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Mastering Accounts Payable: A Step-By-Step Guide to Streamline the Processes

Balancing the budget is a crucial element of any business in the corporate world. However, one of your biggest challenges is balancing the process of procuring top-notch goods and services for seamless operations while keeping your overheads in check. While we are no strangers to making wise purchase decisions in our personal lives, it isn’t a straightforward ballgame in the business arena.So, how do you get over this problem? By enlisting the help of experts and this case, the masterminds behind cost-effective procurement are the Accounts Payable team. This department is a staple in most organizations and industries, tasked with reimbursing suppliers and vendors. However, their job isn’t just about paying the bills; in fact, Accounts Payable is a nuanced process.To conquer the intricacies of Accounts Payable, you need a solid understanding of the process, time-tested strategies, and the right tools to get the job done. So, with that in mind, let’s find out what’s the buzz all about when it comes to Accounts Payable process. 

Accounts Payable vs. Accounts Receivable

Before we move further, let’s not mix up Accounts Payable with its sibling department, Accounts Receivable (AR). Both are crucial pieces in the accounting puzzle, but each serves a unique purpose.Accounts Payable is the concerned department when the company places orders with suppliers or service providers. It manages all the debts the company owes, while the Accounts Receivable tracks the credit sales made by the company to its customers.AP and AR exist because cash flow and deliveries don’t always align. To keep the money flowing smoothly, AP and AR must coordinate and balance the books.In a nutshell, you might feel overwhelmed by the complexity of it all as the Accounts Payable may sound like a labyrinth. However, its responsibilities are reasonably straightforward, and here is a quick rundown of what they do for your business:

  • Processing supplier invoices and cross-checking purchase orders, and receiving reports.
  • Approving invoices and ensuring timely payments.
  • Managing invoices through AP automation or accounting software.
  • Negotiating with vendors and addressing inquiries.
  • Conducting audits and preventing duplicates or fraud. Once you grasp the purpose and process of Accounts Payable, you’ll appreciate its significance in regulating cash flow and maintaining relationships with suppliers.

Accounts Payable Unveiled

The accounts payable process streamlines the payment of creditors, suppliers, and vendors for a company’s credit purchases and takes care of the following for your business:

  • Approving and processing invoices.
  • Making sure the company stays on top of its debts.
  • Improving reputation by showcasing payment organization.
  • Verifying invoices for accuracy and legitimacy with purchase orders.
  • Managing short-term debts like car leases and freelance work.
  • Enabling AP teams to focus on revenue generation via discounts and refactoring.

The AP team also uses well-defined metrics to evaluate a business’s liquidity, such as AP turnover, AP days, and cash conversion cycle. On top of that, they not only serve as an accounting function but also handle document management and analysis.You will agree that purchasing on credit is a standard business practice, especially when the potential return on investment is high. Accounts payable balances the need for credit with the ability to repay on time and avoid overspending.

Breaking Down the Complex Accounts Payable Process

The duties of AP departments can vary based on the size and type of business, with some firms having dedicated teams while others combine the work with accounts receivable. However, there are some core functions of this process. Let’s take a look at them below.

  • Vendor Management:
  •  The AP department handles all supplier interactions, from keeping vendor info up-to-date to deciding on payment terms. They review approved purchase orders, verify completed transactions, analyze IRS W-9 info, and perform monthly financial analyses. 
  • Internal Finances:
  •  The AP department manages small payments like office supplies or lunch expenses in the company and also covers complex processes like employees submitting reimbursement requests and handling tax-exempt transactions. 
  • Business Travel:
  •  Airline fees, car rentals, hotel bookings, and other travel expenses are all in the hands of accounts payable. They distribute the correct funding for travel reimbursements to prevent overspending and ensure smooth travel. They also work on cost savings by identifying spending patterns, finding new ways to save, and creating direct lines of communication with suppliers for better relationships.

The Accounts Payable Journey 

Uncovering the intricacies of the AP cycle is vital to grasp the full scope of this critical process. So let’s break it down into manageable steps to get a complete idea of what an AP journey of a business looks like:

  1. Supply & Demand:
  2. Gathering Evidence:
  3. Quality Check:
  4. After receiving the goods and services, a business creates a receiving report to compare the delivered goods to the PO to verify accuracy and quality. AP team files a follow-up with the vendor if damaged goods are in the order.
  5. Billing & Ledger:
  6.  The vendor then sends an invoice detailing the goods and total price, which the client adds to the ledger accounts.
  7. The Three-Way Match:
  8. To prevent overpayment or fraud, AP performs a manual check of the PO, receiving reports, and vendor invoices to ensure the original order matches the final payment to the vendor.

The Three-Way Match: A Balancing Act 

The Three-Way Match is the ideal way to strike a balance between efficiency and integrity. It involves comparing the PO, receiving the report and vendor invoice, and ensuring no significant financial errors have been made.

  1. The PO outlines what your organization ordered and how much it will cost.
  2. The Receiving Report verifies that your organization received the correct quantity and quality of product from the vendor.
  3. The Vendor Invoice shows what the vendor billed your business.

While a 2-way match only involves the invoice and PO, and a 4-way match adds an extra step of post-delivery inspection, the three-way match offers the best mix of security and speed. The AP team can leverage technology to fully automate the three-way match and use the process mentioned above to track and analyze the necessary documentation quickly and accurately as they understand the impact of delayed shipments and how it is crucial to release the payment to avoid having irate suppliers on the books.

