When invoices from a mailroom delivery reach a member of your accounts payable team, what happens next? In many businesses, this moment triggers a complex series of invoice processing steps that is slow, error-prone and more often a source of problems than insights.
Whether they involve paper-based processes or businesses that are stuck between hard copy and digital workflows, invoice problems can have a negative influence on the bottom line. However, identifying the invoice processing problems facing your business and implementing solutions that address them thoroughly doesn’t have to be difficult.
Many of these issues are common across businesses working at any scale. In this guide, we’ll examine 10 of the most typical accounts payable challenges facing companies today, including problems that are inherent in traditional AP systems and errors introduced by staff members.
We’ll look at the following accounts payable problems and solutions:
- Stumbling Blocks in Your AP System
- People Problems
- How Can I Improve My Invoice Processing? Discovering Scalable Solutions
- Conclusion
Stumbling Blocks in Your AP System
What are the challenges in accounts payable? Before you can select and implement an appropriate solution, you’ll need to identify the areas where your AP teams and processes aren’t as efficient as they could be. There are real-world consequences for failing to face these challenges head-on: poor vendor relationships, ballooning late payment charges and a clear impact on your bottom line.
First, we’ll examine six of the most common stumbling blocks in accounts payable processes and your business systems—next, we’ll look at worker-related invoice processing errors.
What Is the Average Cost of Processing an Invoice?
High costs are one of the biggest challenges in invoice processing and the most obvious impact that the AP department has on a business’s operations.
According to a 2020 report by the Institute of Finance and Management (IOFM), the average cost for organizations handling up to 100,000 invoices per year is about $6.10 when they process each invoice manually. For growing organizations that process 20,000 or fewer invoices, the cost is a staggering $15.97 per invoice.
Without a modern and automated approach to this effort, error rates can climb, driving up processing costs. Each invoice adds up, ultimately costing tens of thousands of dollars (or more). Consider how much of a difference in cash flow your company could record across an entire fiscal year. High costs driven by rising error rates can short-circuit growth.
Too Many Systems in Standalone Silos
How visible is the information in your AP department? For many companies, the answer is “not very visible,” and it shows. When your teams are siloed because of different software solutions that they use at varying stages of invoice processing, inefficiencies develop.
Silos increase the risk of common accounts payable problems such as duplicate payments. Tearing down these walls and unifying your approach is the right strategy.
Slow Invoice Mailing
Is your business still relying on “snail mail” to complete the final step of paying an invoice? Handling paper invoices is troublesome enough, but issuing paper checks and putting them in the mail is even more burdensome in today’s business world.
“The check is in the mail” is one of the oldest half-truths in business, and it is unlikely to satisfy your suppliers when you cannot explain why a payment is late. Real-world conditions and third-party service inefficiencies shouldn’t have such a strong opportunity to impact your business.
Incorrect or Missing Line Items
Vendors are just as susceptible to human error as those working within your business. You cannot always trust that invoices will be 100% accurate or that you will receive everything that a vendor quoted on a purchase order. With a manual billing system, problems with an invoice could reach deep into the cycle before someone realizes that the numbers don’t line up or spots an exception. Identifying these issues is challenging when you’re handling hundreds of invoices every week, and errors will cost you.
Late Payments
Late payments often occur because of other invoicing issues. A late payment creates multiple problems—most immediately, a fee tacked onto your account with the vendor. Habitual lateness doesn’t encourage vendors to continue working with your business, and some may choose to refuse transactions due to a history of slow or late payments.
Remember: Your work in AP affects someone else’s bottom line. Structuring systems while being mindful of this fact can open the door to significant improvements. AP’s job isn’t only to pay suppliers but also to cultivate strong relationships with vendors.
Too Much Paper, Too Many Emails
Does your business frequently straddle the line between a digital ecosystem and an old-fashioned, paper-based office? Although digitization is a time-saver, an unwieldy hybrid between digital and paper creates more problems than it solves. With paper invoices stacking up on desks and emails seeking approvals or exception corrections, it is difficult for your team to keep track of any account moment to moment.
Did you know that with modern and unified automation systems, you can avoid many of these problems? With software solutions such as Kofax ReadSoft® and Kofax AP Agility® automated invoice processing, you can reduce the number of touches that every invoice requires and even fully automate certain processes within AP. Learn more about these options today.
People Problems
While these concerns are process-based and baked into many systems, there are also human errors at play in the invoicing sequence. How do you solve an invoice problem? Which steps does an employee need to take to resolve an exception, and how long does it take them? These questions reveal where you may have employee-based pitfalls in accounts payable.
How Many Invoices Can One Person Process?
In a high-volume accounts payable department, the human element will almost always become a factor in processing bottlenecks. The benchmark for an experienced AP clerk working within a mostly manual process flow is surprisingly low: just five invoices per hour.
That rate may be suitable for a very small business, but your AP payroll could expand rapidly as the company grows. More hands touching invoices doesn’t necessarily mean better outcomes, either: as the workload increases, so does the likelihood of errors.
