The Top 5 Accounts Payable Problems and Solutions

Most finance professionals know that manual accounts payable (AP) processes are plagued with problems. However, many of the business people that we speak with have a hard time articulating what it is about their AP process that’s so challenging, and what are the worst of the accounts payable key challenges they face.

The Cost of Accounts Payable Problems

Many accounts payable issues arise from outdated practices involved in paper-based, manual invoice processing: keying in line items, writing paper checks, and maintaining manual records and spreadsheets. The slower, more costly process of making B2B payments with paper checks and the resulting errors and delays of manual invoice processing can cause serious problems for your business. 

Here are just a few of the ways that problems in accounts payable can add up according to the IOFM:

  • Only 24% of businesses that manually process fewer than 20,000 payments per year pay all of their purchase order-based invoices on time. 
  • Only 26% of businesses that manually process fewer than 20,000 payments per year pay all of their non-PO-based invoices on time. 
  • Companies that manually process fewer than 20,000 payments per year have a median cost per invoice of $15.97. Those that use automation have a median cost per invoice of $12.98. 
  • Only 25% of businesses that manually process between 20,000-100,000 payments per year pay all of their purchase order-based invoices on time. 
  • Only 40% of businesses that manually process between 20,000-100,000 payments per year pay all of their non-PO-based invoices on time. 
  • Companies that manually process between 20,000-100,000 payments per year have a median cost per invoice of $6.10. Those that use automation have a median cost per invoice of $4.24.

It’s clear to see that transitioning from manual, paper-based processing to a highly automated accounts payable system saves money. But where do these savings come from?

Much of the high cost-per-invoice found in manual AP departments comes from manual processing, frequent delays, and employee labor. The longer it takes to process invoices and the more employees are involved in AP processing, the higher the cost gets.

Accounts payable automation streamlines invoice processing. And because it takes less time to process each invoice, costs go down. Most AP departments that automate also find that they need fewer employees focused on manual invoice processing, freeing up their time for more forward-thinking, value-add activities.

5 Accounts Payable Challenges and Solutions

Accounts Payable teams are busy. In addition to coordinating payments for your business’s required goods and services, AP teams may also manage T&E (Travel and Expense), loan payments, and short-term liabilities. The accounts payable department also requires ongoing collaboration with the purchasing department and company suppliers. With all of these responsibilities, it is important for these hard-pressed teams to both save time and increase efficiency wherever possible.

Here’s a list of the five most common problems that plague businesses using manual, paper-based accounts payable processes and how to overcome them:

1. Missing Invoices

Did the supplier send their invoice by mail, email, or fax? Who was it addressed to? Did they not receive it, or is it sitting on their desk waiting for approval? Manual AP processes often result in lots of finger-pointing between the AP manager, purchaser, and supplier.

In addition to causing friction between suppliers, unpaid invoices can cause significant problems when the payment hits the balance sheet late or the expense is coded to the incorrect income statement, leaving management with inaccurate financial information.

In order to realize more efficient and centralized accounts payable processes, your business needs to move away from paper, manual data entry, and leave spreadsheets in the past. Accounts payable software, like MineralTree’s Invoice to Pay, increases efficiency, reduces the risk of disappearing invoices or duplicate payments, and gives business stakeholders better visibility into the timing and frequency of supplier payments.

2. Lengthy, Manual Processes

From scanning paper invoices and manually keying in information to printing and signing paper checks, traditional AP processes are both labor and time-intensive. As businesses grow and scale, there’s less time to spend on tedious, error-prone processes.

Paper-based, manual processes lead to lengthy approval times and, ultimately, slower payments — especially if the AP department is still sending checks by mail. When your business falls behind on its supplier payments, it can kick off a series of problems such as late fees, unfavorable terms from suppliers and lenders, and delayed shipment of goods.