The Art of Accounts Payable Management 

AP is the connecting link between procurement and payment, controlling the flow of the P2P pipeline with expert precision. AP teams take the reins of both “upstream” and “downstream” tasks, ensuring your inventory is stacked up, and your vendors remain content with your payment policies.

  • Upstream
  • encompasses procurement activities such as identifying the best vendors, negotiating favorable contract terms and cultivating long-lasting vendor relationships.
  • Downstream
  • covers post-transaction activities like monitoring received products and services, comparing invoice data with the original purchase order, and avoiding missed payment deadlines and late fees with a solid accounts payable system.

AP team manages every purchase a business makes, except for payroll, seeking out savings opportunities and discounts at every turn.

Uncovering the Accounts Payable Process

While often overlooked, the accounts payable process plays a crucial role in a company’s success. There are multiple advantages to understanding why AP matters to your business, and optimizing it can help you grow your business. Let’s take a look at some of them below :

  • Smoother cash flow management
  • Accurate invoice handling reduces the risk of duplicates, missing payments, or fraud.
  • A steady source of essential resources and services for your business
  • Improved vendor relationships through tracked details
  • No more missed due dates or late payments
  • Opportunities for early payment discounts through strategic payment planning.

So, to get the most out of your AP team, it’s best not to overlook them, as they can be the key to unlocking your company’s potential.

Overcoming the Obstacles AP Process and Streamlining Journey

Management is always looking for ways to make the accounts payable process smoother and more efficient. But what are the challenges that AP professionals face day in and day out? Let’s take a closer look:

  1. Data Entry Dilemma:
  2.  With vast amounts of data from multiple sources and formats, the accounts payable process requires accurate information. However, manual data entry is time-consuming and prone to human error.
  3. Paper Trail Troubles:
  4. The AP process is swamped with paperwork – vendor invoices, incoming bills, balance sheets, financial statements, and more. This can lead to cluttered desks and disorganized files, making it tedious to sort and process.
  5. Workflow Woes:
  6. The manual approval process for each invoice can be sluggish, especially when multiple stakeholders are involved. This slows down the entire AP process, making it difficult to track progress and ensure timely payment for expenses.

These challenges add up to a payable process that is both slow and challenging to manage. So, how can businesses ensure efficient expense management and timely payments for all expenses? By streamlining the accounts payable process and using technology to automate manual tasks, companies can save time, reduce errors, and gain more control over their financials.

Optimizing the Accounts Payable Journey by Implementing Essential Best Practices

The accounts payable process is a crucial aspect of any business. But with the wide range of challenges involved, it’s essential to have a strategy to streamline the process and maximize its benefits. Here are some of the best practices for an efficient payable process:

  1. Reminder Magic:
  2.  Make the most of early payment discounts and avoid late fees by setting up reminders for vendor payments. Stay on top of your invoices and maintain a positive relationship with suppliers.
  3. Ditch the Paper:
  4. Report Rundown:
  5.  Keep tabs on all AP activities with regular reports, whether monthly or quarterly, and understand your cash flow to ensure that all transactions are recorded and accounted for.
  6. Authority Assignment
  7. The AP process often involves multiple stakeholders, so it’s essential to clearly understand who is responsible for authorizing transactions by ensuring that the right person is in control at the right time.
  8. Centralized System:
  9.  Managing a wide range of transactions can be overwhelming, but centralizing the AP process on a single platform makes it easier to manage and even automate.

By following these best practices, you can optimize your accounts payable process and maintain internal cash flow control. But, of course, one of the easiest ways to do it is by investing in the right technology that can help you streamline your AP tasks and ensure efficient expense management.

Leveraging Technology to Get the Most Out of Accounts Payable Process

Manual expense entry and endless paperwork are the Achilles’ heel of the AP process. However, the right software can be your secret weapon in streamlining the accounts payable process. An automated approach to AP can deliver numerous benefits, including:

  • Lightning-fast Payments:
  • Say goodbye to missed deadlines and human error by automatically filing invoices for payment and watch as everything runs smoothly.
  • Effortless Vendor Management:
  • Keep all vendor information in one place and easily track invoices, addresses, and more.
  • Seamless Approvals:
  • Stay organized with a digital record of every step and approval.
  • Robust Audit and Reporting:
  • Track every vendor invoice with a secure digital trail and quickly generate detailed financial reports.
  • Total AP Automation:
  • Handle everything from invoice collection to payment processing using the right AP automation software.

Create a Streamlined and Robust Spend Management Process with Zapro Today!

Streamline your AP process with swift, precise, and punctual electronic invoice handling. Unleash the full potential of your finance team and gain total control over your spending with Zapro’s spend management solution. Here are some key benefits you can expect when integrating Zapro into your business.

  • Effortlessly reconcile reports to avoid wasted expenses and detect frauds in their tracks with an automated process
  • Enable AP teams to focus on more impactful tasks by eliminating the hassles of manual entries 
  • Manage suppliers effortlessly with a multi-lingual, self-service portal that reduces eros and boosts productivity
  • Match POs accurately with an automated two or three-way matching for every order in the books
  • Establish a smooth approval process with automated approval and payment scheduling capabilities 
  • Generate automated expense reports and streamline your business spending with 100% accuracy

These are some of the key features of Zapro’s AP automation solution. Gain improved financial governance on your business and get access to intuitive fraud detection capabilities by using a modern approach to the AP process. Schedule A Demo Now!

“Take your procurement strategy to the next level with Zapro. Trusted by 1,000+ companies.”
Optimize Your Procurement StrategyNow! Choose Zapro. Trusted by 1,000+ global procurement leaders.