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What Is The Accounts Payable Process?
The accounts payable process plays a critical role in ensuring a business’s financial health and smooth operations. However, this process often faces challenges such as delays, manual errors, or high costs, negatively impacting business activities. Automating the accounts payable process is the optimal solution, helping businesses save time, reduce risks, and enhance financial management efficiency.
What Is the Accounts Payable Process?
The accounts payable (AP) process is a series of activities a business undertakes to manage and settle debts arising from purchasing goods or services from suppliers. This process ensures timely and accurate payments while optimizing financial management efficiency and maintaining strong relationships with partners.
Accounts payable refer to the total amount a business owes to suppliers, partners, or other related parties for transactions or services that have not yet been paid. These are current financial obligations arising from past events or transactions, which must be settled according to agreed terms.
Examples of accounts payable:
- A business purchases raw materials from a supplier with an invoice of VND 100 million, due within 30 days, but not yet paid.
- A business owes December salaries to employees, totaling VND 50 million, to be paid on the 5th of the following month.
- A business owes VND 20 million in value-added tax (VAT) to be submitted to the tax authorities.
How Does the AP Process Work? What Are Common Issues?
A more comprehensive AP process includes:
- Recording and sending purchase orders (POs) to suppliers.
- Receiving and verifying goods/services to ensure they match the purchase order.
- Receiving invoices from suppliers.
- Performing two- or three-way matching (comparing PO, receipt report, and invoice) to verify accuracy.
- Coding invoices and allocating them to appropriate accounting accounts.
- Approving invoices through various management levels.
- Making payments via bank transfer, electronic checks, or other methods.
- Recording transactions in the general ledger (GL).
Common issues in the accounts payable process:
- Data entry errors or purchase orders not aligning with actual needs, leading to transaction discrepancies.
- Discrepancies in the quantity or quality of goods/services, or missing receipt reports.
- Lost or misplaced paper invoices, with manual data entry being time-consuming.
- Errors in price, quantity, or quality; manual matching is slow and prone to mistakes.
- Incorrect allocation to accounting accounts, resulting in inaccurate balance sheets.
- Delayed approval processes due to multiple levels, causing bottlenecks.
- Late payments leading to penalties, duplicate payments, or invalid invoices due to lack of verification.
- Errors in the general ledger, difficulty retrieving records, and time-consuming manual management.
These issues not only increase operational costs but also affect relationships with suppliers and the business’s reputation.
The Importance of the Accounts Payable Process
An effective accounts payable process is essential for maintaining financial health and seamless business operations. According to IFOL, as businesses increasingly adopt digital solutions, 52% of AP teams still spend over 10 hours per week processing invoices, and 60% manually enter invoices into accounting software. With recent findings, understanding the time- and cost-saving benefits of AI in the accounts payable process has become more critical than ever.
- Efficient financial management: Ensures proper cash flow allocation, preventing supply chain disruptions due to delayed payments.
- Accurate record-keeping: Electronic records facilitate easy verification, reconciliation, and audit preparation, reducing the risk of errors.
- Building supplier relationships: Timely payments enhance credibility, opening opportunities for better terms or early payment discounts.
- Avoiding late fees and penalties: A tight payment schedule eliminates unnecessary costs.
- Fraud prevention: Modern AP processes detect anomalies like duplicate payments or fraudulent invoices.
- Cash flow optimization: Allows businesses to strategically delay payments to optimize working capital, supporting business expansion.
- Supporting scalability: Flexible payment terms attract new customers and maintain partner relationships, creating opportunities for new investments.
An effective accounts payable process not only improves internal efficiency but also enhances a business’s competitive position in the market.
How to Address Issues in the Accounts Payable Process
Automation is a vital solution to address challenges in the accounts payable process. Businesses can choose to automate specific steps or the entire process based on their needs. AFusion offers a comprehensive, end-to-end automation solution for accounts payable, seamlessly integrating with ERP systems via API without requiring changes to existing processes. With the ability to save over 80% of processing time and achieve 99% accuracy, AFusion helps businesses optimize efficiency, minimize errors, and focus on strategic activities. Below are specific solutions:
Automated invoice collection and processing:
AFusion uses an online supplier portal to collect electronic invoices, completely eliminating the need for scanning or manual data entry. The system supports invoice extraction from various formats like images, PDFs, and other documents, with multilingual processing capabilities (English, Vietnamese, Thai, etc.). AI technology ensures 99% accurate extraction, reducing errors and speeding up invoice data processing.
Smart matching:
AFusion’s AI technology automatically performs 2 way match and 3 way match (comparing purchase orders, receipt reports, and invoices), instantly detecting discrepancies in price, quantity, or quality. This ensures accuracy and reduces the risk of incorrect payments.
Automated approval:
The invoice workflow is automatically routed to the appropriate approver based on predefined rules, with reminder notifications. This feature reduces approval wait times, eliminates bottlenecks, and enhances efficiency.
Fraud detection:
AFusion’s AI analyzes data patterns to detect irregular or duplicate invoices, ensuring data security and protecting businesses from financial risks like incorrect payments or fraud. The system automatically sends real-time email notifications to clients when issues are detected, enabling quick resolution before problems escalate.
Scheduled payment reminders:
AFusion schedules and notifies timely payments, helping avoid late fees, capitalize on early payment discounts, and optimize cash flow.
Electronic storage:
All transactions are automatically recorded in the general ledger (GL) and stored digitally. Records are easily accessible, supporting efficient audits and minimizing the risk of document loss.
Detailed reporting:
AFusion provides fast cash flow and AP performance analytics reports, supporting strategic decision-making with accurate data. The system allows exporting reports to Excel from extracted invoice data, ensuring quick, user-friendly, and integrable reporting with other analytical tools.
| Process | Problems | Solutions |
|---|---|---|
|
Record and send purchase orders (POs) to suppliers
|
Data entry errors or purchase orders not aligning with actual needs, leading to transaction discrepancies
|
Automatically collect purchase order information, extract, enter, and process invoices, and notify when errors occur
|
|
Receive and verify goods/services to ensure they match the purchase order
|
Discrepancies in the quantity or quality of goods/services, or missing receipt reports
|
|
|
Receive invoices from suppliers
|
Lost or misplaced paper invoices, with manual data entry being time-consuming
|
|
|
Perform two- or three-way matching (comparing PO, receipt report, and invoice)
|
Errors in price, quantity, or quality; manual matching is slow and prone to mistakes
|
Smart automated two- and three-way matching
|
|
Code invoices and allocate them to appropriate accounting accounts
|
Incorrect allocation to accounting accounts, resulting in inaccurate balance sheets
|
Data automatically allocated after processing
|
|
Approve invoices through various management levels
|
Delayed approval processes due to multiple levels, causing bottlenecks
|
Automated approval, shortening the approval process
|
|
Execute payments
|
Late payments leading to penalties, duplicate payments, or invalid invoices due to lack of verification
|
Notifications and reminders for payment deadlines
|
|
Record transactions in the general ledger (GL)
|
Errors in the general ledger, difficulty retrieving records, and time-consuming manual management
|
Automatic electronic storage and report generation as needed
|
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