What Features Do You Need in an Accounts Payable Automation Solution?
Author: Carrie Zoucha, Vice President, Commercial Card
This is the second in a series of blog posts about accounts payable (AP) automation. Today, we’re looking at the must-have features needed in an automation solution. A future post will examine the benefits for your business.
Businesses adopting accounts payable (AP) automation solutions can expect to experience many benefits, including improved working capital, lower AP processing costs, increased staff efficiency, improved financial controls and reduction in incidents of fraud.
But how? What are the specific features of AP automation software that can deliver these benefits? First, an automation solution must work with your existing software. Once you establish compatibility, it’s important to consider the three separate but connected processes that collectively accept invoices from suppliers and safely send payments while optimizing the use of your cash and working capital.
Complementing Your Existing Accounting System
AP automation solutions complement, rather than replace, your company’s accounting systems. The automation software must be able to pull from and push data into your accounting system.
AP automation solutions import in relevant historical financial data from your accounting system, such as account charts, suppliers and their payment terms, and open and paid invoices. Conversely, as you run your AP process, data like new invoices, payments made and payments to be reconciled are pushed into your accounting system.
Solutions that integrate with accounting systems in near real-time allow you to get up and running quickly, reduce the cost and complexity of implementation, and shrink time to value.
Invoice Processing: Receive, Approve and Post
Invoice receipt and capture. Processing starts with the receipt of an invoice and its conversion from a paper document or an unstructured electronic document (e.g., PDF) into an electronic representation. Invoice information is captured and saved as data elements that can be posted to your general ledger. You want an AP automation solution that can:
- Extract header and line-level invoice data from scanned paper and electronic documents in near real-time with high accuracy.
- Automatically match supplier names extracted from invoices to supplier names in your general ledger.
- Automatically assign and categorize invoices by general ledger account.
Invoice approval. A second critical step is approving incoming invoices. This ensures that those responsible for incurring the expense agree that it should be paid and mitigates the risk of duplicate or fraudulent invoices being paid. Approval features include:
- The ability to create hierarchical approval and routing rules based on invoice amount, class, department, location or other attributes.
- The ability to automatically match invoice header and line-level information against purchase orders, which serves an approval function.
Invoice posting. Processing concludes when an approved invoice is postedto the general ledger. Key features include:
- Creating properly related general ledger records that correspond to the approved invoice, including the creation of supplier records.
- Posting received invoice documents along with the invoice record (if supported by your accounting system).
- Properly handling exception conditions such as when an invoice needs to be posted to an accounting period that is closed.
Cash Management: Engage Suppliers, Plan Payment Runs and Optimize Working Capital
Supplier payments diminish cash and working capital, so businesses are deliberate about which suppliers to pay, how and when. Your AP automation solution should incorporate a cash management system that allows your business to unlock valuable cash and working capital in AP.
Supplier engagement. While it may be easy to send paper checks to suppliers and conduct business as usual, converting to an automated process can unlock valuable cash and working capital by determining supplier payment preferences.
- Many suppliers offer prompt payment discounts — often on a sliding scale (the earlier you pay the larger the discount).
- Suppliers may accept payment by credit card in exchange for a guarantee to be paid on time or early. Credit card payments can extend cash by 20 to 50 days and generate cash rewards.
- Suppliers may be more willing to accept electronic direct deposit payments (e.g., ACH) if they can securely share their bank account information.
- Suppliers may require you to send payment remittance detail in a specific form to ease their cash reconciliation process.
Plan payment runs. Every AP department plans weekly or bi-weekly payment runs to manage cash and working capital. Modern AP automation solutions include cash forecasting so AP departments can scenario plan their payment runs to consider the impact on cash and working capital. Cash planning features include:
- A 13-week cash flow forecast during a payment run.
- A real-time view of how payment decisions impact the cash forecast.
- The ability for cash planners to create an AP payment plan to share with AP staff.
Optimize working capital. Even the best run companies occasionally need to strike a balance between conserving cash and ensuring critical suppliers are paid on time. The best AP solutions allow businesses to provide credit support to increase or maintain cash during these critical times. Look for solutions that can:
- Enable you to defer payments to suppliers for a brief period (say 30-60 days). Suppliers get paid on time, but you pay a small fee to defer payments.
- Use a business credit card to pay any supplier (even if the supplier doesn’t accept credit cards). This can be a simple way to extend your working capital by 20-50 days.
Payment Processing: Authorize, Pay and Reconcile Invoices
The last step in the AP process is paying suppliers. Traditional practice is to write a check and remittance detail and mail them. But checks can be time-consuming, expensive and susceptible to fraud. Best practices include authorization controls to limit fraud risk, ensure disbursement of payments by all means practicable and automatically reconcile payments against open invoices.
Payment authorization. Your AP automation solution should have configurable dual approval controls to ensure at least two people must authorize a payment transaction. This is an effective way to limit the risk of internal and external fraud.
Send payments. An AP automation solution should include the ability to:
- Send payments by check, ACH or credit card.
- Support cross-border payments to international suppliers.
- Send remittance details along with payments.
- Provide detailed tracking and payment progress information to you and your supplier.
Reconcile payments against open invoices. Finally, AP automation should automatically post payment details, like a transaction reference number, against open invoices and mark them closed.
No two businesses are the same, but most businesses — including yours — can benefit from the AP automation if you seek out these must-have feature sets.
FNBO can help your business automate AP processes with our Centime solution. Centime is cloud-based software that integrates with your general ledger to help you control and manage cash, including automation of payables and receivables, and forecast cash flow. Learn more about how Centime can simplify your financial operations or to schedule a demo, contact our team below.
Stay tuned for our next post on AP automation focusing on the benefits it can provide your business. Read the first post in the series: Is Accounts Payable Automation Right for Your Business?
About the Author
Carrie has over 20 years of banking and payments industry experience. In her current role, she has the opportunity to work with large corporate clients. She enjoys learning about their business and helping them grow by providing a range of solutions, including commercial card and corporate treasury services.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.