A manual accounts payable process can be time-consuming and susceptible to mistakes. Continuing to work through stacks of invoices, personally contacting approvers, and mailing checks is time-consuming, exposes the organization to fraud, and makes audits difficult. Accounts payable automation allows companies to process supplier invoices without human interference by offering a digital workflow to manage processes that were traditionally performed by an Accounts payable clerk.
Systems-based accounts payable automation begins with digitizing invoice data, typically by a scanning or capture technology – for example, optical character recognition (OCR).
Accounts payable automation can offer your company substantially reduced expenses and minimize manual labor. Businesses may optimize their vendor portfolio, eliminate duplicate or incorrect payments, and benefit from early payment discounts.
What is Accounts Payable?
Accounts Payable is the debts your company must repay within specified time frames. Since it is a short-term debt, it falls under liabilities in your balance sheets. The amount of AP on a company’s balance sheet is significant. If accounts payable rises over what kit was earlier, the business is using credit rather than cash to purchase more products and services. If a company’s AP declines, it indicates that it is paying off its debts from earlier periods quicker than acquiring new goods and services using credit.
Managing accounts payable is important for regulating a company’s financial flow.
To a certain extent, the company may influence the firm’s cash flow through AP. For instance, management might stretch the time it takes for the company to pay all outstanding AP bills if they wish to raise cash reserves for a given period. The continuous ties the business has with its suppliers must be considered when evaluating this option to pay later.
Why Should You Automate Your Accounts Payable?
As its name indicates, accounts payable automation refers to the technology that automates the manual components of accounts payable. Most process automation aims to act faster, decrease mistakes, and facilitate easy company growth. With all that being said, you still have to invest in automation. Here are the reasons AP automation is a necessity for your company’s expansion:
Saves Time
Think about how automation may increase the output of your staff. In manual processing, data for invoices is recorded in standard accounts payable procedure before being sent for assessment and approval. Due to human error, this manual invoice payment cycle frequently causes data inaccuracies, lack of visibility, and delayed answers. By automating your accounts payable workflow operations, you may cut down on the repetitive tasks like data entry and back and forth that used to occur with administrative duties and simplify the digital validation of invoices against data from purchase orders, contracts, and delivered products.
Saves Money
For manual processes like printing checks and gathering approvals, businesses with high payment volumes often invest significant resources. The manual accounts payable procedure involves plenty of expenditures. You must pay for the overhead charges of your staff and the cost of processing checks and invoices. Automating this process allows businesses to use quicker payment methods and drastically reduce processing times.
Payment delays can harm suppliers’ goodwill and result in slower delivery times, a reduced readiness to rectify flaws and a delayed response time to inquiries. With AP automation software, your accounts payable team can decide when to pay vendors, freeing up working capital and enabling AP departments to benefit from early-pay supplier discounts. You’ll increase your cost savings and operational efficiency by digitizing as many procedures as you can.
Reduces Error
AP is more prone to errors due to the overwhelming amount of invoices being processed. Errors may raise operating costs, affect cash flow, and ultimately damage vendor relationships. Using cloud computing allows you to have centralized access to data, ensuring the safe storage of valuable documents. With the help of OCR technology, you can input large volumes of data without errors and redundancy. Automation also helps you in directing your current resources into high-priority projects like fast closing and late payment prevention.
Increases Invoice Processing Visibility
Only authorized parties will see critical information when you automate your accounts payable procedures. The accounts payable reports, for instance, may be automated to quickly identify which payments are overdue, which invoices are expiring, the standard approval time, the standard time it would take to pay an invoice after approval, and other crucial information. You know precisely when and where problems occur, and you will always have access to the information you need to fix them.
Hybridize Work Environments
Users may access saved files anytime they want and from anywhere as long as they have a connection to the internet and the proper login credentials. Your employees can work in the comfort of their homes without traveling to get any necessary paperwork.
Accounting Compliance
Your company has to adhere to compliance rules and provide recorded audit trails. Without the proper mechanisms to strictly regulate procedures and data, some information could be missed, and fraudulent conduct could go unnoticed.
Automation ensures that approval protocols are followed, establishes a paper trail from the invoice to the payment, and gives access for payments only to authorized people.
How to Find Suitable Automation Solutions
Choosing the ideal accounts payable automation software for your business or organization might be difficult. You want to work with an accounts payable automation software provider that you can rely on to automate your AP properly and effectively. What features should you look for in an AP automation software provider and its products?
Does it integrate with your existing Enterprise Resource Planning
Is it user-friendly and easy to use
How efficiently it converts paper documents into electronic data
gives visibility into the status of invoices in the workflow or approval process and follows the invoice trail.
