by Prasanna Rajendran, Vice President at Kissflow
Procurement automation does not involve automating the procurement function only; it also includes the AP process. The two functions, i.e., Accounts Payable and Procurement, are heavily interlinked. They both ensure the efficient delivery of currently required products and services and maintain healthy relationships with suppliers through supplier management systems for future deals.
Accounts payable teams are usually engrossed with tons of paperwork and transactions. But apart from that, they are constantly working to establish long-term relationships with suppliers by answering queries about their payments and ensuring they receive the right amount in time.
Now factor in the requirement to handle cash flow and prepare expenditure reports, among many other menial tasks. It’s easy to see how many problems your accounts payable team is against, especially if they’re still utilizing paper-based, manual operations.
Accounts Payable Challenges and How to Solve Them
Here are some of the top Accounts Payable challenges and how your team can solve them:
If your accounts payable team conducts its operations manually, they might spend hours processing paper-based transactions. The traditional process requires them to extract data from different types of documents such as invoices, contracts, goods receivable notes, and so on, which slows the procurement process. While doing such mundane and repetitive tasks manually, the processing time and the chances of human-error increase.
For example, while processing invoices, accounts payable teams will have to make payments through bank transfers or checks. Suppose there is an error in the manually entered amount, like a missed figure or incorrect date. In that case, reconciliation of such payments can extend the payment timeline or cause high costs to the company.
Solution: With the help of procurement automation, accounts payable staff can get more work done in a shorter amount of time as the data is automatically fetched from digital documents and entered in required sheets or reports without error.
Procurement automation also allows automatic Purchase Order (PO) flip that extracts all the information from the purchase order using the purchase order software and swiftly converts it into an invoice.
According to research, a typical paper invoice costs $10.08 and takes 8.3 days to complete, but the average automated invoice costs $2.18 and can be done in 2.9 days. This saves almost five days of delay in processing invoices.
In addition to that, procurement automation enables three-way matching between purchase orders, goods receivable notes, and invoices. It entails cross-verifying associated documents to authenticate an invoice before payment.
It compares the three documents within seconds to ensure that an invoice accurately represents the goods or services provided to a company. Thus reducing the processing time while increasing accuracy.
Risk of Fraud.
According to a survey by the Association of Certified Fraud Examiners, businesses lost $7 billion to fraud in 2018.
AP fraud is exceptionally devastating to enterprises because of the scale and amount of money involved. AP fraud is notoriously difficult to detect as employees and staff are frequently duped into sending what they believe to be actual payments directly to the scammer. In certain circumstances, the deception is perpetrated by the employees themselves.
In order to avoid such instances, the AP team always has to be on guard, looking out for any suspicious requisitions that might raise red flags. But inquiring about every purchase requisition form can become hectic, which can let fraudulent requests go unnoticed.
This can expose organizations to financial and reputational risks, as no client will be willing to work with such an organization.
Solution: Procurement automation software provides organizations with greater visibility and transparency of what is requisitioned, when, and from which department. In addition to spend analysis conducted, this leaves audit trails that can identify and track fraud, thus making employees more conscious about their spending patterns.
An AP automation system can also automatically flag outliers that appear fraudulent and turn data into reports that make it easy to see changes in spend. Thanks to AP automation, only authorized staff has access to electronically stored data. Establishing an internal system of checks and balances also allows firms to have more control.
The purchasing processes that take place in many organizations are far from optimal. In a manual procurement system, employees often make unauthorized purchases as necessary approval may require several working days to get authorized. This can ultimately lead to purchases done without legal approval, buying from non-preferred suppliers, not following the company policy, and so on.
Unauthorized purchases can lead to the risk of maverick spending and dark purchasing. There is a chance that employees might conduct fraudulent activities or purchase goods that the organization does not need. In addition, buying out of contracts can lead to strained relationships with suppliers.
Hence, employees will tend to overspend either unintentionally or to benefit from their gains without proper approval and transparency.
Solution: Procure-to-Pay software offers distributed spending that assigns a specific budget to each department so that they do not exceed their limit. Most importantly, procurement software has multi-approval systems that make sure that any requisition is approved at least single or multi-level to get authorized for purchase.
The software also provides visibility where the approval process is stuck and sends reminders to concerned individuals to escalate the process. It also offers a catalog system that lets employees only purchase goods or services from a pre-set catalog. This ensures that they do not buy out of contract goods and purchase only necessary materials listed in the catalogs.
Manual paper-based processing in the accounts payable department can lead to slow processing, increased costs, maverick spending, and exposure to risk and fraud. Along with causing reputational risk, this can negatively affect the company’s financial health, ultimately paving a path for bankruptcy.
Companies can streamline their accounts payable and procurement processes with procurement automation solutions while enhancing accountability, control, visibility, and transparency. With more time on hand, employees can work on other strategic tasks that can help provide the company with a competitive edge in today’s dynamic market.
Prasanna Rajendran is the Vice President at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible purchasing software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.