How does Accounts Payable automation affect SMEs?

by Thomas | Apr 19, 2022 | Accounts Payable

SMEs, or Small and Medium Enterprises, are a large group of businesses and companies that have just started their business journey or are in the middle of becoming a large business. Such businesses are not usually made for remote working or inefficient work because they need to increase their revenue to reach the status of a large corporation. During the pandemic, SMEs have greatly suffered due to the lack of workforce. However, now that the brunt of it is over, SMEs are getting revived through various means. 

Accounts payable is an integral part of any business, be it small, medium, or large. How you manage your AP department in your business dramatically affects how your business will perform in the market. Automating the AP workflow is one of the best ways to make sure that you make the most of your resources. This article will highlight the effects of AP automation on SMEs and convince you to automate your AP workflow if you are an owner of an SME.

Digitalization

If you automate the entire AP workflow of your business, it is the first step to the digitalization of your company. Once the workflow can happen on software, it is easy to convert the rest of the business towards something that can be accessed remotely. This is very similar to large companies and is a step forward in the progress of an SME who has a good AP manager.

Good software does not just work on the niche AP management as it is supposed to. It also helps out in the management of various aspects of your company. SMEs have this advantage over large businesses; they can use simple software to achieve greater efficiency. Once this efficiency has been completed, you can work towards bettering the rest of your business.

Prediction

Another essential part of any business is what the future holds for them. The sales, the requirement of raw materials, and the production capacity, all need to be considered to find the perfect mix for a good AP prediction. Then, you need to set aside a budget for the same; this is not easy if your market demand is highly variable. This is often the case for SMEs; their demand is highly unpredictable; they might sell a couple of thousand products one month and might struggle to reach their monthly quota the next.

Automation of the accounts payable department uses specific software that helps predict the fluctuation in these demands. This allows the owners of the enterprises to plan their budget accordingly. This is a blessing for SMEs as this helps them set aside money for other essential jobs such as expansion, marketing, and sales.

Clear business case

AP automation has enormous effects on the cost per invoice of the business. Leaving a paper trail has multiple effects, from an environmental impact to costing a fortune for a small business. For large companies, amounts in five digits don’t matter as much, but for SMEs, optimization of their budget is the focus of their business. This means they need to earn the most profit while spending the least. Automating makes this feasible by cutting the cost of invoices from $15 to $2 (taking an example). If the company generates 1000 invoices a month, a physical copy would cost them $15,000, while the digital copy would just cost them $2,000.

There needs to be an upfront investment in many businesses; SMEs are often investment heavy for their owners. However, they need to be careful of the value of the money they get out of their assets. This is the case the business makes for itself; why is it worth investing in the industry.

Automation’s effects

A manual accounts payable system is very inefficient. In addition, there can be duplication of invoices which can cost you at least a couple of thousand dollars. This might seem like a small number if you are a part of a large enterprise, but this is the primary source of income for small enterprises. Automation completely negates these errors because all these calculations are being done by the software you are using. Therefore, the invoices generated won’t have any mistakes (until there might be a fraudulent vendor).

You need to be aware of the fraud that can occur in the case of accounts payable automation; if you can sort that out, no force can stop your business from prospering.

Conclusion

It is just a matter of how soon you can crack the way to work around the bottlenecks you face in your AP department. Once you figure it out, your business will flourish in all its aspects. Digitalization, predictions, and making a clear case for your business are significant advantages of AP automation that you should look into if you are an owner of an SME.

Value Added Tax VAT: What is it, and What are its Related Trends

by Thomas | Apr 14, 2022 | Accounts Payable

VAT, or Value Added Tax, is one of our homes’ most used financial terms. It is included in our food, any service we use, or any product we buy. Doesn’t this make you wonder what VAT is? This article answers precisely what VAT is, and as an extra bit of information, what are the latest trends in it. These four trends are prevalent throughout, as VAT is not localized to one place.

VAT is an expense that everyone has to bear. So making sure that you know all about it is very important. So read on ahead to find out the same.

What is VAT?

VAT is the short form for value-added tax. This is a concept that can only be understood through an example. Suppose you are the producer of a very famous product in the market. Everybody wants to buy your product, but as you are your factory owner, you cannot directly sell it to your consumers. So, you will sell it to your distributors. These distributors then sell this product to the retailers, and these retailers sell it to their customers. In all these processes, everyone is adding value to the product. This value will have some monetary value attached to it which is exactly what VAT is.

Now that the concept of Value Added Tax has been explained, let’s move on to the trends prevalent in the world.

Accelerated Introduction of CTCs

CTCs stand for continuous transaction controls. Over the last few years, what has changed is the importance of VAT for the businesses that pay it and the tax authorities. It has also seen a shift in its requirement types; this started with Latin America as early as the early 2000s. Other countries followed this, but the idea remains the same, VAT modes are changing, and so are its requirements. VAT has been shifting towards a more digitized method; this suits the vendors more and is easy to pay. These controls ensure that VAT is being paid correctly and that no one is misusing or avoiding this form of tax.

Due to improvements and betterments in the collection process, it has become much easier, and economic transparency has been enhanced to a greater level.

A Shift Toward Destination Taxability For Certain Cross-border Transactions

When transactions happen across borders, for example, imports and exports, customs are a hassle to be undertaken. They cannot be avoided when it comes to paper-based invoices; however, the digitization of payments, especially value-added tax, has helped various businesses overcome customs. Moreover, with the increase in trades, many rules have become lenient; VAT has been removed from multiple imports below a certain level. As a result, taxability has been reduced in cross-border transactions, primarily because they have become much more common than they used to be.

Earlier, cross-border services used to be hard to access, but now the ease of access has been turned up a notch. This is also one reason to reduce tax liabilities on cross-border transactions.

Aggregator Liability

We talk about making all the payments online using a single platform. This has caused a significant dependency on online platforms which help make transactions. If a tiny mishap occurs, the entire system might break down. You might have seen how all your transactions stop when one of your digital wallets freezes due to technical errors. Imagine that happening on a much larger scale, preventing these transactions from happening across countries. With new CTCs every day, these liabilities tend to increase a thousand-fold, making the interface an object of very high dependence.

Ensuring that everything proceeds smoothly is a big trend that needs to be taken care of. Often, such trends are the ones that need to be focused on to make sure the entire flow works correctly.

E-Accounting and E-Assessment

Ensuring that everything is accounted for and checked adequately is an essential part of the entire process. Assessment of this work is the final step to targeting high compliance with VAT. CTCs are made for this purpose, to make sure that these policies are complied with and executed well. In addition, periodic reporting is an integral part of VAT policies, and businesses need to take care of this.

Conclusion

In conclusion, VAT policies need to be taken care of by businesses, and the trends need to be followed to find the optimal rate. The business world is full of things you can add value from, so you need to be careful of any changes. Hopefully, this article helped you figure out what VAT is and the trends involved.