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Accounts Payable: The Most Important Challenges & Solutions

Accounts Payable
August 20th, 2018

Let’s say your AP department receive invoices from several different vendors.

You now have a problem on your hands:

Either your purchase order system has no record of the purchases or the PO Receipts have not been done.

Which means you have no idea what to do—should you pay them or not?

Your accounts payable department undoubtedly knows the pain of this all-too-common situation. This is a recurring issue in accounting and purchasing departments all over the world.

Your team has to act like a detective—reaching out to people in several departments to chase things down.

Your AP department’s challenging task?

To get to the bottom of who purchased what, why, if the orders were authorized, whether you should pay the invoices, and—if the purchases weren’t authorized—how they will impact the numbers in your budgeting software.

The stress of accounts payable problems and solutions happens because accounts payable is often a department full of various, disconnected systems and processes.

The kind of department where mistakes can and do happen.

The Cost of Accounts Payable Errors

Accounts payable errors cost companies in two ways:

1. Financial
2. Time

Financial costs happen when money goes out when it shouldn’t. Overpayments, double payments, payments for invoices that shouldn’t have been paid to begin with. All of these cost your company money.

Time costs occur when employees waste time chasing down details they can’t find in your purchase order system. Instead, they’re forced to track down what happened with invoices, purchase orders, or other transactions—manually.

Time costs are just as real as financial costs, even though they are often hidden—since they don’t show up directly as a line on a financial report.

5 Types of Problems in Accounts Payable

There are many errors that can happen in accounts payable, including:

1. Unauthorized Purchases

Unauthorized purchases can wreck the most carefully planned budgeting system. Every company has rules about who can make purchases and how much they can spend. Depending on the system you use, these rules might be more “guidelines” instead of true “rules” in the ordering system. In that situation, unauthorized purchases can and (probably will) happen.

2. Paying Invoices Before Receipt of the Product or Service

Have you accidently paid an invoice before receiving the product or service? It’s easy to do.
When things get busy, staff members sometimes approve payment for all invoices as soon as they receive them—without confirming that the product or service has been delivered.

3. Double Payment

Sometimes vendors send a second invoice—especially if their first invoice wasn’t processed immediately. Now you have two invoices floating around your office. It’s easy to pay them both accidentally.

4. Matching Errors

Like invoice questions, matching errors tend to transform accounting staff into detectives. Did the box actually have 14 items when it was delivered? Or just 13? You have no way of knowing from where you sit in accounts payable. You have to investigate.

5. Data Entry Errors

Data entry is one of the most common causes of accounts payable problems. Who hasn’t transposed a PO number or a payable amount when entering data into a purchasing system? If your system requires manual data entry to pay invoices or create purchase orders, data entry errors are inevitable.

You’d be hard-pressed to find a business that doesn’t struggle with keeping people on top of their IOUs. Managing the accounts payable department is an overwhelming task. Not only are AP employees swamped with work, but there are also plenty of other challenges that slow things down in the AP process.

Sometimes, accounts payable can become so overwhelming it seems like things are never going to get any better.

But is it really that hopeless?

Turns out, problems with accounts payable can be tough to beat. But they are not insurmountable. You can resolve most AP issues with some hard work and a little help from automation systems.

And the benefits to your company are well worth the effort it takes to make your accounts payable department more efficient.

In this article, we’ll look at the top 9 challenges in accounts payable that can seriously damage your company if left unchecked. Then we’ll zero in on how you can implement AP automation and take steps to keep these issues from sinking your company.

Top Accounts Payable Problems


1. Poor Data Entry

Data entry errors are among the biggest problems plaguing accounts payable processes that haven’t yet been automated. Manually entering data from invoices into the computer is time-consuming and mistake-prone. Even a simple mix-up when transferring numbers can result in costly errors for your company. And when you are talking about money that’s owed by your company, there isn’t room for sloppy work.

Another thing to consider is that if you’re using Excel or a similar program for your accounting then there are likely errors in your spreadsheets.

About 88% of the Excel spreadsheets used by a business contain significant errors.

Finding these errors and correcting them takes huge amounts of time. And if you’re relying on manual fact-checking, you’ll never be quite sure you caught them all.

Fortunately, as we will see, AP automation removes excel from the process entirely.

