How to make the collections process more efficient
Every organization needs to keep the cash flow going so their operations can continue smoothly without any delays or snags along the way. For this, you need to get paid by your clients for outstanding invoices and pay your vendors on time. However, there are several accounts payable problems that can affect this process. Then your cash flow dries up and limits you from operating as smoothly as you’d expected.
In this post, you’ll discover five harmful accounts payable problems that can cost your business. These issues can decrease the amount of first-time matched invoices, which increases the cost of invoice processing. You will need to find a way to avoid these problems if you want to save money.
1: Hassles Due to Human Error
Human error is one of the most common accounts payable problems, resulting in losses that could have been easily preventable. It is often associated with slow and inconsistent processing, lost invoices, poor data entry, and more.
You may have guidelines in place for your manual invoice processing. However, your employees might interpret the instructions differently or have their own way of taking a shortcut. This creates inconsistencies in your processing and leaves room for mistakes and confusion.
Manual processing is also time-consuming, which can cost you hundreds of man-hours that could have been spent on other important tasks within the organization. It leaves room for data entry errors as well. And you probably already know that even the tiniest mistake could cost you hundreds of thousands of dollars.
People could enter the wrong PO number or misplace a few numbers in a payable amount. This can be an expensive mistake, as you could pay for the wrong order, pay more than the actual cost, or pay double for the same order.
And if you’re still relying on physical invoices to keep track of your purchase orders, you’re at a high risk of misplacing and losing track of your invoices. You’ll have a hard time keeping track of due payments and fall far behind on your invoice processing.
What all this means is that human error can result in a lot of hassles that set your organization back and disrupt your cash flow. Yet 54 percent of organizations still enter their invoice details manually, according to a study by PayStream Advisors. Automating your invoice processing and data entry can solve all these major issues. In fact, AP automation can reduce your average cost-per-invoice up to five times.
2: Weak Security and Loose Fraud Controls
Since the accounts payable process involves money leaving your company, it’s a prime target for scammers. You may think you’re not susceptible to fraud-related losses, but you couldn’t be more wrong because fraud is more common than you think. According to a 2018 study by the Association of Certified Fraud Examiners, 29 percent of small businesses and 18 percent of larger organizations have been affected by billing fraud.
The study found that small businesses with fewer than 100 employees were even more susceptible to fraud because they are less likely to use a centralized AP solution. In fact, 22 percent of small businesses have been victim to check and payment tampering. They also lose twice as much due to fraud than larger organizations, with a median loss of $200,000 in 2018.
The most shocking finding is that among all of the instances of fraud in small businesses, 42 percent resulted from lack of internal controls. In the case of larger organizations, the number stood at 25 percent.
Your best solution is to invest in an AP system armed with features that can detect fraud on time. This includes features like:
- Transaction monitoring to identify unusual activities
- Access customization to allow file access to only certain individuals
- Chargeback protection to avoid double-paying duplicate invoices
- Account information masking so that only authorized personnel can view and edit the data
3: Auditing and Document Tracking Issues
Some AP departments may resort to batch processing to save time instead of processing several invoices in a row. While this seems like a great way to simplify the process of retrieving all your information from a single source, it actually causes a lot of issues with auditing and document tracking.
Batch processing creates a singular paper trail for all of your invoices instead of an individual paper trail for each invoice. This can be extremely problematic when you need to track down a single record. It also creates auditing hurdles as you don’t have a proper audit trail for each invoice.
So the auditing process can be time-consuming, not to mention that it makes you more susceptible to auditing errors. This means your business will be incurring losses in terms of man-hours and unwarranted penalties.
4: Inaccurate and Delayed Payments
Another major issue in accounts payable is delayed or inaccurate payments. This can be very problematic for your organization, as it could result in additional expenses that could have been easily prevented.
For one, you could miss out on early payment discounts due to delayed payments. While this may seem like an insignificant issue, several missed discounts could translate into thousands of dollars in missed savings. You might even need to pay a fine for late payments, resulting in additional expenses that you could have avoided.
Inaccurate payments can occur due to a small error in invoice data entry. Maybe someone misplaced a couple of numbers or added an extra zero by mistake. If so, you could end up paying a lot more than you’d initially expected.
According to the previously cited study from PayStream Advisors, a lengthy approval cycle is the biggest cause of late payments and missed discounts. Missing information on invoices, lost invoices, and manual invoice routing are other major causes. AP automation can help you avoid all of these issues.
You can significantly reduce your approval cycle by building approval workflows using a procurement automation platform like PurchaseControl. Using this workflow, you can reduce a lot of manual work and automate repetitive tasks.
The system will automatically send out your purchase requisitions to be approved by the concerned authority. This minimizes the time taken to approve invoices and complete vendor payments.
5: Difficulty Maintaining Excellent Supplier Relationships
Healthy relationships with your vendors can make a huge difference in your operations. No vendor likes dealing with a business that regularly makes late payments, delays billing approval, or is extremely difficult to contact. They may not necessarily stop doing business with you because they still need the money. However, their lack of enthusiasm to work with you can result in a lot of problems.
You may not get good service or quick resolutions in case of payment or delivery issues. You’ll hardly get a good deal out of your orders because the vendor may not be interested in giving you discounts. If it’s difficult to get in touch with your accounts payable team, the vendor may be equally difficult to communicate with.
All of this can result in a lot of unnecessary delays and cause you unnecessary losses in the form of bad deals and bad service. A good AP system helps you resolve this by processing invoices in a timely manner, avoiding late payments, and ensuring seamless communication with your vendors.
You can reduce all of these inefficiencies and discrepancies to a great extent when you implement streamlined accounts payable procedures. That’s why AP automation software is a necessity as it helps you with streamlined cash flow, regulatory compliance, and supplier relationships.
Written by: Gaurav Sharma
Gaurav Sharma is the Founder of Attrock, a digital marketing company. He works closely with top marketing influencers and has helped numerous brands, e-commerce firms, and SaaS companies grow.
He is also a certified Google Analytics and Google Adwords specialist and regularly contributes to reputable publications like HuffPost, TechCrunch, and many more. Connect with him on LinkedIn, Twitter, Instagram, and Facebook.