Automates repetitive accounts payable tasks like data entry
Automates 2-way or 3-way matching for invoices, purchase orders, and delivery receipts.
Automates approval process
Decreases the need for storage and office supplies
Increases early pay discounts
Provides instant access to documents
Process a lot of supplier paperwork, such as invoices or credit notes
Allow users to search and obtain AP materials from a centralized data source
Best Practices to Improve Your AP Automation Process
Prompt Entry of Invoices
You may accelerate invoice processing by putting fresh invoices into the system the same day they come. This guarantees that you won’t misplace incoming bills. The only manual job you’ll need to perform to support this AP automation is scanning paper invoices if you have a good automation software solution.
Centralized Data Management
If you don’t want to lose track of incoming bills, you need a solution to gather and organize all the data in one area. Receiving invoices, and extracting and validating data shouldn’t occur in different locations. It is simple to centralize all accounts payable processes with AP automation software, even if the individuals in charge of certain duties are not physically present in the same place. This greatly simplifies the application of corporate policies and speeds up the processing of accounts payable.
Take Control of Vendor Data
You require a single, definitive list that compiles your vendor data in one location. If you don’t have an appropriate validation procedure, incomplete, fake, or duplicate vendor information may find its way into your system. These kinds of errors put your business at risk for fraud or incorrect payments. With the correct accounts payable automation software, keeping your vendor information current is simpler.
Digitalize Your Records
Large quantities of storage space are required for paper records. Information in paper files is frequently hard to discover and/or takes a long time. You’ll need digital records of every invoice and its processing history to support best practices in AP. Digital documents are safe, simple to search, and less likely to be lost or destroyed than paper records. Your AP automation software should back up and save the data from paper invoices already being scanned into the system for processing. You can effortlessly manage your information by scanning old paper files into the system.
Calculate Tax Liabilities
Finding out that you don’t already have all the information on file is difficult enough during tax season. All the data you need for taxes is readily available thanks to the system of digital records. Additionally, controls included in the automated system ensure correct information, reducing the possibility of delays or other problems brought on by discovering a mistake in your data.
Conclusion
Accounts payable is the most challenging, longest, and paper-intensive administrative and financial task. Most invoices may be processed without manual involvement, thanks to AP automation software, which digitizes the whole process.
We hope you’ve gained some insights about automating accounts payable processes.
Are you a small business owner? Are you tired of managing your business processes manually? No need to worry anymore. Now you can simplify them, organize them and make them more efficient with the help of AP automation tools. These tools also help you accurately measure your business’s performance.
Studies suggest that small businesses are affected most by the slow and manual payment processes. That is because they generally depend on cash which requires approval from the upper hierarchy to make payments in a timely fashion.
The process of approving invoices, paying bills, and tracking expenses can be a time-consuming and tedious task in small business accounting. Often, companies will outsource this entire process to an outside agency, requiring a designated employee within the company to approve all invoices. This system of controls tends to add many steps and delay the payment of legitimate bills, creating excess overhead and endangering cash flow.
This is where AP automation comes in.
Many small businesses are unaware of the benefits of automating their accounting processes. In this article, we will discuss ten problems that can be solved by using AP automation tools:
Help your business grow
Small business owners have a lot to juggle. They have to keep their employees happy, their customers happy, and their finances in check — all while keeping up with the latest trends and technologies in their industry.
To help your company grow, you need to invest in the right software. That’s why automated processes (AP) are valuable to your business: they free up time and resources that can be better used elsewhere. Automating your accounting processes can help you grow your business by optimizing the processes.
It will speed up payments, reducing the time it takes to process invoices and payments. This helps your business expand faster by freeing up cash for new projects, investments, hiring, and other initiatives that increase profits.
It will reduce the manual work involved in processing invoices and payments, allowing you to focus on more important things like growing your sales pipeline or getting more customers through the door.
That said, small businesses that don’t use these tools are at a major disadvantage regarding productivity, profitability, and scalability. The solutions and tools exist; the real challenge is finding the ones that are right for you, your business, and your goals.
Win over the CFO (Chief Financial Officer)
In the end, you need to win over the CFO.
Your CFOs are concerned with costs and ROI (Return on Investment). What does that mean for you? You need to show how automation will help reduce costs and increase productivity. Then, you can prove that no additional costs are involved in automating some parts of your business.
Finally, as mentioned above, compliance is another important factor in automation. For your company’s financial reports to be accurate and legitimate, they need to comply with industry regulations like GAAP (Generally Accepted Accounting Principles).
