The accounts payable (AP) process is essential to a business's operations due to its role in settling transactions. AP involves all activities related to paying vendors, suppliers, and other financial obligations. The process should be efficient, timely, secure, and accurate for it to benefit the company. In this article, we’ll provide an overview of the AP process, discuss the benefits of an effective AP process, and share the most common AP pains and the best way to solve them.

In short, accounts payable are the funds a business owes to its suppliers for goods and services that have been received but not yet paid for. AP may also refer to the department within an organisation that is responsible for handling vendor invoices and recording the short-term debts in the general ledger (GL) and managing supplier relationships.

Read our article What are accounts payable? for more information.

The accounts payable process involves the tracking, management, and payment of a company's debts and financial obligations to its suppliers and other creditors. 

The AP process flow includes the following steps:

1. Receive vendor invoice.
2. Confirm the invoice is legitimate, accurate, and not a duplicate.
3. Perform a 2-way match (invoice and PO) or a 3-way match (invoice, PO, and confirmation of goods/services delivery). If there is a discrepancy, the AP team must contact the vendor to resolve the issue.
4. Approve the invoice for payment.
5. Issue payment.
6. Mark the invoice as paid in the accounting system.

The AP department is also responsible for the management of vendor relationships, including maintaining up-to-date vendor records, negotiating payment terms and discounts, and resolving disputes or issues that arise. Good vendor management helps build strong relationships with suppliers, leading to better pricing, improved quality of goods and services, and enhanced supply chain management. 

An effective AP process delivers numerous benefits to a business, such as:

• On-time payments foster good relationships with suppliers. This can result in better pricing and terms for future purchases and help ensure that the business consistently receives quality goods and services.
• Eliminating late fees and penalties due to on-time payments saves businesses money.
• Greater visibility and control over cash flow enables businesses to make informed decisions about spending and investment.
• It helps identify potential cash flow issues before they become problems, so businesses take proactive steps to address them. 

Overall, an effective accounts payable process can help businesses operate more efficiently and effectively, ultimately leading to greater profitability and success.

Processing vendor payments can take a lot of time and effort, as anyone who has worked in accounts payable can attest. And unfortunately, issues with poor accounts payable performance aren't always easy to identify, particularly if a business has a well-established AP procedure in place.

Here are the five most common accounts payable pains that can negatively impact your business's efficiency, accuracy, bank account, and supplier relationships.

1.     Keeping track of invoices

It's not uncommon for accounts payable teams to manually manage their workflows and procedures, which makes it easy for a few invoices to get lost in the shuffle.

Even in 2023, invoices are sent via mail, email, desk delivery, and occasionally fax.

Once you have an invoice, you must either physically deliver it to someone in the office for processing or send it to approvers via email. To avoid missing any invoices requires careful attention.

2.     Invoice errors happen

Data entry errors are one of the most frequent issues seen during the accounts payable process, whether it be a manual key-in error, an erroneously coded line item, or a malfunctioning Excel spreadsheet formula.

Second, late payments are an AP employee’s worst nightmare. Late payment penalties and interest charges can take a toll on your bottom line.

Errors and late payments can harm your vendor relationships. Would you want to do business with an organisation that paid your invoice incorrectly or late? Most likely not.

3.     Manual processing is time-consuming

Fewer than 15% of organisations process invoices in less than three days. In addition to being physically and intellectually draining, scanning paper, manually entering data into a spreadsheet, and dealing with paper checks is time-consuming.

And dealing with the paper pile-up - filing, categorising, and storing documents - is taxing and takes up a large amount of precious office space.

4.     Manually processing invoices is expensive

According to Levvel Research, the average cost to process a single invoice can be up to $15. 

This cost may rise to $30-$40 per invoice, depending on the size of your business and the complexity of the AP process. The costs add up quickly when you consider the hundreds or thousands of invoices your business processes yearly.

Additionally, AP employees’ time is spent responding to inquiries from suppliers, customers, and staff and fixing errors that have occurred. And we all know that time is money.

5.     Making informed decisions without real-time information

An important aspect of AP management is knowing that your reports are current and that your financial records provide accurate visibility to current AP balances.

Without real-time data, business leaders don’t know how frequently their vendors are being paid. This can negatively impact financial projections and hinder strategic planning for future ventures.

You should ideally have access to real-time reporting capabilities and automate as much of the reconciliation process as possible. 

An AP automation solution can streamline your accounts payable processes and solve the AP pains we’ve covered here (and more).

Transforming your high-touch invoice management process to a low-touch one and optimising your accounts payable, you'll be able to:

• Reduce costs and increase working capital
• Reduce the time spent processing invoices and managing invoice approvals
• Reduce errors due to manual entry
• Eliminate excess paper
• Manage your invoices in a seamless workflow
• Reduce AP risks and fraud
• Be prepared with an electronic audit trail
• Have a greater sense of control with full visibility into your AP workflow

Companies that have deployed an automation solution for accounts payable have realised cost savings of up to 60–80%.

Effective AP processes provide a multitude of benefits to a business; however, the accounts payable process can also be a source of pain for businesses due to the complexity and time-consuming nature of the manual processes involved. Fortunately, automation can alleviate many of the common AP pains. Businesses that embrace automation can reap significant benefits, including better financial management, stronger supplier relationships, and improved competitiveness in the marketplace. By investing in automation solutions, businesses can streamline their accounts payable process and unlock new levels of efficiency, productivity, and profitability.