Most business owners are well aware of the need to stay current on their accounts payable in order to retain control of their cashflow. However, the actual process they use to manage this critical business function may pose even more of a risk to their business than a potential cash crunch. In many ways, business owners who maintain a manual accounts payable process are essentially wearing blindfolds when it comes to the following key financial and operational risks.
1. The reliability of data available to drive key decisions. Manual processes for accounts payable generally have much higher levels of errors and omissions than when an automated payables workflow is used. This is often due to human errors and the fact that an automated system can provide much more robust and comprehensive reporting than the typical accounts payable employee who is less likely to consider data strategically as part of their process-oriented manual workflow.
2. Exposure to potential fraud and security risks. Small businesses are easy targets for accounts payable fraud. This is especially true if they are using manual processes which make it easier for employees and third-parties to take advantage of the system to carry out a fraud-based accounts payable crime. Having an automated accounts payable workflow with a platform which enables adequate controls on user access and required approvals can help to reduce the exposure a business has to potential fraud and other security risks.
3. Ineffective management of compliance and audit requirements. A manual accounts payable process may create blind spots for a business owner in regard to its inherent risks, but for the IRS and third-party auditors it creates many red flags when it comes to sales tax and several other financial compliance issues. Implementing an automated accounts payable process utilizing a payables platform that is built to alleviate these risks with tools for tax compliance, audit trails, approval workflows, and role-based views is clearly the better alternative.
4. High accounts payable costs and inefficiencies. Research conducted in 2020 by consulting firm Ardent Partners indicated that the average processing time for invoices in U.S. accounts payable departments is 8.3 days. When a company automates their accounts payable workflow, however, the processing time for invoices is three times faster—which easily translates into significant overhead cost savings and the elimination of many time-consuming inefficiencies related to manual payables processing including the need to track down missing information for invoice exceptions. Reductions of costs in these areas can alleviate the risks of a negative bottom line impact and wasted productivity.
5. Support an effective vendor relations strategy. An automated accounts payable process facilitates strong vendor relationships with quality providers who can meet all of the needs of a business—including competitive pricing. This allows businesses to avoid the risks related to cost and resource allocation inefficiencies created by using multiple vendors for the same purchases, insufficient comparison shopping, and the increased likelihood of vendor disputes. Automating the accounts payable process enables faster and more accurate payments which creates healthier vendor relationships and helps businesses avoid the risks of late payment fees and penalties.
Accounts payable is a key area that all businesses should include as part of their risk management program since it often serves as the gateway to many high-risk scenarios including those mentioned above. Issues related to fraud, security, profitability, workflow and human resource inefficiencies are all unnecessary risks that can be remediated through the transition from a manual accounts payable process to an automated one that offers faster, more accurate and more efficient processing as well as higher quality data, enhanced compliance, and robust reporting capabilities.
Beyond the obvious advancement in the handling of AP process that automation brings, such as eliminating as much human error as possible, the importance of transitioning to electronic document transmission for sensitive payment information and the ability to provide vendors with a secure environment for exchanging their banking and credit information is another area that holds high value for many companies.