Automate time-consuming tasks
Let’s see how you can automate these tasks:
Automate repetitive, time-consuming tasks. You can use automation software to turn manual processes into automated ones. For example, suppose your firm handles a large number of invoices. In that case, you can set up an automated workflow that automatically sends out invoices to clients after the accountant or manager approves them. The software will then take care of automatic payment processing and reconciliation. This saves a lot of time and effort from your staff members who could be using their time for more important things like generating new revenue streams instead!
Automate manual data entry. If some fields in your system require lots of data entry, why not let the computer do it? Several features are available in modern business management systems (iBMS) that allow users to enter information once only while ensuring that all other relevant fields get updated automatically too!
Reduce costs
Cost reduction is one of the most obvious benefits of AP automation. For example, you save on costs related to data entry. This includes the cost of hiring an employee to do manual data entry (or outsourcing it), as well as all associated expenses: recruitment and training, health insurance and other benefits, office space etc.
The same goes for manual processing—with AP automation you save time processing invoices by hand. This frees up employees for other tasks or lets them work fewer hours per week (if you opt for a part-time workforce). It also means fewer opportunities for human error or mistakes in general. You can also expect greater accuracy in calculations since automated systems are usually more reliable than their human counterparts!
In addition to this direct cost savings from reduced time spent on manual processes and lower error rates comes indirect savings through increased productivity caused by less wasted effort on repetitive tasks like data entry instead of focusing on higher value activities such as strategic planning or sales calls etc., which take place outside normal working hours anyway.
Increases Supply Chain Transparency
As a business owner, you understand how important it is to have a transparent supply chain. It saves you time, money, and effort. This is why you need automation software that can help you track and trace your inventory. AP automation does this for you.
With AP automation, you can get real-time insights on the following:
How much money is coming in at any time
How much money is being spent at any time
Where your money is going
Real-time insights into your business
This is the most obvious benefit of AP automation. With data available in real time, you’ll be able to make any decision and get immediate results. You won’t have to wait for someone else (like a manager) or your accounting software to provide information on how things are going for you to make decisions – this will allow you to react quickly and efficiently.
The data collected by automated processes can help managers measure progress towards goals, identify areas where improvements need to be made, and keep track of how each employee is performing compared with their peers and other departments within the company as a whole; all without having to wait until month end or another scheduled report date!
Low-Cost Data Storage
A small business can have a large amount of data. And while on-premise storage is cheaper, it comes with its own problems. Cloud storage is more secure and convenient than traditional on-premise storage solutions, making it ideal for small businesses who want to free up time in their day or reduce costs.
Simplify processing of invoices
There are two main areas where invoice automation can help:
Automating the process of invoice processing. With this, you’ll save time and effort by eliminating manual steps like entering data into an Excel spreadsheet or emailing invoices to clients. Instead, you can give yourself more time to focus on other important tasks—like growing your business!
Automating the process of invoice generation. This is especially useful if you have a large client base or many orders each week. For example, imagine having 500 invoices that need to be generated at once—and all those invoices go through different departments before they reach their final destination (e.g., accounting). That’s a lot of work!
Increase AP productivity
AP automation can help you achieve these goals by improving the productivity of your AP staff. Automation can eliminate manual data entry, which saves time and improves accuracy. It also helps speed up the process for entering transactions, which in turn will reduce risk of fraud and error. Automation can also help improve compliance with policies and regulations such as PCI, SOX or GLBA.
Improve accuracy and efficiency of AP process
Automating the AP process will help you achieve these results:
Improved accuracy. This means that you don’t need to worry about errors and mistakes regarding invoices and payments. Your team can focus on other important tasks, like increasing sales or creating new products.
Reduced manual intervention. When you automate the invoice processing, you will no longer have to manually check each invoice for errors or inconsistencies before approving it for payment—the software does this work for you! It also helps prevent any issues with payments being late or disputed because all transactions are processed immediately.
Reduce the risk of fraud and error, improve compliance
The first problem that AP automation helps to solve is reducing the risk of fraud and error. When you’re using a manual system, you’re relying on employees to enter data accurately into your accounting software. If they make a mistake or are dishonest, there’s nothing to stop them from entering incorrect information into the system. This can result in serious financial problems for your business in the form of fines or even criminal prosecution if it’s severe enough.
With AP automation tools, you’ll never have to worry about this happening again because every single transaction is automated and approved before being recorded into your accounting software automatically!
Automate manual data entry to improve processing speed
Automating manual data entry can help improve processing speed. This is because it takes less time to complete the same task, and there are fewer errors in the process. It also reduces costs by reducing the need for manual labor, which can be costly.
