Every business does business with at least one other business. You pay for electricity, you buy pens, you outsource your app development, or you buy vehicles from the local dealer. To manage all that, most companies end up managing an accounts payable program, to ensure consistency and timely payments.
Accounts payable automation is the process of turning the repetitive nature of accounts payable into a system that runs itself – basically. In reality, you’ll still end up with a person doing a very small amount of work, but it will be heaps less than they would have been doing without the automation in place.
The basics of accounts payable
The steps that your business undertakes when it needs to pay someone might vary, but most setups look something like this.
1) Receive the invoice from the vendor. It may have a purchase order number associated with it, may be due now or in the future, and may be mailed with an Andes mint, if the Olive Garden has been helping you out. Life tip: If you ask, they’ll give you a gazillion of those mints.
2) Reconcile the invoice with your internal purchase order system. If the invoice came pre-coded, you can simply match it up to the internal purchase order number that you’ve generated. If not, you’ll have to hunt down the order to match everything up.
3) Enter the invoice into your accounting system, tied to the correct purchase order. I would put more information here if that wasn’t so self-explanatory. Instead, here’s a short story about a fish. Marvin saw a shark swimming his way. “How magnificent this world of ours is,” he thought. The end.
4) Pay the invoice using your method of choice.
If we’re going to cut back on manual work, these are the biggest chunks we can cut into.
Managing invoice receipt
This might seem like a straightforward piece of work, but it’s actually a huge pain for your accounts payable team. First of all, invoices come in many different forms. Some are paper bills, some are emailed, and some need to be hunted down on vendor websites.
Before we can really turn this whole thing on its head, we’ll need to find a way to consolidate the invoices, allowing us to view and manage them in a consistent manner.
If you get a lot of paper invoices, look into software like MineralTree’s Invoice-to-Pay, which allows you to scan paper invoices – in bulk, even – and convert digital invoices to a standard format. This means they can all be managed in the accounts payable software in the same way. These systems pull the relevant information out of the existing invoices, creating a searchable and organized database.
If you get a lot of PDF invoices, check out Beanworks – another accounts payable automation software – which lets you can scan a PDF into the system. It pulls out the description, line items, purchase order, and other relevant data. In Beanworks, you can then search or sort your invoices to find out what you owe, what’s been paid, and what exactly you were paying for.
Internal invoice reconciliation
Now we’ve got the invoices in a standardized format and we can start processing them. Automation software ties into your accounting or ERP systems, pulling in purchase orders as they’re created. The system can then start making intelligent decisions about what payments are being made – more on this later.
For some invoices, this is going to be an extremely straightforward process. You receive an invoice for purchase order 123 from Vendor X for $12. Your system has purchase order 123 for $12 just sitting there, waiting for an invoice. Matches all around and we’re done.
In some cases, the automation software is going to be doing a bit more work. You receive an invoice with no purchase order number for $12 or an invoice for purchase order 123 for $14. In these instances, your accounts payable software does the work that would normally be left to Nina in accounts payable.
Microsoft Dynamics, as an example, can match the price of an invoice to a purchase order, check the variance in the price quoted and the price paid, and check that the amount received fits the amount ordered. Your business can set limits to flag discrepancies, while glossing over the stuff that doesn’t matter.
That $14 was for 1,000 widgets at $0.013 each with a buck tacked on for handling, or something. The original order was for 1,000 widgets at $0.012 each with no handling charge. You can tell the system ahead of time if that level of change is a real problem or just a cost of doing business.
No matter what you decide, the system can match everything up, linking the purchase order to the invoice so that you can easily see what’s be ordered and paid for.
We’ve already talked about linking accounts payable to your accounting system, so you know it can be done. Beyond the basic information sharing, there’s a lot to get out of integration.
By tying your accounts payable software into your accounting system, you can keep your business as up-to-date as possible. You can also look ahead and generate better reports by putting your invoiced purchase orders into your system.
For instance, by loading your invoices into your accounting software as they’re received – instead of whenever Nina gets around to it – you can immediately see what payments are scheduled to come out, allowing you to make more informed purchase decisions.
You’ll also be able to manage those invoices in your accounting and accounts payable systems without having to create them in both systems.
Finally, you can save a chunk of time on setup – and little bits here and there on an ongoing basis – by importing all your vendor details from your accounting program into your new accounts payable software. All of this is classic double entry removal, cutting down on the number of times you have to type data into any software and thus the number of times you open your process up to errors.
Finishing it all off with the payment
The final step in accounts payable is the actual payment. You’ve figured out who you owe and what for, you’ve entered all the data in the system, and now you’re ready to send the money out the door.
To finish your process off, you’ll have lots of options. Procurify allows you to cut and mail checks using its payment system while MineralTree uses your bank’s payment system to send payments. Beanworks gives you the option to use its payment system or to hook into your bank’s ACH processing to send the cash.
It all happens as soon as you approve the invoice for payment. Automagical at its finest.
Sum it all up
Once you’ve got your accounts payable software in place, you can start skipping out on all the worst parts of paying invoices. Instead, you’ll get an invoice and, maybe, scan it in. From there, the software will link it to a purchase order, move it into your accounting system, prompt you for approval and notify you or discrepancies, and then it’ll take care of paying the bill.
Hours become minutes, minutes become seconds, and eggs become flans. It’s a wonderful time to be alive.
For more help with your business’s day-to-day financial management, visit our finance blog. For a full list of accounts payable automation software providers – along with features and reviews – visit Capterra’s accounts payable directory.
Looking for Accounting software? Check out Capterra's list of the best Accounting software solutions.