Accounts Payable Outsourcing to Avoid A/P Challenges

Accounts payable invoice processing is one of the most important yet challenging parts of running a business. It refers to the amounts you owe your suppliers for the goods or services you have bought from them on credit.

Without a smooth accounts payable (AP) process, your bills cannot get paid on time. This can also stress the relationship between you and your suppliers, and late penalty fees can be levied. Even your credit card rating could be impaired.

That is why it is essential to make sure that your AP process is error-free. But even the best-managed companies can make mistakes that can cause them problems down the road.

However, being aware of the challenges can help you avoid them. That’s why we have discussed some of the most common AP challenges and how outsourcing your accounts payable can streamline the process.

Let’s get started.

Most Common Accounts Payable Problems

There is a lot of work to do in the AP process, especially in larger companies. But AP teams often face multiple challenges. For instance, when an invoice appears but the system does not contain a corresponding purchase order. Or when a late invoice notice arrives but no one can remember reading the original payment request. If these problems persist, they can, as noted, harm your organization and possibly damage relationships with suppliers.

Addressing these problems can be daunting. But identifying them with the help of a professional A/P service makes them solvable. Keep reading to learn about some of the most frequently encountered AP problems and solutions.

1. Slow and Inefficient Processing

Relying on paper-based, manual processes can lead to lengthy approval times and slower payments. Manually executing the AP process is not only time-consuming but increases the risk of errors and lost documents, which can result in late payments.

For example, in a medium-sized company, there are two or more employees who need to approve a vendor invoice before the payment is processed. This can take a lot of time if the process is paper-based and manual. By the time the invoice is paid, you may have missed an early bird discount or accrued a late payment penalty. Slow processing can also harm your business’s credit rating and upset vendors, which can further reduce your ability to obtain favourable terms from lenders and suppliers.

Solution: Going paperless is the first step towards solving this problem. And with working from home becoming increasingly common, eliminating paper invoices and manual data entry processes has become essential to remote working.

Instead, opt for advanced invoice processing and electronic payment systems. Electronic invoices can be imported into accounting software, and optical character recognition can be used to scan and digitize remaining paper invoices. Accounting software can then track your invoices throughout the entire AP process.

This way, staff can collaborate on the task while maintaining digital records of all transactions. You can also save on storage costs by using cloud services to securely store, search, and retrieve documents.

2. Matching Errors

Are you finding discrepancies between your purchase orders, invoices, and receiving reports? This can lead to matching errors which may take a long time to correct via manual investigation. But does your staff have the time to launch this kind of multistep investigation every time there is a matching error?

This can also slow down your AP process and lead to duplicate payments. For instance, when the first invoice is not paid off quickly, suppliers often send a second, and you could mistakenly end up paying both. Or a typo in a purchase order number can mistakenly generate two invoices for the same order. Manual data entry errors, like failing to properly mark an invoice as paid, can also lead to duplicate payments.

These problems can negatively impact your cash flow. Unless you can identify the duplicate payment and initiate a refund from your vendor, your money will be lost forever.

Solution: To eliminate these errors and ensure invoices are paid correctly, use AP automation and three-way matching. This is where each invoice is checked that it matches the purchase order and that the goods/services are received.

AP automation includes receiving invoices, coding, routing for approval, payment, and reconciliation. The more automated your AP processes are, the fewer errors you will encounter. With a fully-automated AP process, you can eliminate manual data input at any stage. Though approvers may still need to sign off on payments, that can be done with the click of a mouse. AP automated software and tools can also help your finance team manage the AP process, diagnose problems, analyze data and exceptions, and recognize fraud.

With a three-way match, you can keep track of what has been paid and what is still owed. The software can also quickly determine whether they align and automatically approve matching invoices while flagging exceptions. AP staff can then schedule approved invoices for payment and spend their time dealing with the exceptions. This way, you can avoid duplicate invoice payments.

Deploy these systems early to keep your business on the cutting edge.

3. Unauthorized Purchases

Manual processes and inadequate controls can also lead to unauthorized purchases as not every employee will follow the right purchasing procedure. For instance, someone might evade the regular process to avoid the hassle of a slow AP process and make a purchase without an approved purchase order. Processing these unexpected invoices can take an immense amount of time while more important invoices decay.

Inappropriate use of company credit cards, such as misusing them to make purchases from illegitimate vendors, counts among other illicit purchases. These can wreck your business’s carefully planned budgeting system.

The situation becomes even worse when no one processes an invoice in the first place. When teams are handling hundreds of invoices every day, manual processes can lead to misplacement, or worse, the destruction of an invoice. When this trouble is discovered, it may result in a heavy late penalty fee to the vendor. Those disappearing invoices can complicate your bookkeeping practices, disrupting your balance sheet and leaving management with inaccurate information about the company’s financial position.

Solution: First, you need to establish a streamlined workflow to keep track of all your purchase orders and invoices. You should also standardize the way your AP team handles each step of the process. Use AP software to codify efficient processes and workflows that automatically route invoices to the right people at each stage of the AP process.

Your business should have a defined workflow, from issuing the purchase order to completing the payment. But training staff can take a lot of time. Instead, outsource your bookkeeping and accounts payable services to streamline your entire workflow, from issuing purchase orders, getting them approved, reviewing vendor invoices, and, finally, making payments. This way, by using less time, your company can double its productivity.

These are some of the most common yet critical mistakes in accounts payable. But you can easily overcome them by outsourcing these processes to accounts payable services. So, hire professional A/P services to both eliminate invoice processing errors and lay the groundwork for future efficiency.