A good example of this is when you have to enter a single piece of information across multiple systems manually, over and over again: it takes longer with each entry, there are more opportunities for errors due to human error (such as typos), and it’s expensive because you’re paying someone else to do something that could easily be automated.
AP automation can help solve common problems in Accounts Payables
AP automation can help solve common problems in Accounts Payables, including:
Manual processing of AP invoices
Reconciling AP invoices with the receiving reports
Assigning incorrect bills to the correct accounts
Missing invoices and payments
Duplicate or multiple payments for one invoice
Paying off-cycle bills without disrupting other scheduled payments
Incomplete or inaccurate data in your AP system
Late payments and penalties for non-compliance with payment terms
Duplicate receipts for one invoice and payment
Conclusion
We hope that we’ve given you a better idea of what AP automation is and why it could be useful for your business. We know that it’s not always easy to invest in new technology. Still, if you’re struggling with some of the problems we listed above and want to find something that will improve productivity—AP automation might the solution you need!
In today’s market, transparency is very highly valued. In an accounts payable department, efficiency is of utmost importance, but so is transparency. It ensures that everyone who needs to know about the data gets to know about it.
While that is a simple explanation, this article will go into depth regarding data transparency, how AP automation can affect data transparency, and how it is advantageous for your company.
Data Transparency
What is data transparency?
Transparency in AP workflow means efficiently tracking and managing your invoices. This means that wherever in the process the invoice is, you can tell how far it has gone, whether or not it has been paid, and how long until the process is completed. This is necessary to avoid any kind of fraud in your company. In addition, data transparency can save you from huge losses.
Data transparency also means that anyone allowed access to the invoices can look at them, even remotely. Suppose you are on vacation and something comes up regarding the invoices that have not been paid in your company. In such a case, if others cannot access it, there can be a lot of trouble. Data transparency is required if you need to give rightful access to others.
How do you achieve it?
There are many ways of achieving transparency. The first is the automation of your AP workflow. While that is the topic of discussion in this article, there are other ways in which you can do so. If you are working in a company with a pre-established AP workflow and cannot automate it easily, you can make the process transparent by taking care of the invoices sent from your side.
Payments can be made through methods that can be easily tracked, like online payments or net banking, so that you know when the transaction has taken place and the status of the transaction. This can be very impactful on your pocket, as it prevents any sort of fraud or bad transactions. This also increases the transparency of the invoices, which is what you want.
Automation of AP processes
Accounts payable processes require automation in this day and age. AP automation includes a lot of things like making digital invoices, making online payments, and storing all the data of the vendors digitally. Automating all the processes is highly beneficial for your company; it makes sure that you don’t lose your data, you have a transparent network, your invoices aren’t duplicated, and you don’t experience losses in your business.
If you automate the process, the chances of fraud are exponentially reduced. If you always know where the invoice is (usually within the software) and you know when the invoice is paid, you will know if there is something off during the payment. This reduces fraud chances and speeds up payments, increasing the trust with your supplier.
Automating the process also makes the entire process a lot easier and more efficient. Accounts payable processes are the heart and soul of a business and making sure they are done properly will result in financial benefit.
Advantages of transparency
There are various advantages to transparency in your AP workflow. These include:
The first advantage to data transparency is that it brings all your data to one place. This way, you don’t have to search for getting appropriate data; you can just enter a query or search the sorted file to get the necessary information.
Another advantage is that it makes sure that your work is efficient. Efficiency and transparency are interrelated; if your processes are efficient, your data is bound to be transparent. This is because you can check the process at any time; you’ll get consistent results and hence, transparent data.
It integrates all your processes to work in a flow. The more transparent your data is, the more probable you are to have minimal errors in your workflow. All your processes will gel together to form a good workflow.
Conclusion
In conclusion, making your workflow more transparent is something every company should aim to achieve. It makes sure that your work is done in a timely and efficient manner. There are various advantages to making your processes transparent, increasing the efficiency of your workflow, and increasing the trust with your supplier. There can be some trouble in automating your AP workflow, but it is worth every bit of effort you put into it. Hopefully, this article highlighted the importance of transparency and inspired you to strive toward it.
Accounts payable processes are daunting and complex at their best; manually processing your invoices can take weeks, and sometimes even months. Manual processing also opens the doors for blatant human errors, unauthorized payments, fraud, and theft. Fortunately, there are several AP automation software options available in the market today.
