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Businesses have relied on paper-based accounting practices for centuries, which can make it tempting to stick with these tried-and-true practices. However, in the modern business world, adapting to new technologies is crucial for businesses looking to improve efficiency, reduce costs, and stay competitive.
This article will explore the evolution of accounts payable, from paper-based accounting to the digital revolution that has transformed accounting processes. We'll explore the challenges of traditional AP processes and the benefits of modern, automated solutions like ExpenseOnDemand, providing valuable insights into optimising AP processes.
Before modern-day computing, accounts payable and accounts receivable were completely manual processes. Accountants would record accounts payable (including trade payables from suppliers) by hand in paper ledgers.
Paper-based accounting was time-consuming and prone to errors, often leading to delayed payments which in turn could strain relationships with suppliers. In addition, paper documents were prone to loss and damage, causing accounting errors for businesses. Cash transactions were the norm during this time, and reconciling accounts could take days or even weeks to complete.
The introduction of computerised accounting systems in the late 20th century marked a significant turning point for accounts payable and all accounting processes. Even earlier digital solutions offered significant benefits, allowing businesses to store and process financial data electronically and reduce reliance on physical paperwork.
As technology advanced, the rise of digital invoicing solutions and electronic payments further streamlined the AP process, enabling faster, more accurate payments and improved cash flow management.
The traditional accounts payable process, which some businesses still use today, typically involves several key steps.
It begins with receiving supplier invoices, either by mail or email. The accounts payable department then manually verifies these invoices against purchase orders and delivery receipts to ensure accuracy. Once verified, the invoices go through a manual approval process.
After invoice processing, the accounts payable department will debit accounts payable and credit the appropriate expense account to record the transaction, creating a liability on the company's balance sheet.
When it's time to pay, the AP department processes payments, usually via bank transfer. Financial reporting and manual reconciliation ensure all transactions are accurately recorded and match bank statements.
While this process has served businesses for years, it comes with significant challenges. Manual data entry is time-consuming and prone to errors, potentially leading to duplicate invoices or overpayments. The lengthy approval process can result in delayed payments, straining vendor relationships and leading businesses to miss out on early payment discounts.
Limited visibility into spending and the time-consuming preparation of cash flow statements can also make it difficult to manage cash flow.
Computing capabilities have increased dramatically in recent years, and this means accounts payable processes have also improved significantly, with solutions like ExpenseOnDemand leading the way.
Digitisation has transformed paper invoices into easily manageable digital files. And with ExpenseOnDemand's AI receipt scanner, businesses can automatically capture and extract data from paper invoices, eliminating manual data entry. This technology not only saves time but also significantly reduces errors.
Where traditional methods rely on time-consuming invoice approvals, digitalisation has allowed businesses to setup automated workflows to approve invoices and payments in seconds. For example, ExpenseOnDemand's expense approval workflows ensure invoices are routed to the company's approvers immediately, ensuring fast verification and payment processing.
AP automation software can also integrate with other accounting software, allowing for seamless data flow between systems, further enhancing the efficiency of a company's accounts payable and accounting department.
Modern accounts payable solutions bring numerous benefits:
● Saved time and resources: Automating accounts payable can create substantial time and cost savings. For example, ExpenseOnDemand users report up to 95% reduction in expense processing time.
● Reduced errors: Improved accuracy and elimination of human errors can lead to better financial reporting, avoidance of fines for noncompliance, and more informed decision-making.
● Real-time visibility: Businesses can improve their cash flow management with real-time visibility into their accounts payable accounts. Automated audit trails and approval processes can result in stronger internal controls and compliance.
● Improved business relationships: AP automation tools can ensure timely payments to vendors, helping businesses maintain positive vendor relationships.
The future of accounts payable is poised for a dramatic transformation, driven by rapid advancements in automation and artificial intelligence.
In the near future, we can expect AI-powered systems that not only process invoices but predict and prevent accounting errors before they occur. Machine learning algorithms will be able to analyse historical data to flag potential discrepancies, duplicate invoices, or fraudulent activity with unprecedented accuracy. This proactive approach will significantly reduce the need for manual intervention and auditing.
We may also see the rise of "touchless" AP processes, where AI handles the entire lifecycle of an invoice, including invoice initiation, verification, approvals, and payment processing. Touchless AP processes work entirely without human intervention, only flagging exceptions that require attention.
As predictive analytics become more advanced and accurate, AP systems will be able to provide precise real-time insights into future cash flow based on current AP trends and market conditions. For businesses, this means more informed decision-making and strategic planning.
To stay competitive, businesses must embrace these technological advancements. ExpenseOnDemand leverages cutting-edge technology to simplify accounts payable management. With AI-powered receipt scanning, seamless integration with leading accounting software, and customisable expense approval workflows, the software is invaluable in streamlining AP processes.
By automating AP processes with ExpenseOnDemand, companies can also gain real-time visibility into their accounts payable, ensure compliance, and free up valuable resources for strategic financial planning.
Book a demo today to get started with ExpenseOnDemand.
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