Burdensome Supplier Management Problems
On top of handling invoices, AP teams often need to handle multiple elements of supplier management, including gathering critical paperwork during onboarding, ensuring that suppliers are onboarded correctly, and managing these relationships in the future.
Too often, these steps still take place within a manual workflow. An online self-service portal allows you to set up a guided process for adding new suppliers and ensuring that they can see the status of pending invoices and payments, all in one convenient space.
No Time for Tasks Related to Strategy
When everyone in your department is focused on time-consuming manual processing, how can they add value to the business? Today, AP should be a source of critical business insights. Gathering information, determining your KPIs and making forecasts from present and historical data are essential steps for developing a sharper competitive edge. Too often, companies lack an appropriate management system for developing these insights.
Complex Exception Correction Procedures
When an exception halts an invoice in the process and prevents payment, how long does it typically take your business to get back on track? Without automated accounting tools, tracking down these accounts payable discrepancies can take precious hours or even days.
Is it a problem with receiving? Did a supplier invoice to the wrong PO number? Without visibility and data collection, answering these questions can take up time that costs your business money.
Manners Matter
Interactions between your business and its vendors are one final concern that involves the human element. With automated systems, you don’t need to worry about a dispute arising with a supplier as a result of a poor personal interaction. Within high-volume operations, you can give your suppliers automated insights into order status and invoice processing and reduce the potential for awkward interactions between staff and vendors that can impact your relationships.
How Can I Improve My Invoice Processing? Discovering Scalable Solutions
With so many diverse issues, trying to find a place to begin solving problems can seem overwhelming. In reality, there are simple steps and process improvements that your business can start implementing today to address these concerns. From leaving paper in the past to redirecting the energy of your teams into more productive work, there are many ways to improve invoice processing. Let’s look at a few of them.
Digital Systems
It’s time to leave paper behind for good. By transitioning toward smart digital systems such as ReadSoft, you can quickly eliminate several common bottlenecks. Simultaneously, you can instantly improve the visibility of every invoice. Stop wondering whose desk an invoice is sitting on and start sending every invoice for approval faster than ever.
Three-Way Matching
The three-way match is an essential part of making accurate invoice payments. Ensuring consistency between purchase order, receiving reports and vendor invoices reduces the risk of accidentally paying for duplicate invoices or goods and services that the business has not yet received. Traditionally a tedious manual workflow, digital systems fully automate the matching process through a unified system receiving data from not only AP but also the warehouse and vendor.
Reduce Processing Costs and Time
You can lower key benchmarks by using Kofax AP Automation solutions to capture invoice data rapidly while using invoice processing tools that integrate with leading enterprise solutions such as SAP. Businesses can easily realize multi-dollar savings per invoice when automating. Not only does this shift help you avoid duplicate payments when a vendor re-issues an invoice, but it also ensures that vendors receive their payments faster.
Free More Time for Value-Added Tasks
With less time spent chasing errors and stuffing envelopes, the AP department can begin to evolve into the valuable element of modern enterprise that it should be. Advanced software generates insights into your accounting data, providing forecasts that other teams can use to thoughtfully plan next steps. As the source of this information, your AP team’s organized approach to big data analysis makes its contributions even more valuable.
Reduce Manual Efforts
Think of how much easier it is to have software raise a red flag about a potential invoice exception than to perform manual matching and error handling. The more work that you can pass off to your computer systems, the fewer opportunities will arise for manual processing problems. This handoff can help shrink the payroll and open the door to value-added tasks.
Shrink the Paper Trail
Move away from paper invoices, checks and reliance on postal services as soon as possible. Digital receipt of invoices ensures that the process remains electronic from start to finish. Deploying an electronic payments solution lets you pay suppliers virtually and instantly after an invoice validates for approval according to your pre-set rules. With logged events at every step, you can see the lifecycle of an invoice at a glance—something you can’t do by passing envelopes from desk to desk.
Implement Best Practices
The most advanced tools and lofty ideas about AP department transformation aren’t enough to make it happen. Proper training for staff on new tools is an essential step, combined with a new emphasis on using best practices. When your clerks can capably follow each step in the automated workflow, human and machine efforts combine to produce better, faster outcomes for your business—precisely what a digital system should produce.
AP automation doesn’t fully replace the human element of business—rather, automation augments human capabilities to improve results.
Conclusion
The evidence is clear: Paper-based processes are slow, inefficient and largely invisible to the decision-makers within a business. As a result, what should be a driver of value for the company becomes a financial sinkhole that can easily produce bigger problems. With a modern resource management system and automated accounting tools, you can shrink the impact of these issues.
In addition to being simple and easy to manage, these solutions can open the door to critical improvements that keep your business competitive while empowering your AP team to demonstrate its value. Better data capture and analysis leads to smarter forecasting, which results in more intelligent purchasing. The business makes more economical purchasing decisions from suppliers that trust your regular, on-time and early payments.
Improving accounts payable means more than reducing cost-per-invoice and time-to-payment. It means creating a solid financial footing for your business over the long term. Discover how easy it is to add ReadSoft and other modern accounts payable tools to your arsenal today, and learn why you should automate now.