You need to keep watch on certain items while choosing an AP automation software to make sure it is a good fit for your business, providing the return of investment you want to achieve. In this article, you will find a list of handpicked recommendations that can help your automation process.
We also take an in-depth exploration of a few prominent AP automation software and give useful information about the features they provide to help you choose the application that aligns with your business goals.
The Groundwork to Choose the Best AP Automation Software
Understand and Outline Your Current Processing Progress
Before deciding to invest in automation, you should determine the average time taken to get your invoices coded, approved, and processed for payments. Map out your workflow gaps, and find out where your Accounts are Payable clerks spend the most of their time. Whether it’s inputting and entering invoices into your Enterprise Resource Planning software, or matching the purchase order, receipt, and invoice.
Search for Areas of Workflow Improvement
When trying to improve your Accounts Payable workflow, look for processes that can be improved with the help of automation. For instance, if manually typing and entering invoices is consuming your clerk’s time, you could look into software that provides AI-powered invoice capture tools. Automation can also help you modernize two and three-way matches among invoices, purchase orders, and delivery receipts. Your findings of shortcomings can help you prepare solutions before they turn into a real problem. This will also allow you to estimate whether your Accounts Payable is prepared for automation.
Be Specific With Your Goals
Once you get the idea of what to work on, it is essential to set future goals. This will help you monitor your progress. The average Return on Investment for your AP automation should be in the range of 12-18 months. This timeline is subject to your invoice counts and available AP clerks. Once the system is automated, you can focus on relocating your existing resources to high-priority tasks like timely closing, prevention of late payments, and customer and vendor support.
Research Software You Wish to Procure
While it is natural to be unsure of the choices, meticulously planning and researching the software that you want will help you choose the one that is the perfect fit for your business. Look for testimonials from other firms that have implemented the system you are considering.
Three things to keep in mind while researching the software reviews are:
Verify the reviews are made by verified users
Ensure open lines of communication from the software provider
Does the provider regularly release updates and keep up with the development of new technology
Software Must Haves
The program you select has to have a user-friendly interface that is quite comprehensive and simple to explore. It should also enable electronic workflows to reduce the number of repetitive AP operations such as entering data, converting paper invoices to digital files, and connecting Enterprise Resource Planning (ERP) and other advanced financial software for better comfort.
Data Security
Your automation software processes and stores sensitive financial data. Your software needs to be built with data breach prevention features. Cloud-based systems can be a solution as they are isolated from internal servers. As a result, any illegal access to internal systems is denied. External users and other parties can exchange data via the application and are never able to access your system. Make sure your software has encryption features and two-factor authentication. In a scenario of an accidental breach, your software must have backup processes to prevent loss of financial data.
Multiple Payment Options
Having secure integrated payment portals in your automation software can be useful in fulfilling authorized payments. Payments portals should include multiple payment options, namely:
Credit cards
Debit Cards
Net Banking
Applications that also procure bank statements and categorize the captured statement data using custom rules eliminates possible human errors.
Automation Features to Look for
The application should simplify repetitive tasks like data entry.
Includes document capture and dynamic imaging features for converting invoices into electronic data
Capable of processing large volumes of data, such as invoices and credit memos
Provides centralized data management, for searching and receiving documents
Provides a two-way or three-way match verifying mechanism between invoices and the same purchase order to keep an eye on money owed.
Complies with AP processing standards and regulations.
Software Integration
The software you procure must also integrate with your Enterprise Resource Planning system. It should also facilitate working through different platforms. Often, you will need third-party applications for Inventory Management, Analytics and Reporting, Project management, and Customer Relationship Management. Such third-party modifications should be updated on your automation software.
Accounting Methods
The software should be able to toggle between cash-based accounting and accrual accounting. A small business’s transactions are mostly cash inflow and outflow. The cash-based accounting approach works well in this scenario. On the other hand, the accrual technique should be considered by larger enterprises that conduct transactions on credit. These large enterprises record both accounts payable and accounts receivable. Many businesses begin with the cash-based method of accounting and eventually move to the accrual system. When it is necessary to process accounts payable data, automation should aid in keeping track of payables such as vendor invoices and operations costs.
Billings for Projects
In case your business recruits clients for some projects, your accounting system should be capable of handling project-based billing. Some modifications in your software can enable you to bill your client’s time taken working on individual projects. After that, timesheets may be transformed into invoices. The software allows timesheet approval before producing the invoice to avoid billing bottlenecks.
Tax Liability
Businesses are often under the scrutiny of surprise audits; you might often find yourself in need of software that calculates your business’s tax liability. Make sure your software can execute tax functions such as calculating multiple tax rates and tax liabilities, tax reports, and tax compliance.
