Do you ever wonder how your business AP system works? How do you know when it is time to ask for help? How can you streamline and simplify the process, so you have time to focus on what matters the most? If you’re like many small business owners, you may wonder what the need is to track business financials. But meeting financial obligations is a top priority for any business. An important part of running a successful small business is being able to keep track of your financials. Doing so requires regular management of accounts receivable and business assets, as well as an understanding of how the invoicing and accounts payable system works. However, even with the latest technology available, organisations face many accounts payable problems, which are left unaddressed.
Companies that struggle to keep their accounts payable end up being late on payments or owing more on their bills than they can repay. So how do you avoid a cycle of overpayment, underpayment, and ultimately overdue bills? How can you keep your company’s AP from going into overdrive? To make sure that your AP is organised and up-to-date, check out these common problems and their solutions:
1: Payment errors
One of the most common AP problems faced by businesses is payment errors. Many times, businesses end up making duplicate payments to the suppliers. Duplicate payments can cause a negative impact on your cash flow unless you catch such payments and ask for a refund from your vendor. The best way to avoid payment errors is to understand your company’s payment obligations clearly. In addition, organisations can opt for a system that allows them to set up control account codes and account ledgers. The individual control account codes automatically classify invoices and receipts to the right account, catch duplicate invoice numbers, calculate vendor-specific discounts, etc. Since AP department is the most vulnerable to payment errors, business owners should thoroughly understand the terms and conditions of the payment procedures. This provides a complete understanding of the payment structure to the businesses and helps to avoid any last-minute payment hassles.
2: Slow or Inconsistent processing
Invoice processing is one of the cumbersome tasks of the accounts payable process. In businesses, manual processing of invoices requires more time and effort by the business owners. Also, human intervention leads to more inaccuracies and inconsistencies in the process. Organisations can overcome such problems by automating invoice processing and digitally verifying each step involved. The steps involved in invoice processing are invoice receipt, invoice confirmation, invoice recording, and invoice approval. By automating such steps, organisations can eliminate inaccuracies in invoice processing and enhance the speed of the process. With consistent and accurate invoice processing, business owners can save ample amount of time and effort on the part of employees. The spare time and effort can be reinvested into more productive business activities.
3: Using a paper-based approach–
The organisations using paper records to manage the accounts payable process are missing out on many opportunities. Handling and managing paper records is time-consuming and hectic for the employees. They are often diverted from their main task and spend hours recording and finding the missing transactions. Going paperless reduces the amount of labour time spent on receiving, organising, and inputting data from paper invoices. Using the traditional paper documents may work out initially, but later on, it only adds to unnecessary departmental expenses. On the other hand, automated accounts payable solutions can save organisations a lot of time and costs. With automated accounting solutions, business owners can ensure that their employees invest more in their main business tasks rather than putting extra effort into managing paper-based records. In addition, the extra delay and unnecessary stress caused due to recording and finding the relevant paper records is completely eliminated.
4: Missing purchase orders
Every business has a strategy for ordering products and services and following through on purchase orders. The key here is to keep track of the purchase orders you have issued. It is crucial to generate purchase orders because they help avoid duplicate orders and unauthorised purchases. It helps to keep track of the items ordered, agreed purchase amount, etc. Most business owners skip creating purchase orders since it is a time-consuming process. However, using accounting software helps to avoid such situations. An accounting software creates purchase orders much quicker and also allows conversion of a purchase order to vendor invoices and matching of such vendor invoices with their purchase orders.
5: Potential theft and fraud
As per the studies, companies lose a significant amount of their revenue to fraud and theft every year. The accounts payable department is the most vulnerable to theft and fraud. The lack of proper visibility into the AP processes is the main reason behind such frauds. Since the AP department is prone to fraud and thefts, it is the ultimate responsibility of the owners to adopt security measures. Security measures like increased anti-fraud training or new policies limiting how and when employees can issue payments are good alternatives. With strict security guidelines, businesses can avoid risks of internal and external frauds and potential thefts.
6: Compliance problems
Maintaining 100% compliance with the ever-changing taxation and legal regulations becomes difficult. It becomes more difficult if a business uses paper-based invoices, which are prone to getting lost, damaged, stolen, etc. This makes auditing more challenging, and incorrect reviews or approvals can lead to strict action or fines. By replacing the paper-based approach with automation, organisations can eliminate compliance-related issues like untracked documents, incorrect data, manual mistakes, and lost documents. In addition, it enhances the security of the financial data with the help of customised access restrictions.
Many businesses struggle to keep their accounts payable organised and up-to-date. It can be difficult to know where your money is, which payments you need to make, and what payment terms you need to follow. If you have any doubts about where your money is or if there are any payments to be made, then you need to address those problems before they become major issues. You don’t want to find out later that you didn’t pay a bill on time or had another company take your goods. Therefore, addressing such issues becomes crucial before they become major financial disasters. The value of time and money is an essential business aspect. It can be extremely time-consuming and costly to rely on manual AP processes that hamper business efficiency and productivity. The process of digitisation and automation helps to optimise all the AP functions, enhancing the entire bookkeeping and accounting function’s efficiency. As per the studies, organisations that adopt automation into their processes perform far better and also stay ahead in the competition.
From small to medium businesses, every organisation must adopt automation into their business processes. For a small business, it tightens the financial security from the starting point. On the other hand, large organisations can enhance or improve their existing business processes. Not just a single business function, using automation in every business process reshapes an entire organisation. Like the AP department, the entire bookkeeping and accounting function can be streamlined. As a result, owners can discover and tap into more business opportunities and boost overall efficiency.