2. Inefficient Storage

Trying to organize your records manually is great if you’re a perfectionist with too much time on your hands. But if you’re like most people, it’s just too much to keep up with manual filing and paper storage takes up huge amounts of space you could put to better use.

This is especially true in a growing company.

If you decide to go with digital data storage, you’ll get an efficient storage solution that can scale your company’s needs.

Additionally, digital document management makes your records very easy to search and organize. And it’s also a secure way to store your information. Paper can be very easily destroyed but electronic data storage automatically backs up all of your important company information.

3. Slow Processing

Manual invoice processing takes a huge amount of time. In contrast, automation makes average invoices processed per AP employee increase by roughly 5 times. In other words, if an AP department can manually process 1,000 invoices per employee each month, automation can bring that number up to 5,000 per employee.

If you can speed up your invoice processing using accounts payable automation, you’ll immediately see several improvements. Not only will you avoid late fees, but you can also start taking advantage of early payment discounts. And both those things will help improve cash flow in your organization. You’ll also make more time for employees in the AP department to focus on things other than routine paperwork.

4. Disappearing Invoices

Any time you fall behind on invoice processing there’s an increased danger of losing track of invoices. Incoming invoices might be lost permanently or just temporarily misplaced. Either way, if you can’t keep track of your information, you’ll just keep falling farther and farther behind on getting invoices processed.

For invoices that are permanently lost, slow processing isn’t the only problem. The AP department will have to spend time getting in touch with suppliers so they can issue replacement invoices.

And if they don’t notice the invoices are missing, then you have to deal with suppliers calling and asking why you haven’t paid yet.

On top of that, you’ll have all the problems of an inconsistent paper trail when it’s time for audits.

AP automation resolves these issues since eliminating paper and digital record keeping is integral to this solution.

5. Inefficient Fraud Prevention

Since accounts payable is where money normally leaves the company, it’s seen as a prime target for fraudsters. Most companies don’t ignore the issue of fraud. But most companies also aren’t doing enough to actually stop fraud from happening. Don’t be the company that doesn’t bother with tightening fraud controls until after they’ve been a victim of fraud.

Catching and preventing fraud requires an understanding of how fraud works, tight controls, and constant vigilance. However, implementing anti-fraud controls that work is hard to do in a manual AP department. Technology is a huge help in the fight against fraud. With automation software, you can set up custom controls that enforce company policy and notify you immediately of suspicious invoice activity.

6. Lost Money

Inefficient invoice processing puts you at risk for losing money.

For one thing, the longer it takes to process an invoice the higher your cost-per-invoice is going to be. Labor costs account for a large percentage of how much it costs to process an invoice.

Another issue comes up if your records aren’t accurate and you make duplicate payments or overpayments.

There’s a good chance you’ll never see that money again unless your AP department catches the error and initiates re-collection efforts.

If you fall behind on invoice processing that will also mean missing payment deadlines. This will result in late fees, which are one of the most common accounts payable problems.

And fees aren’t your only issue.

Falling behind on payments also damages your relationships with vendors. If you’re always paying late they might even stop doing business with you.

An additional upside to integrating AP automation software is that automated input essentially eliminates human error. You will decrease your odds of losing money in your AP processes.

7. Exception Invoices

Not all invoices can be processed the same way. There’s always going to be some non-standard invoices or documents with discrepancies.

Handling these invoices takes extra time. But if you speed up processing with automation, you’ll have the extra time you need to handle exceptions. And automation also makes the information required to reconcile discrepancies more easily accessible.

When you first set up AP automation software you might find that it catches a high number of exception invoices. Initial setup gives you a chance to define your company’s custom tolerances so the software can determine which are exception invoices and which are not.

The more you use the software and refine the system, the better it will get at picking out which invoices need human attention. Eventually, you should see a reduction in the number of exceptions invoices.

8. Messy Record Keeping

It’s hard to find records of past invoice processing if you’re filing your information manually. Even the most efficient manual record keeping system takes time to search through if you don’t know exactly what you’re looking for.

With electronic records, you can just do a keyword search or pull info up by date with a few clicks.

Accounts payable automation software stores information about every event and change as invoices are processed. It then saves the information automatically, keeping all the records you need in a complete and easy to search format.

