When procurement contracts / purchase orders are signed, both purchasers and suppliers undertake mutually binding obligations. The supplier, on its part, commits itself to provide the goods / services that conform to the specifications in a time bound manner, and the purchaser undertakes to make the payment, upon receipt of the goods / services and invoice in accordance with the agreed payment terms. With meeting their respective obligations equally helping both the purchaser and the supplier, they endeavor to fulfill their respective commitments and build mutually beneficial relationship.
One of the ways by which a company builds good relationships with its suppliers is to make payments to them on time; streamlining and improving the accounts payable process can play an important role in this regard. The money owed by a company / organization to its vendors or suppliers, for the goods or services procured by it on credit, is the accounts payable (AP). Accounts payable also refers to the business department or division that is responsible for making the payments to suppliers and other creditors.
Accounts payable process
The accounts payable process involves receiving the purchase orders / procurement contacts from the purchase department, receiving the supplier invoices and delivery receipts, matching them with purchase orders to ensure contractual compliance, and approving the payment to the supplier.
Companies, recognizing the benefits of streamlining and improving the management of the accounts payable related workflow, such as processing cost reduction, ensuring organizational statutory compliance, etc., invest in accounts payable software and automating this back-office activity with its help.
Accounts payable software
Accounts payable software automates the end-to-end account payable process; starting from receiving the invoices to making payments to the suppliers. It consists of a set of instructionsthat are customized for automatically performing all the tasks associated with the accounts payable processes. The software organizes and verifies the invoice information so that the payment can be correctly paid and in time.
The accounts payable software enables the user to gain full visibility of the entire process and carry out either the two-way matching or three-way matching. While the three-way matching involves verifying and ensuring that the details of the purchase order, the supplier’s invoice and the delivery receipt respectively match and are in order before clearing the payment to be made, the two-way matching checks for compliance only the details of the supplier’s invoice against the details of the purchase order. Some companies may also take into account the inspection information.
Tasks performed by the accounts payable software
With the help of the software the accounts payable processes are handled digitally using the information technology instead of manual processing, which is time consuming, labor intensive, monotonous, and error-prone. Manual processing can also result in invoices being lost or misplaced or not being paid. Accounts payable software, by enabling the buying organizations to automatically receive invoices, manage approvals and process payments, overcomes the above and other drawbacks of manual processing. The accounts payable software can also, on one hand, generate payment reminders that will eliminate the possibility of late or forgotten payments and, on the other, inform suppliers about the payments made. The essential tasks performed by the software are receiving the invoice, verifying its correctness and authorizing payment, and data management.
- Receiving of invoices
Invoices are received electronically or converted from paper to digital format.
- Verifying the correctness of the invoice and authorizing payment
Invoices are automatically verified for correctness, either through three-way or two-way matching, and if found correct they are automatically sent for making the payments
- Data management
All Invoices are properly archived for long-term retention, future use, and audit and compliance purposes.
Accounts payable software benefits
The use of accounts payable software offers numerous benefits. By automating the invoice processing cycle, the use of the software results in reducing significantly human interventions and errors It helps the organization to achieve workflow efficiencies and cost savings, ensure organizational and statutory compliance of the process, reduce errors, etc. It makes the invoice processing and approval faster, smother, and more efficient. It reduces the associated efforts. Since the software is scalable, its deployment reduces the need to hire more people as the business expands The software comes with dashboards, which provide the visibility that helps track and manage the progress of the accounts payable process. Some of the benefits of using the accounts payable software are the following:
- Processing time and cost reduction
- On-time payment performance improvement
- Facilitates better statutory and organizational compliance
- Makes it possible to avail of thee early payment discounts
- Reduces man power requirements
- Facilitates auditing
- Improves relationship with suppliers
- Can share information with financial and other information technology systems
With more and more companies getting ready to remain relevant and succeed in the rapidly emerging digital era, they will be automating their critical business processes with the help of information technology solutions, such as the accounts payable software that contributes to workflow improvements and are user friendly and easy to implement. While some companies will host the accounts payable software in their own on-premise systems, others will opt for cloud hosted software-as-a-service model. Either way, more and more companies will be taking the accounts payable software automation approach to improve workflow efficiencies and cost savings, ensure organizational and statutory compliance of the process, reduce errors, etc.