Business growth depends on trust that is earned and built through long term relationships with stakeholders. One such important relationship is with the vendors of the business. Payments when made in time will prove over time as trustworthy partnerships and help in growing the business in multifold parameters. In contrast delayed payments will lead to dilution of trust, even one took time to establish as an intangible asset of the company.
Despite every change in the way business is conducted, trust has remained as a fortitude pillar for every organization. What has changed over the years is how the trust is earned. Unlike past vendor management is nowadays dependent on timely and if warranted expedited execution. AP automation software is one such tool that helps in execution of accounts payable without worrying about the process hang-ups.
Businesses that are known for timely payments, consistently receive priority in deliverables of best and first-rate materials from its suppliers. This not only ensures project quality but also leads to occasional early deliveries and bulk discounts, propelling their growth.
And it is anybody’s guess that entities that don’t pay in time face frequent stockouts and inflated prices. Their strained vendor relationships hinder their ability to fulfill client demands, impacting their reputation and growth. These contrasting examples showcase how trust, built through on-time payments, fosters beneficial partnerships that fuel business success.
Accounts Payable Function
Accounts Payable or AP has an integral role in overseeing the operations of an organization by making payments in time to vendors. Most businesses use the supplier provided credit to fund their purchases and pay them back in the short term. This is like a short-term debt that is issued from supplier to the purchaser and will be made good either when the order is fulfilled or as per the agreed period which in most cases is less than ninety days.
So in short, AP acts as the financial backbone of a company, ensuring smooth operations and strong vendor relationships. It manages a company’s short-term debts to suppliers. Imagine AP as the department that handles your shopping bills. Here’s what they do:
Keep A Track of Out-go or Expenses
The AP department receives invoices from vendors for goods or services purchased on credit. A record for the amounts due is kept in the form of journals so that at any time the current standing can be evaluated.
As part of the good financial management practice there are many businesses who like to record these amounts, keeping a watchful eye on how much the company owes. If the short-term debt is larger than expected short-term cash inflow, then to avoid any discrepancy situation, there is a halt in purchases till the current part is cleared.
Verification of Invoices
An invoice raised by the vendor has to be matched with delivery challans and final order fulfilled acceptance record. If any item that was in purchase order and initial invoice but not supplied has to be deducted from the final settlement. Any advance paid has to be appropriated from payment dues. AP helps to compare the invoice to purchase orders and receipts, ensuring the company is billed correctly for what it received.
Payment Clearance
After verification, the payments are authorized for clearance through the accounts department that handles the cash payments. Usually the verification is carried out by two people in a traditional set-up so that there is no oversight as per the standard practices laid out by both legislation and the company norms. It aids in preventing human errors of omission or commision and ensures responsible spending.
Paying Vendors
After authorization to clear the payments, there is still one final leg of actually making the payment to the right account of the vendors. If there is any new vendor then their banking details have to be mandated in the organization’s bank account to clear the payments without any hitch.
Finally, AP ensures timely payments to vendors, maintaining good relationships and potentially earning early payment discounts. By efficiently managing these tasks, AP keeps the company’s cash flow healthy, avoids late fees, and builds trust with vendors – a vital ingredient for long-term business success.
Automation In AP – The Curve
Businesses are speeding up their processes with automation and accounts payable automation is not far behind in significantly improving efficiency, accuracy, and control. Here are four ways to leverage automation for a smoother AP experience:
Read Invoices
With optical character recognition or OCR tools, an automated AP service can easily detect all the invoices from the portal without tedious manual paperwork. Data entry tasks are eliminated resulting in efficient work in less turnaround time.
The entire process of scanning, uploading and reading the invoices for further process is carried out seamlessly without any hiccups as seen in traditional processes.
Cross-checking For Validations
AP function is not geared to pay every invoice without due diligence to set the record straight with respect to matching the purchase order with the copy of invoice and final delivery challan.
Once each item has been cross checked for receipt with respect to quality, returns outwards, advance already paid and deficiency any due to slippage or any other reason, AP automation tools will validate the invoice to be authorized and paid. This entire process takes a few minutes only thereby reducing the time required to complete this task manually.
Set Up Approval Workflows
Implement template workflows that have been pre-defined to route invoices for approval based on pre-set criteria like spending limits or vendor categories. It is a step-up that ensures that authorization checks have been met without causing delays in approval processing of payments.
Pay Electronically
Unlike traditional processes where once authorized each payment has to be transacted by a personnel working at the designated cadre who approves payments, money can debit automatically from the business account and pay the vendors. This way the cumbersome process of manual checks and delays are eliminated.
Conclusion:
We live in an ever changing world that is set to progress at least in terms of business growth fuelled with technological upgrades. AP automation is definitely a feature you want to add to your BPA routine.