For any organization, especially the large ones, there is no dearth of accounts payable work. The AP (Accounts Payable) work is critical in any organization as it directly deals with and impacts the company’s cash flow and financial stability. Since it deals with various processes involving receiving invoices, verification, processing payments, and more, managing efficiently can help sustain both a positive cash flow and robust vendor relationships. Vendor relationship is also an important aspect that we tend to overlook until there is an urgency, or we need some price consideration; it is where the organization’s reputation and good standing make the difference.
However, AP management is a complex process as they face several obstacles in their course of execution. The obstacles can affect the entire business and impair the supplier relationship, resulting in severe repercussions. For instance, you receive an invoice despite no matching purchase order. Or when you get an invoice notice late, and the team does not remember the original request for payment. There can be several such instances, and effectively tackling them is necessary for the smooth execution of the business. Of course, undertaking these complications can be daunting. Nonetheless, moving from manual processing to embracing technology, automating tasks, to utilizing Artificial Intelligence, have all augmented the flourishing of the complete AP cycle with much fewer hiccups. Let us delve into the common accounts payable problems and the solutions which you can leverage to address them.
9 most common accounts payable problems/ areas of improvement:
Let us look at the problems the accounts payable team usually face, especially when the department is quite large, and they handle huge volumes. Few are an outcome of inadequately defined processes, some are out of human error, while others can arise from technical breakdowns. No matter the problem, they all impact the AP department and, consequently, the business adversely.
If the AP team relies on manually processing entirely or even partially, the average invoice is passed around to many hands before the AP team approves its payment. Not only this slows down the entire processing time, what is more, is that it increases the risk of making an error or losing a document. Thus, apart from slow processing, it results in late invoices and distressed vendors who intermittently enquire about the payment status. It is not the ideal relationship.
According to the Efficiency Benchmarks report from IOFM, the average on-time payment rate is:
- 24% for companies with low volume of invoices, when processed manually.
- 25% for companies with moderate invoice volumes, when processed manually.
Apparently, invoice processing takes time, even for a single invoice. Some organizations may endure this slowness, accepting it as a part of their world. Other companies may have over-complicated approval systems or may not have a well-defined process to resolve invoice exceptions.
Matching the purchase orders, invoices, and receipt reports ensure that the enterprise receives the products they pay for at the agreed amount. This three-way matching is a resourceful AP practice but can also be quite a hassle when taken manually.
You launch a manual investigation when you find discrepancies between PO, invoices, and receipt reports. However, with the workforce crunch and shortage of time, do the employees really have the time to execute detailed multistep investigations for every mismatch? Similar to other manual processes, matching errors cause quite the delay slowing down the efficiency of the AP team.
Exceptions in invoices
We can expect the suppliers to send accurate invoices every time. However, even the suppliers are susceptible to mistakes that can arise from errors and inefficiencies. When exception invoices arise, which may be because of incorrect or incomplete data, it again takes the AP team to follow up and find out the next step manually. Manual intervention, reaching out to the supplier, fixing the invoice, and processing take time and also slows down the department.
At times, some employees may sidestep the usual purchasing process to avoid the hassle of going through a slow and stern AP department. They might also have urgent business requirements and resort to a non-authorized supplier. Such invoices are, again exceptions from the enterprise end, and processing these can take a reasonable amount of time, cascading the slowing down of other invoices in the process.
High volumes of invoices
Often AP teams are overwhelmed by massive volumes of invoices, which invariably lead to delays in processing and payment. This impacts the cash flow and creates cash management challenges.
Risk of fraud- both internal and external
The risk of fraud keeps troubling the Accounts Payable team. According to a survey, B2B payment fraud increased by 10% during the Covid-19 pandemic. External fraud takes place in several ways, from email scams to impersonation frauds, log-in breaches and many more. Furthermore, AP employees can also corrupt, misdirect frauds, or make unauthorized purchases. Detecting AP fraud is not very easy for an honest AP member or other departments of a company.
When it comes to AP team, they have to do their operations, ensuring compliance with various regulations. That can be complex and time-consuming and can also impact their ability to process invoices and disburse payments promptly. That, too, creates additional compliance risks.
Payment errors – double payment, misplaced invoice, payment before delivery
Errors such as the team generating double invoices, a typo in a PO, or even human error to mark an invoice as paid can result in double payments.
Again, there can be the case of a disappearing invoice, where nobody from the AP team processed the invoice and further misplaces or loses the invoice. When the AP team discovers it, it complicates the records and results in hefty late fees.
Errors such as paying the supplier as soon as the invoice arrives, without even receiving the goods/services, can also lead to other complications. On top of that, if the shipment is damaged or has missing items, it might be challenging to follow up and ultimately slow down the department.
Reconciliations and audit-readiness
Reconciling the accounting records in the ERP system with other financial data is a significant task that the AP team usually dreads. On top of that, any discrepancies, missing invoices, etc, can further add to the woes.
Possible Solutions to tackle these common accounts payable problems.
Do you want to resolve all these challenges that make the Accounts Payable operations cumbersome, prone to errors, and result in payment delays? Implementing automation tools can relieve many of the issues that we discussed here. However, since automation does not reflect human performance and cognition, there are other challenges that you may have to deal with. Robotic Process Automation (RPA) and Optical Character Recognition (OCR) can handle simple process automation and can recognize text. Still, for effective implementation, you may need additional software, develop custom workflows, and integrate them. Here comes the Digital Co-worker, an AI-powered software that can handle end-to-end Accounts Payable operations. Let us explore its potential benefits.
What about Digital Co-worker?
With the comprehensive abilities of Azure Cognitive services and Power Platform, a digital co-worker is trained with complete domain knowledge to manage the accounts payable process. Not only a digital co-worker can automate processes as instructed by humans with complete accuracy and reliability, but it can also sync with all the activities within the accounting and finance department and skyrocket the productivity of the accounts payable team.
Saxon’s latest offering of Digital Clerx has Emma – the accounts payable specialist. Emma is an exquisite blend of AI (Artificial Intelligence), cognitive automation, Machine Learning, RPA, and Analytics and is also capable of learning new things. Human-in-the-loop ability allows Emma to escalate new challenges to humans and learn. All the common accounts payable problems that we discussed here can be tackled seamlessly by Emma. Not just that, you can scale up and down our Digital Clerx offering as per your requirement.
You can schedule a free trial and hire Emma as an extension of your existing team. With all platform licensing costs covered and complete domain knowledge, you will be surprised to find visible ROI (Return on Investment) from day one itself.