Efficiency, Improved Vendor Relationships, and Better Cash Flow

By automating the four steps of the AP process, businesses significantly reduce the amount of time frontline personnel and management spend on manual tasks. This lowers resource costs, but more importantly eliminates the need to rekey errors that hold up invoices and require unnecessary manual intervention to fix.

Another key benefit of automating the AP process is the ability to get payments to vendors on time, which keeps them happy and will incentivize them to want to provide products and services as efficiently as possible to your company.

For the finance team, an automated AP process provides better visibility into each payment, making it easier to manage cash flow. The increased visibility also enables the business to be more thoughtful about which payment methods are the most advantageous for each vendor. For example, some vendors may accept credit cards that provide cash-back rebates.

Investing In AP Automation: Beware Of Point Solutions

It’s important to ensure that the solution you invest in addresses the entire end-to-end accounts payable workflow. There are many solutions available that help make each individual step more efficient.

These solutions include:

• Document scanning/optical character recognition
• Document management and workflow
• Purchase order management
• Integrated payables

However, investing in “point solutions” like these that only address individual components of the accounts payable workflow, will restrict your return on investment and leave you with all of the pain points that the solution fails to address.

In order to maximize your ROI on accounts payable automation software, it’s critical to invest in a product that addresses the entire end-to-end process. This enables you to reap the benefits that come with transforming accounts payable into a simple and streamlined workflow, including:

• Centralization of all accounts payable operations
• Automatic preservation of all approval and payment details
• Simplified transitions between each step of accounts payable

Take the Next Step

By automating the four steps in the accounts payable process, you can refocus your resources on more strategic activities, including identifying other business processes that need improvement to create even more efficiency.

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About the Authors

Jason Hagan leads Wholesale payments strategy and product development for First National Bank of Omaha. He joined the bank in 2013 to develop and implement the bank’s payments and partnership strategy. Jason also leads the Wholesale Bank Investment process.

Matt Carrico leads First National Bank of Omaha’s effort to help business owners improve their cash flow, as well as their accounts payable and receivable efficiency. Matt has 15 years of sales and strategy experience.