Compare the Prices
Most AP automation solutions have a monthly membership fee, which can be paid monthly or you could also take an annual plan. When comparing pricing, though, check for less glaring charges. The most basic package may have limited functionality or allow you to handle a fixed amount of invoices each month. There are extra fees in the form of platform payment choices. Find an automation tool that charges a fixed fee rather than a per-user fee. Flat fees give the greatest overall cost reduction.
Conclusion
Keeping track of a company’s outstanding debts is critical to developing its reputation. A business’s AP must be managed successfully and efficiently. Since handling accounts payable may be stressful and time-consuming, using an account payable automation system is undeniably a better choice. If you follow these suggestions, you will be selecting the finest AP automation software available.
If used properly, dynamic discounting can help businesses improve cash flow and establish beneficial relationships with their suppliers. A portion of vendors would have a higher demand for cash and could be more prepared to offer a concession in exchange for transaction acceleration when payment terms are stretched, and policies compel banks to hold greater funds before financing small firms. Companies pay their suppliers early in exchange for lower pricing and receive an enticing annual percentage rate (APR). Expedited payments imply suppliers won’t need to borrow as much money, and 100% factoring means fewer Days of Sales Outstanding (DSO), which lowers collection expenses and increases cash flow availability.
From the perspective of working capital, it is advisable to adopt an “all-in” strategy and push AP automation to its maximum level through e-invoicing, electronic information exchange, assessed invoice settlement, interconnected Purchase-to-Pay (P2P) operations, and self-service vendor portals. A shortened invoice-to-pay cycle aids in obtaining the greatest discount.
Assure The Success Of Dynamic Discounting: Pay Attention To AP Automation
The 2017 AP & Working Capital Report by Paystream revealed that AP automation requires significant attention to remove obstacles to advance payments incentive acquisition.
These obstacles include:
The time it takes for invoices to be approved; 41% of respondents said this was an issue.
39% of respondents cited incomplete or lacking data on invoices as a problem.
Lost invoices were cited by 36% as a major source of suffering.
Billing exceptions: 32% of respondents thought this was an issue.
Manually routing invoices for review and settlement was cited by 31% of respondents as a major barrier in their organizations.
Decentralized bill receipt: 30% found this uncomfortable.
Gaining the transparency, management, and speed of processing necessary for the effective implementation of dynamic discounting efforts depends on AP automation. An AP automation solution “simplifies and shortens billing cycle times, resulting in enterprises’ having a considerably better capability to secure early payment discounts,” the paper states. According to PayStream, clearance times decrease from an average of 45 days with no automation to an average of 5 days with minimal paper use.
The Cornerstone Of A Dynamic Discounting System Is Shaped By Spending Analytics
Without knowledge of supplier spending, invoice numbers, and payment schedules, it is hard to assess the possibility of such a dynamic discounting plan or determine the discount conditions that would generate the most interest. A dynamic discounting mechanism can be defined using expenditure analytics technology. A dynamic discounting method can be based on a variety of expenditure analytics dimensions, including:
Monthly expenditures by the supplier
Using PO or non-PO invoices to determine the distribution
Terms and method of payment
Tools for enterprise resource planning
Information from general ledgers, or the financial details of an institution
Orders for goods
Data exchanged by vendors
Risk assessments
Credit scores
Transactional data
Additional internal systems and outside resources
The way businesses may now gather specific spending statistics even on non-PO bills has changed dramatically over the past few years as a result of the rapid development in automation in the payment managing system and software, such as machine learning.
Dynamic discounting with the help of AP Automation allows the organization to take advantage of the highest gains based on a well-organized optimization framework that was developed utilizing previous data. The framework can be used to start negotiating payment standards and possible discounts with providers based on region and/or industry.
A Well-designed Shortened Invoice-to-pay Cycle Yields Long-term Advantages
Companies that issue invoices on paper use a lot of labor. The average invoice-to-pay cycle in such a situation lasts 30 to 120 days. Today, many solutions are available to enable digital invoice processing. Companies just need to choose an appropriate AP automation strategy.
The majority of AP automation projects contain some, if not all, of the long-term objectives listed below:
Decrease processing times and expenses
Lower rejection frequencies and other problems with invoice processing
Create a more efficient vendor payment plan to handle cash more effectively, limit spending, and maximize working capital
Reduce late fees and late payment fines as much as possible
Utilize data to make your operation more intelligent
To enhance performance and management, communicate AP data with operational stakeholders
Enhance relationships with suppliers and customers
Gain improved insight into the performance of the process, line items, and suppliers
Become more adept at accurately and promptly closing the “books” for the accounting period
Some factors to take into account include company-specific pain points, suppliers’ openness to adopting new employment practices, the competencies of the current network, and the viability of alternative approaches for each type of supplier.
