What Are the Steps in the AP Process?
Updated On September 13, 2021 | by Joseph Williams
One of the best things you can do for your business’ efficiency, productivity, and overall financial health is automating accounts payable. With accounts payable automation, you can reduce human error and make things easier on your employees if you’re dealing with an audit.
Your financial team is also freed up to focus on higher-value tasks and strategic thinking.
Before you delve into choosing an AP automation solution, it’s good to know the steps that are part of the accounts payable process. Knowing these steps more clearly can help you decide on the right solution for your business.
While every business may have a process that looks slightly different, the following gives you a general overview.
Accounts payable is a process to pay suppliers and vendors for services and goods purchased by your company. Your AP department will usually handle incoming invoices and bills, but they may also work on other things as well depending on the size of your business.
While it’s a back-office function, AP is critical to your business.
When your AP department is well-managed, you’ll be better able to maintain good relationships with your vendors and suppliers, and you’ll have an uninterrupted delivery of goods and services. A well-run AP department can help you save money on overdue payments, and you’re better able to manage your cash flow. You can also reduce the risk of fraud and ensure that you aren’t missing or duplicating payments.
Some of the challenges your AP department might face include too much paperwork, and approval process that takes too long, and a lack of visibility. Automation can simultaneously solve all of these problems.
Invoice capture can be the first step in the AP process, which involves entering invoice data into a record system. This is the time when you start to see a significant risk with human error and inaccuracies.
During the invoice capture stage of the process, you’ll enter vendor details, line items, and amounts as well as any relevant coding.
The next general stage of the AP process is invoice approval. This means that supplier and vendor invoices need to be reviewed and ultimately approved for payment.
In a clunky, outdated system, someone from your AP team might actually take a paper invoice and carry it around the office to get the approvals needed.
There’s a term here called three-way match to be aware of.
There are three documents you would need—the vendor’s invoice, a purchase order, and receiving documentation.
A three-way match in AP helps match up the invoices with purchase orders and whatever the received quantity of a good or service is before the processing and payment of the invoice.
A three-way match is a way to automatically verify the documents to make sure that an invoice needs to be paid. When you automate three-way matching, then you can avoid paying for things you haven’t received or duplicate payments. This type of matching also goes a long way to help prevent fraudulent purchases or theft and embezzlement.
Authorization of Payment
After an invoice is ready to be paid, you then need authorization for said payment. The authorization will usually include the date you’re going to submit the payment, how much it’s for, and the method you’re going to use.
Execution of Payment
The fourth general step of the AP process is the execution of the payment. After payment is authorized, the invoice can be paid and the vendor may receive what are called remittance details.
When you’re choosing an AP automation solution, you should look for an option that will make all of your invoices electronically, no matter how they were initially received.
Clean data can be put into an ERP system using OCR capabilities.
Then artificial intelligence can automate your invoice matching and then process payments in a touchless system.
All of your controls, workflows, and guidelines for approvals are electronically managed, with documents archived and stored based on your guidelines for retention.
If you were to face something like an audit, everything you need to deal with it would be in your AP automation platform.
You can find invoices in a matter of seconds, rather than searching paper records. You can also provide access for auditors so they can get to what they need from anywhere.
Finally, you’ll have an inherent audit trail since your documents go through a fully electronic process, and you can see who opened what documents.
Next, you can read: 2021 Guide to Growing and Scaling Your Ecommerce Business