It’s time to go paperless. By eliminating manual data entry and piles of paper invoices, your accounts payable team can solve costly problems such as slow processing time and high error rates. Electronic invoices and payments can be automatically imported into accounting software, optical character recognition (OCR) can scan and digitize remaining paper invoices, and software can track the end-to-end process of accounts payable with ease.

3. Problems Scaling

“Our business is growing, but we don’t have the resources to hire another employee.”

We hear this one a lot. Growth is a really good thing, but a common side effect for rapidly expanding companies can be a lack of resources to support their growth. Many AP professionals don’t have the bandwidth to spend time manually processing more invoices and making payments.

In addition, processing invoice exceptions (due to incorrect, incomplete, or non-matching information) manually often requires several follow-ups and resolutions from multiple parties within the department. Discrepancies occur often and can be time-consuming to resolve. All of the time spent solving invoice exceptions, handing supplier inquiries to resolve issues, and tracking down missing information is time that your AP team could get back to focus on value-added activities for your business.

There are solutions for every problem described in this list, and the common factor in all of these solutions is automation. Automating your accounts payable process will improve its quality, accuracy, and speed. 

If your business is scaling, it’s important to begin identifying problems and processes that might seem manageable today but might crumble beneath the pressure of higher invoice volume tomorrow.

4. Physical Document Storage

Businesses without electronic document storage rely on filing cabinets and banker boxes filled with paper invoices. In the digital age, your finance departments shouldn’t be digging through paperwork to track down invoices.

The fact that relevant documents are often produced in a variety of systems and formats, from a range of sources, and are often physically stored inside of a room filled with filing cabinets leads to several problems for accounts payable — including rising storage and labor costs, and unnecessary difficulty in tracking documents and performing audits.

AP automation software can help to manage this crucial aspect of the accounts payable workflow by storing all documentation in one central location. A fully automated process also encompasses routine steps such as receiving invoices, coding, approval routing, payment, and reconciliation. By integrating your new accounts payable automation software with your business’s ERP (Enterprise Resource Planning) and other core business systems, you can ensure that all systems operate from the same data, facilitating crucial financial reports and analysis.

5. Duplicate Invoices

Was this invoice processed already? From our conversations with customers and prospective clients, we know that AP managers are asked this question far too often. To make matters worse, AP departments that use manual processes tend to have little visibility into the status of invoices and are unable to answer these questions.

Duplicate payments can occur for a number of reasons, many of which are related to manual data entry. Discrepancies in manually entered supplier information, invoice amounts, or coding can cause a single invoice to be paid twice.

The solution to your business’s double payments and accounts payable problems at large is accounts payable automation software. AP automation software can be used to codify efficient processes and workflow and automatically route invoices to the right department head at every stage of the AP process. Every accounts payable team should have a defined workflow that includes recording invoices, matching them with POs (Purchase Orders), approving invoices, and scheduling payments. A defined and streamlined accounts payable process reduces the likelihood of the same supplier invoices routing through multiple channels, of data entry errors, and lost invoices — all of which are opportunities for duplicate invoices. AP automation solutions, like MineralTree, also offer duplicate invoice detection.

Final Thoughts

Clearly, accounts payable managers and their teams juggle a myriad of problems and pain points due to disorganized AP processes and outdated systems. However, the solution to reducing these inefficiencies and discrepancies is by streamlining accounts payable processes with AP automation.

Are you feeling these pain points? If so, it might be time to consider automating your accounts payable process to eliminate them, save time and energy, and begin contributing to the more strategic initiatives that fuel your business.

Ready to see what your team would look like with AP Automation? Schedule a demo to see how MineralTree’s AP Automation solution can streamline your accounts payable processes.

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MineralTree

We're transforming accounting by automating Accounts Payable and B2B Payments for mid-sized companies. Our award-winning solution has helped over one thousand businesses transform accounts payable from a source of inefficiency and fraud risk to a secure and strategic profit center that provides visibility into key cost drivers.