Using AP Automation, You Can Receive Additional Early Payment Discounts
As you may expect, when all AP operations are computerized and automated, it is simple to receive discounts for early payments. In addition, there are other incentives available. If you settle a bill before 10 days as opposed to the mandatory net of 30, you not only receive the 2% price reduction (or whatever it boils down to), but you also qualify for dynamic reductions. These present you with an even bigger chance of profit.
Why do dynamic discounts exist? Discounts are given on a rotational basis starting on the first day and continuing till the final due date. They can be so profitable that complete e-commerce solutions have been developed around them. These implementations will enable the AP department to move fast and take advantage of all available advantages.
With a manual procedure, the typical AP staff will:
Spend around $6 to $15 handling invoices (some AP departments charge up to $25+)
Require 10 to 15 days to settle the payments (the lowest performing taking up to 20 days)
About 80% of invoicing processing is done on paper
Approve, process, and pay some or most of the bills manually
A fully automated accounts payable procedure, on the other hand, will:
Spend $2.18 on each invoice you process on average
Take 2.8 days on average to process a bill
As little as the possible paper is used.
Utilize an automated procedure to cut back on wasteful spending and boost productivity
(Source: Aberdeen Group)
You may reap the profits of such rewards for possible cumulative benefits of more than $5 each payment by using a payment automation system. If your company issues 20,000 checks annually, you might normally receive profits of more than $100,000.
The appropriate technological foundation helps achieve the desired Impact
A company willing to pursue AP automation and dynamic discounting can:
Judge vendors based on their capability to handle non-PO invoice-led inconsistencies
Minimize disruptions in the invoice approval processes
Offer additional traceability into purchase orders in various formats from numerous source materials
Remove or decrease manual processes
Start providing stronger emphasis on anomalies.
The performance of dynamic discounting is also heavily influenced by the efficiency of vendor supplier interaction and collaboration with AP automation projects. The vendor network needs to make it easier to interchange all types of paperwork digitally without being required to pay additional transaction fees. Most importantly, it must include dynamic discount administration features.
Here are a few examples:
Analytics and Supply Chain Financing Working Together
All parties profit when third-party financiers, purchasers, and suppliers are connected electronically. Both the customers and the sellers have the option of prolonged terms. In this open digital space, both parties can live in harmony.
AP automation enables you to analyze each payment for relevant supplier data and searches for chances for contactless transactions, going beyond the usual quarterly outreach to suppliers. Because electronic payments are 10 times more affordable than paper checks, ongoing vendor outreach results in additional savings for you.
More control Of DPO And Cash Release
As you may expect, increasing the days payable outstanding (DPO) will boost your revenues. You can keep your backup money on hand longer if the AP staff uses technological tools rather than manual ones. An electronic solution can give a company more control over when they pay vendors and thus more control over their DPO.
How? Utilizing electronic payment alternatives will hasten the completion of your payments. The requirements of complicated AP processes with numerous hierarchical levels, intricate approval workflows, different sites, several bank accounts, and foreign payments are met by payment automation solutions.
Consider the amount of time you could start saving if you weren’t required to manually manage checks.
Accounts Payable Automation’s 4 Foundations
Management Of Supplier Data
Six out of ten businesses are responsible for supervising and revising supplier documentation, according to the 2017 Zycus eInvoicing Report Card. The collection, upkeep, and renewing of supplier data is a very laborious and error-prone procedure.
A 2013 Gartner study found that AP automation reduces data management costs by $850 per provider annually. The suppliers may enter and update all of the data themselves because it provides a simple self-service interface, eliminating the need for the AP department to get involved. It keeps up-to-date, duplicate-free records that can help with strategic choices.
E-invoicing
When a company adopts electronic invoicing, they save the time it takes to process invoices and increase savings. Responding to supplier inquiries to find out their payment progress is the job that takes up the majority of the AP department’s attention. An e-Invoicing system frees up the AP department’s periodic supplier inquiries by giving suppliers end-to-end transparency into data, facilitating payment tracking, and serving as a direct engagement channel. Additionally, it allows them to choose from the different possible invoice types and gives them insight into the billing cycle.
