6 Accounts Payable Problems That Are Hurting Your Business

Most SMEs and large organisations make a high number of purchases every month. For this, numerous bills need to be processed. Also, there are many opportunities for negotiating discounts when the purchases are made in volume. Needless to say, most businesses find it challenging to track, pay and optimise the processing of the bills.

You may think, “Does it really matter? My AP process is working fine anyway.” But this tendency of not fixing what is not broken can make your business bleed money — without even realising it. An inefficient AP (accounts payable) process can:

  • Lead to loss of potential volume rebates
  • Drive up the cost of processing
  • Force you to inflate the team size
  • Prevent you from accessing clear data on vendor spend
  • Hurt relationships with suppliers due to late payments and penalties

While most of the problems in this process are a result of inefficient systems and errors due to manual entry, there are many other common issues that can hurt your AP process. Some of the most common issues include:

1. Manual entry and human errors

One of the most tedious and attention-demanding tasks in AP is keying in the data for entering, approving and paying a vendor invoice. Not only does this seemingly simple task eat up a lot of resources, but it also opens the floodgate for the errors. If your organisation relies on paper documents at every stage of the AP process, the likelihood of manual errors rises exponentially.

The easiest way of reducing the manual errors is through automation. For instance, using a Purchase Order system can help to digitise and automate most of the steps in the AP process, which leaves little room for human errors. Not only does this help save time, money and effort, but it also minimises the possibility of manual errors.

2. Challenges of information management

When you keep in mind the fact that a single purchase can require 2–7 paper documents, it is not hard to imagine that AP activities generate a lot of documents. As the documents are important, they need to be stored for a fairly long time. The bigger the business, the greater is the number of documents. And they pile up year on year!

Not only does it cost a lot of money to store the documents, but over time it becomes more and more difficult to track, access and manage them. This can have a huge impact on the efficiency of the AP department in the long run. In addition to reducing the transparency of your finances, this can also lead to duplicate payments.

The obvious solution to this problem is the digitisation of the documents. Use a secure server to store all the documents. Give your staff role-based access to the documents to make the information accessible without compromising security.

3. Changing expectations from the AP department

There used to be a time when the accounts payable process was viewed as a separate area of service, isolated from other financial and accounting areas. Not so anymore. Today, it is essential for FCs, FDs and CFOs to access information of all the F&A functions in one place. Owing to this need for consolidated information, AP is more than just recording and reviewing transactions. But paper-based processes make the task of searching and analysing information extremely difficult.

However, through a strategic use of technology and digitisation, not only can you enhance the AP functions but also add more value to the overall financial reporting and cash management. By combining analytics and digitisation with an optimised accounts payable processes, you can gain a much better visibility on corporate spend.

4. Complicated bills process

Purchase orders start at various levels in a large organisation. These may require the approval of several authorities. When there’s several departments involved and the chain of approvers is long, things not only get complicated but also slow down the payment process and drive up the costs of internal communication. A purchase order may end up passing through 5–6 people and the information can distort in the process, leading to decisions based on inaccurate data.

To combat the above, it is essential to streamline the AP process, aggregate all the AP functions in one centralised location and use a single staffing group for the billing of each department or company. A step-wise AP system that is hard coded into a software system can deliver dual benefits: speeding up of the bills process and elimination of human errors.

5. Inefficient payment process

Late payments to suppliers can have bitter consequences: the supplier may block your account or you may be penalised for late payments. At the very least, it will damage your reputation and trust. Similarly, duplicate payments may impact the cash flow and have a negative effect on the credibility of your finance function. The common reason for this is missed payments, duplicate payments or manual payments to suppliers who are set on direct debit.

In order to overcome this problem, it is essential to cut down on the instances of duplicate payments, ensure that the suppliers send the correct data at the start and to have a simpler process for approval of pending payments. Many businesses have nearly eliminated this issue through the use of an automated workflow process and system.

6. Cyber fraud

If you’ve been reading the above points carefully, you must have noticed that technology, digitisation and automation are essential to solving the key AP problems. But when you rely on technology, you bring in the possibility of cyber fraud. For instance, it is possible for fraudsters to contact your AP staff over email or phone and trick them into sending money to their accounts.

We understand the reach and impact of online fraud and have in place rigorous systems and standards to prevent fraud.

Summing up

At the end of the day, the challenge is to streamline your AP processes and put in place a system to ensure the implementation of a standard process. If you are able to resolve the above issues, you will not have to worry about late payments, you will maintain good relationships with your suppliers and your business will be able to make the most of rebates on high volume of purchases.

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