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By definition, Accounts Payable is the money that a business needs to pay to its suppliers or vendors. In accounting terms, Accounts Payable is a liability or a debt and is noted as such on the balance sheet. Each time a vendor or a supplier provides you with an invoice that has to be paid, it is becomes an entry in the Accounts Payable section of your books.
Accounts Payable also may be divided into categories such as Expense Payables, Trade Payables, etc. As a credit that is extended by vendors and suppliers to businesses, Accounts Payable may be defined by terms of payment or discounts received for early payments.
Current State of Accounts Payable Practices
Historically, Accounts Payable is an area that can be prone to embezzlement by those in authority and hence needs internal controls to ensure misappropriation does not take place. Misappropriation can take several forms, including forged or false invoices being issued or authorized employees adding vendors in a fraudulent manner to redirect funds. Accounts Payable are also subject to audits where the focus is mostly on expense reports and invoices that have been approved.
Internal controls often consist of steps that require multiple employees to complete the payment: one processes the payment, one signs the check that allows funds to flow out, and another second-signs the check in case the amount exceeds the agreed upon limit, etc.
Challenges Faced in Maintaining Accounts Payable
Given the documentation-driven structure of Accounts Payable, numerous challenges can arise from improper record-keeping resulting in data integrity issues. Some of those include:
Traditionally, documentation was categorized by Service or Product type, broken down into Advertising, Travel, Food Costs, etc. This practice is still adhered to in manual systems. As a result, filing invoices has been a task associated with maintaining Accounts Payable records. However, manual filing can still suffer from loss or temporary misplacements. These are also subject to misappropriation.
Benefits of Automation
As business transactions increase in volume and frequency, invoices and new orders may outpace a company’s bandwidth to manually process them in an organized, systematic manner. Automating this process can dramatically streamline managing Accounts Payables due to the following:
According to some online reports, technology is the key driver for process improvement. For all Accounts Payable functions, technology through automation helps by speeding up procedures, such as payment processing. The reduced time between delivery of supplies and payment helps to build trust and adds value to your clients’ work. Additionally, Accounts Payable features, such as invoice authenticity and transparency, can also be improved significantly through automation.
Mobile apps increasingly include transactional functionality. Users access data and conduct financial transactions over their cell phones more and more frequently. There has been exponential growth in the number of companies that adopt mobile app technology to reach their consumers and also to conduct business, including selling, buying and communicating.
A number of Accounts Payable functions can be deployed efficiently and successfully on mobile apps, such as accessing data, approving invoices, and generating bills.
Digital Authorization and Security
More businesses are embracing digital capabilities, rendering paper based or manual systems obsolete.
We have already witnessed digital authorization in the form of signature-less communication, passcode-enabled process approvals, and signatures recorded with stylus or by using a finger on a device. As businesses across industries embrace digitalization, its use for approving invoices, completing transactions, and processing payments is likely to increase, as well.
As these functions move towards digitalization, it will become important to establish a relationship with a trusted, authorized vendor who can help businesses transition these tasks with appropriate security levels. Because Accounts Payables include invoices and bills, your in-house staff should work in tandem with the vendor to close any gaps with regard to appropriate authorization levels. This can ensure security processes are customized as needed, especially with payment approvals.
Moving Further Into Automation
As businesses leverage automated processes, the burden of back-office administration is reduced. Time thus saved can be channeled into business building and revenue generation.
Accounts Payable data is made more accessible through automation. This data can then be shared more readily across departments and with the relevant staff and suppliers. The data thus sourced can be mined to reveal information regarding supplier or vendor behavior and patterns. Well-maintained Accounts Payable records are an indication of a company’s financial health.
Adopting updated Accounts Payable techniques not only resolves challenges associated with manual management, it will also improve your firm’s productivity and efficiency.
Analytix Solutions has a team of professionals experienced in Accounts Payable. For more information on how we can help your company with Accounts Payable needs, please visit us at www.analytixaccounting.com or email us at email@example.com.
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