Contactless Processing
The majority of firms spend 1-3 hours per week dealing with invoice processing difficulties including redundant invoices, human blunders, regular & repeated supplier calls, etc., as per the PayStream Invoice Workflow Automation Report. These problems cost AP departments cash and effort. By removing the requirement for manual comparison, automating exception management, and offering transparency into the whole invoicing process, Contactless Processing may serve to streamline end-to-end invoicing operations, allowing AP to realize additional savings and increase liquidity.
Dynamic Discounting Tools
With the help of dynamic discounting tools, businesses may make the most of accessible discounts to sustain cash flow and maximize liquidity. It also assists in tracking organizational savings targets with simple and timely indicators.
Regardless of how your AP department is currently seen within the company, AP will eventually become more strategic. Automation is necessary to maximize AP’s capacity to deliver priceless strategic inputs.
The Bottom-line
The chance for early payment discounts is significantly increased by extending net payment periods and offering sliding scale discounts after the usual discount date. Spending analytics, a shortened itemized receipt cycle, and best-in-class P2P solutions should be combined by businesses looking to significantly enhance financial KPIs through dynamic discounting. CFOs may optimize the financial supply chain and play the part of a genuine strategic partner by acquiring visibility into where funds are spent, adopting a contactless AP procedure, and fostering supplier cooperation and discounts captured through a specialized supplier platform.
Top 5 skills needed for successful vendor management
Managing vendors is as important as managing inventory in a business. As a matter of fact, both of these are closely interlinked, considering vendors are the people that help you fill out your inventory. That would be going off on a tangent, though, considering this article is going to talk about the top skills you require to be a cream-of-the-crop vendor manager.
If you are looking for a job in this field, you need to be aware of the skills that people hiring you will be trying to find in you. This article is a guide to tell you which skills you need to polish to shine brightest amongst all other candidates.
Strong verbal and written communication
Communication is the key to success. Be it communicating with the higher-ups in the business about the material that has been sourced, asking them what they need moving forward, or be it communicating with the vendor regarding the required supplies; the vendor manager needs to be adept in all these areas. They need to reprimand the vendors verbally (and in writing if need be) if they fail to comply with the standards set for them or fail to deliver good quality supplies.
The same goes for communicating with your higher-ups. There can be times when the inventory faces losses in supplies due to poor management; you need to cover that with your vendors. This is why a vendor manager needs to be adept at communication, inventory is one of the most fickle elements of a business, one of the most important too, and vendors keep your inventory running.
Negotiation
Negotiating is a part of communication too. In fact, all the other skills except the last one are a niche variation of your communication skills. There can be instances where the vendors are overpricing a material. In such a case, you need to realize that the actual price is way lower and start negotiating. Negotiating is a skill that is not often found in people; it needs certain crookedness (in a good way). It also needs a good understanding of the market and the commercial environment, which is not found in everyone either.
There can also be times when a supplier is providing you with good supplies, but his prices are exceeding your allotted budget. In such a case, you’ll need to negotiate too, either with the vendor to lower the prices a bit or your higher-ups to increase the allotted budget. Both the situations need a lot of convincing that needs to be done. It’s not an easy task by any means. However, the action of convincing brings us to our next point: Marketing skills.
Marketing Skills
Marketing skills require a great deal of convincing. However, you might be wondering how marketing is even remotely related to a job that doesn’t deal with customers. Well, imagine a scenario where you got a job in a company that has just started its production. You need to bring suppliers to your company that has just started making its name in the market; you need to market your company to the suppliers. Such are the skills required for a vendor manager to source the materials for the business.
You also need to convince the higher-ups in the business as to what vendor you need to choose. It’s your decision to make, but it should be concordant with your superior’s choices. (The statement’s contradictory, but you get a chance to explain why a certain vendor is better than the other.)
Assertiveness
You need to be assertive. If you need to convince someone, it’s rarely possible with an easygoing attitude, especially when money or any form of transaction is involved. If you need to negotiate, you need to stay on your price; if you are marketing to a vendor, you need to be sure of the decision, so on. An assertive personality is key to being able to communicate successfully with the vendors without a hitch and getting them to perform as well as they are supposed to (or even better).
Decision-making skills
Making important decisions is core to any post, not just a vendor manager. The question, however, that arises is what are the important decisions you have to make as a vendor manager? To list out a few, here are some of them:
What are the supplies that are required by the business? Is the vendor supplying the right quality of materials?
Is the amount supplied by the vendor sufficient? If not, how do you increase the number of supplies while keeping the rate the same, if not lower?
If the supplier is not responding properly, how do you approach them? Are there certain reasons that make a supplier incompatible with your business?
Such decisions greatly impact the business, so the quality of making them at a moment’s notice with prior knowledge and research is essential.
