What is Accounts Payable?
Accounts Payable refers to the amount of money a business owes to its suppliers for goods or services received on credit. It is a short-term debt and a liability on the balance sheet. The AP department handles vendor invoices or bills and records these short-term debts in the general ledger (GL). The AP team follows a strict, often manual, process involving rigorous checks, verifying invoices against purchase orders and ensuring the goods or services were received before issuing payment to vendors. This process is a crucial part of every company’s finance function. Conversely, Accounts Receivable refers to the amount owed to a company by its customers.
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Key Accounts Payable terms
- Invoice: a document that records a transaction sent from a seller to a buyer when an order has been fulfilled.
- Purchase Order: an official document sent from a buyer to a seller. It specifies the items the buyer is purchasing, and the buyer is then obliged to pay the seller for them at a later date.
- Automation: the use of technology where human effort is minimised. In the case of Accounts Payable, it usually refers to software that performs manual tasks such as reading and keying in data.
- OCR: short for Optical Character Recognition, and is a process that converts an image of text into machine readable text. Learn more about Zahara’s Invoice Processing Software.
10 Benefits to Accounts Payable Automation
For those of you already using automation tools, you’ll know that taking the plunge comes with countless benefits. If you’re not automating AP, I’m sure you’ll have heard seemingly-too-true glowing reviews from people who have. We’re here to tell you that all the rumours are true. We’ve compiled what we think are the most important accounts payable automation benefits that you’ll experience.
Time Savings
Automating your invoice processing is the single most effective thing you can do to optimise your AP function. AP automation tools will help you process your invoices 9 times faster, with far less effort on your part. Zahara uses OCR (Optical Character Recognition) technology to accurately read your invoices for you, down-to-the-line items. Time-saving is generally the main reason people bring in AP software. There comes a point where the volume of invoices grows so much that it only makes financial sense to bring in a robust system. Receipt capture software can be a game changer both for big corporations and even for solopreneurs whose backgrounds aren’t in finance and don’t have the time or desire to manage their finances effectively.
Improved Accuracy
The truth is that mistakes happen; we’re only human! However, intelligent software with OCR will highlight mistakes that even the most diligent among us may miss. You don’t have to leave it to chance; automation software will act as a safety net to make sure no invoice slips through the cracks.
Cost Savings
Additionally, while you do have to pay for accounts payable software, you will also see massive savings in the long run. You will initially have to pay for the software, but you’ll make savings by bringing in approvals or OCR (Optical Character Recognition), meaning that you can rest assured you won’t ever pay duplicate invoices. The costs you’ll cut can be more than you think!
Simplified Auditing
When you use AP automation software, you’ll be able to integrate it with your existing finance system. Having everything in one place (and digitally recorded) means it’ll be so much easier when it comes to auditing. There’s an audit trail behind every purchase order and invoice, and the chances of you losing an important piece of paperwork are massively reduced.
Better Visibility
The reality is that once there’s more than one person in your business, you will need a new level of control and visibility so you know exactly where your money’s going. If you’re the boss, you want to give your employees the freedom to do their jobs effectively without worrying that they’re not adhering to the budget. With AP automation software, you get the best of both worlds. You gain peace of mind with full oversight of your finance operations, and your employees can make purchases with confidence.
Easier Compliance
Manual processes can be prone to compliance issues, such as duplicate payments or missed deadlines. Automation helps ensure compliance by enforcing approval workflows and providing audit trails, all with reduced effort and stress on your part.
Improved Supplier Relationships
Is your business one that relies on strong supplier relationships? If yes, then we strongly recommend bringing on software sooner rather than later. Overdue payments and disputes can happen to anyone, but if your business is reliant on a certain supplier, you need to be extra careful not to tarnish your relationship. Using accounts payable software greatly minimises these mistakes and keeps an exact record of all purchase orders and invoices, and where your supplies are in their journey, so you never have to wonder.
Discounts
Did you know that you can make some pretty sizeable cost savings simply by making prompt payments? According to the Institute of Financial Management (IOFM), although the offers are ripe for the taking, businesses take advantage of less than 21% of prompt payment offers available to them. Shockingly, 10% of businesses don’t get any discounts at all simply by being late. This is just money down the drain that you could be utilising. Using an automated system means you don’t have to leave it to chance. You can guarantee you won’t be penalised for being late and even make some savings in the process. Many of our customers at Zahara have found that within the first few months of implementation, they made back the money spent on Zahara purely to avoid late fees.
Keeps your documents safe in the cloud:
Having an entire storage room for your paper files should be a thing of the past. Keep everything neat and tidy online rather than using paper purchase orders and emailing them around the office.
Makes Accounts Payable accessible from anywhere:
Your employees are no longer tethered to their desks. People are working from home, on the road, and of course, in the office. If all your documents are physical, the relevant people must be in the office to do their jobs. Zahara encourages flexible working, which helps you match your workers’ needs. In 2024, around 95% of workers prefer having the option of some sort of hybrid working, so if you want to gain and retain quality staff, you need to meet them where they’re at. Having dynamic processes is just one easy way to accommodate that.
Strategies for optimising your accounts payable
We’ve sourced a helpful guide written by Deloitte to help you on the following topics:
- Strategies for optimizing your accounts receivable
- Strategies for optimizing your accounts payable
- Cash management
- Strategies for optimizing your inventory
Download the AP Strategies guide here
If you’re interested in how the Accounts Payable process could work for you with the help of automation, contact one of our experts. We’re always happy to show you how it works and see if we can help optimise your processes:
