Automation of processes for suppliers and payments
There isn’t quite the same buzz around the supplier ledger and accounts payable as with other business areas when it comes to creating value with the aid of automation. With larger companies, it is a common mistake to miss the considerable effects that come from applying automation to accounts payable and purchase-to-pay. Instead, the focus is naturally on business-driving input for growth, income and profit, often linked to customer ledger or key figures in marketing and sales.
Here, we list some good effects of applying automation to processes for suppliers and payments…
- Protects money from being lost
Money is paid out wrongly. It is lost to fraudsters or is the subject of a mistake that is not corrected. Mistakes that can easily be prevented.
- Increases security and control
Increases security and control for responsible personnel. A better working environment, where stress is reduced, misunderstandings are avoided and even suspicions about colleagues can be excluded.
- Gets rid of processes that don’t create value
Identifies and gives insight into processes that don’t create value. Releases time and resources, reduces manual manipulation and mistakes that can take time to investigate and correct!
- Avoids risks that damage the brand
Directs attention to potential risks relating to a supplier that could have a negative effect on the organisation’s brand and thereby damage the organisation’s good image.
- The right data on which to make decisions
Removes uncertainty about the correctness of financial information. Identifies suppliers that do not respect codes of conduct, which can in turn have serious commercial consequences and cause poor profitability.
Crash course for those who don’t keep a close eye on accounts payable
Accounts payable means the short-term debt that a company owes its supplier for a product or service. When a product or service is to be paid for, an item is created in the company’s supplier account and the supplier that provided the product creates a similar item as an account receivable. In other words, accounts payable and accounts receivable are two essential functions in which the business relationship between companies occurs in practice. In connection with this accounts payable process, there are a number of stages that can be handled manually or automated. Here they are, simplified.
The process begins when an invoice arrives by e-mail, as a physical document or electronically. The invoice can be entered and interpreted automatically or it may need to be checked manually. The invoice needs to have its arrival registered and to be sorted, checked and archived.
Validate and check for errors
In order to identify errors, mistakes and in the worst case fraud, every invoice must be checked. The invoice may need to be compared with the relevant purchase order, the amount must agree and the order information needs to be found. The invoice is sent out into an approval flow, where persons involved in the purchase need to approve the invoice.
Prepare and pay
When the invoice has been approved according to all the rules, payment must be prepared in the business system, meaning that the payment must be created and linked to the supplier. The payment data is then sent from the business system to the company’s bank, where payments are sent off to the recipients after approval.
Then which of these can and should be automated?
Errors and mistakes in the company’s AP process have expensive effects. Every day, inadequate programmes and systems, together with human error, lead to incorrect payments. These are almost impossible to detect without having the right tools in place.
The first stage of the accounts payable process has clear potential for improving efficiency, which means there are cost savings to be made. By having incoming invoices scanned and interpreted automatically, employees’ time can be released while manual errors are prevented. If there is an automated process in place for incoming invoices, security and reliability can be increased by adding a control function to ensure that incorrect or fraudulent invoices are stopped, before they reach validation and the approval processes.
The second stage of the AP process, validating that invoices are correct and genuine, is often done by two or more people using approval procedures. Approval procedures fulfil a vital function, but they are insufficient for ensuring the controls that ensure that payments do not contain errors and are not subject to fraud. There is also a risk that approval in itself gives a false sense of security, since it is often performed in a hurry, under stress and without actually being checked according to the existing guidelines. That a payment is made incorrectly need not be because of the deficiencies of the finance department and AP. Unfortunately, the finance department is often wrongly blamed and criticised for the errors that are identified.
In the final stage, when payments are prepared and paid, it may have been some time since the invoice arrived at the organisation and was sent for approval. Important commercial information may have changed since the time of purchase, serious liabilities to public authorities may have arisen, F tax may have been lost or information about the recipient’s account may have changed. The amount may have been scanned in incorrectly in the first stage of the process and not been corrected during approval or the currency may have been wrongly entered and not noticed.