This improves everyday invoice processing, but the biggest change you’ll probably notice is how much easier it is to handle audits after you start using automation software to keep track of invoice processing.

9. Manual Follow-up

Following up can be just about the most frustrating thing of all. Unfortunately, the majority of businesses have to rely on a manual follow-up process. That includes following up through emails and calls to make sure things are getting approved, meeting conditions, getting resubmitted, etc. Automation can help with this as well!

In the following section, we will look at 7 solutions that will help you solve the aforementioned problems and help your AP department run more efficiently.

7 Solutions to Deal with Accounts Payable Problems

If you’re struggling with accounts payable errors, here are seven things you can do to improve your process:

1. Use Three-Way Matching

Three-way matching is a fantastic tool for accounts payable problem solving. Put simply, it’s a method you can use to ensure invoice payments are complete and accurate.

An effective AP automation solution allows you to dramatically increase the speed and ease of accessing matching and processing these documents.

The goal is to find any discrepancies in the three important documents in the purchasing process:

1. Purchase orders
2. Order receipts or packing slips
3. Invoices

The three-way matching process, which is built into DocLib’s accounts payable solution can help prevent overspending or payment for an item you haven’t received.

2. Set Up Advanced Permissions

Advanced permissions take this idea further, giving your IT manager, for example, broad approval status for IT-related purchases, but nowhere else.

Advanced permissions can be as complex and detailed as you need. Using them gives you much more control over who can order what, which will cut down on unauthorized spend.

3. No More Excel

Microsoft Excel seems to be the default program people use when they lack a true procurement system.

Excel is a wonderful program, but it’s not built to give you a complete picture of your procurement process and your budget. Using Excel to track procurement almost always means manual data entry, a natural source of errors.

Moving from Excel to a true e-procurement purchase order system is a fast way to reduce errors and exceptions in accounts payable.

4. Ensure End-to-End Visibility

You should be able to see the entire process—who ordered what, who signed for deliveries, who matched the packing slip, when the invoice was paid—without having to send an email or make a phone call.

That way you’ll have everything you need if there’s a problem—including knowing whom you should contact if you have a question. Having full visibility also means your life will be much easier if you ever get audited.

5. Real-Time Budgeting Software

Modern purchasing programs include live, up-to-the-minute budgeting software. Real-time reporting can help you make decisions about purchases, and they can help you spot and correct errors faster than you can with traditional daily or weekly reports.

6. Integrate Your Systems

Duplicate data entry is one of the primary causes of unnecessary manual data entry in accounting.

If you use market-leading accounting solutions, make sure your purchase order system can seamlessly move data in to and out of your accounting system. This will eliminate much of the duplicate data entry that would be necessary with a non-integrated system.

7. Stop Using Paper

If a piece of paper is required at any step of your procurement process, that’s a piece of paper that could go missing.

A complete, end-to-end e-procurement process eliminates the cumbersome paperwork, replacing it with an electronic record that’s much easier to track, use, and manage.

Automation software helps with follow-up on two fronts:

Within your company, it will send automated reminders to people who haven’t yet issued invoice approvals. For those outside your company wondering about the status of their invoices, you can set up a vendor portal.

This will grant your vendors limited access to your accounts processing system so they can update their own information and check on invoice processing without contacting your AP department.

How Important Is Optimizing Accounts Payable?

We’re not exaggerating when we say the nine accounts payable challenges outlined previously can sink your company.

It might start out as falling behind on payments to your vendor, but that can escalate quickly.

If you miss paying a utility bill, there goes your company’s production line(s). By not optimizing your AP process, you simply will not have the raw materials on hand to make your products products.

Not only does falling behind on invoices disrupt your supply chain, but it also means you won’t be able to negotiate for price breaks from your vendors.

And finally, inaccurate invoice information can drive serious cash problems.

For example, if you don’t catch that you’re making duplicate payments or overpaying there’s a good chance you’ll lose that money forever. And even if you do notice the problem getting your money back will eat up valuable resources.

Wrapping Up

You are now a good deal more knowledgeable of the common challenges as well as the most effective, proven solutions in accounts payable. As you may have noticed, we recommend automation as an essential step in improving your AP processes.

Learn more about accounts payable automation here and be sure to contact us today with any questions that you might have. We’ll help you evaluate your needs and identify the right solution to meet them.

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