Accounts Payable Software

There are only two ways to increase the bottom line - increase sales or control expenses. Accounts payable is the last chance to control expenses prior to money going out the door. Adequate software is a critical part of ensuring expense management success. This guide provides a practical how-to for selecting the right AP software to cut unnecessary costs and create efficiency in payables processing.

This guide will help provide information on the following topics:

What Is Accounts Payable Software?

Accounts payable software provides the ledger and related software functionality for managing money owed by an organization to creditors. It provides a coordinated system for ensuring AP automation for tasks such as invoice processing, payables approvals, and executing payments.

Key financial benefits include:

• Decrease labor costs related to paying expenses through automation
• Avoid late payment penalties & take advantage of early payment discounts
• Free up cash for interest earning positions or other business uses of capital by better timing of payments
• Identify cost-cutting opportunities in corporate spending through better categorization, accountability, & visibility for expenses

Accounts Payable can also be used as a subset of a larger accounting software. The module ties in closely with other core accounting modules, such as accounts receivable and a general ledger.

Key Features

Benefits

• Complete AP Automation. Having your AP software processes completely automated will help save time, increase accuracy due to less human error, offer real-time monitoring controls for greater control, and streamlined processes that will let you focus on having better record keeping.
• AP automation helps drive down cost. AP reports providing information on how much your firm is buying and from whom. This provides you with the information needed to negotiate with vendors for better payment terms and purchase price. This also helps you decide whether to consolidate purchases to fewer vendors and gain price breaks or move purchases to alternate vendors if better pricing or terms are available.
• The right software can improve your payables efficiency. Strong AP software improves your staff efficiency by reducing the time needed to issue checks and prepare month/year-end reports, reduce payment errors including duplicate payments and eliminate vendor late fees. Reduced errors mean less time spent making corrections.
• Reporting features in payables programs can help dramatically improve your cash management capabilities. Strong accounts payable software improves your cash management by helping decide when you should pay an invoice. Some vendors offer discounts for early payment, accounts payable software tells you if it’s better to make the payment now and take the discount or hold the payment for a later time. Scam artist abounds, accounts payable software helps to determine the legitimacy of vendor invoices. And during hard times, accounts payable software helps you to negotiate with vendors so you can pay bills on a schedule that is more in sync with your incoming cash.
• Improved vendor relations are a frequent outcome of better accounts payable software capabilities. Many accounts payable solutions now include support for ACH (Automated Clearing House) payments. ACH payment processing reduces the time spent and the cost of physical printing checks and mailing checks. Companies also use ACH or other forms of electronic payment to reduce instances of fraud and errors. ACH and electronic payment options are examples of how accounts payable software can reduce your costs.

What Does Your Business Need?

Accounts payable software provides tools to help drive down costs, increase productivity, improve cash management and improve vendor relations. Understanding the software options is critical to finding the best software program for your use.

Managing expenses is a task that every business, government agency, church, non-profit, or school faces. The size of your organization, your existing information system environment and your particular functional requirements will determine which AP software option is right for you. In fact, in most cases, accounts payable functionality will be part of a larger accounting or ERP system. Understanding your options in terms of which payables solutions are right for your needs can help you make the right call on a full accounting or ERP system.

• New buyers and small businesses: SMBs can save thousands annually on accounts payable by taking advantage of interest-earning opportunities via timing payments, taking advantage of early discounts, avoiding late payments, paying vendors by their preferred method, and eliminate unnecessary administrative and processing costs.
• Existing AP software users desiring additional functionalities: The biggest decision a company in a position to upgrade systems will need to make (in regards to accounts payable) is, how in-depth do you need the software to go? Will an AP module in my accounting package do the trick? Or are my AP processes so involved, I may need to consider a standalone?
• Large enterprises: Companies with a high level of accounts payable (or a large amount of money owed to suppliers) will want to ensure they have a high level of reporting that can be provided from their AP solution. This is because investors in a company will look at AP figures to calculate insightful financial ratios. This debt-ratio will help you understand a company’s strength and weaknesses and any strategies they may have. Usually, big companies will use AP automation to manage debt, and see how this debt will affect the future business life cycle. A company with a high amount of debt isn’t a bad thing if they have a game plan for how to repay said dead. Simply put, a company with high debt may just mean that the business is putting to action goals they have established.

Popular Accounts Payable Software

• AP Center (pictured above) is a web-based accounts payable automation software from ICM. This is an example of a stand-alone AP solution that provides you with the ability to look at pending approvals, open invoices, and easy ways to configure workflow across your staff. It also allows for access over almost any device given its cloud presence.
• Tipalti is a solution more focused on automating the partner payment methods of its users. It offers global payment options to send payments to any country in the world and allows for foreign currency conversion. Payment methods include wire transfers, ACH, prepaid debit cards, PayPal, and more. The software aims to reduce a company’s accounts payable workload by 80%.

Using Quickbooks?

Accounts Payable is one of the core functionalities included with any version of QuickBooks. QuickBooks allows AP workflows to be input through two workflows:

1. Purchase order > Receive inventory > Enter bills against inventory > Bill payment
2. Enter bills > Pay bills

Factors to Consider

Entering records and check printing

The most fundamental part of the payables process is recording the entry and cutting the check. The level of automation at this stage will surely have consequences in terms of the time you spend managing your accounts payable. When considering different accounts payable options, you’ll want to evaluate how different payables options provide you the ability to populate check fields, schedule batch check prints, and prepare the actual mailing of these payments.

Reporting

There are many important reports in accounts payable. The ability to report on your accounts payable entries can have a significant impact on helping you to tighten your cash flow. For instance, if you discover you’ve been assessed interest charges by a vendor, you’ll want the ability to report on which payables have caused the charges. The amount of data available in these types of reports will be critical in helping you to quickly determine why the charges have occurred, the responsible parties, and how to avoid similar costs in the future. At a minimum level, you’ll want to create reports based on expense type, due date, payment date, payment period, payment status, internal source, and vendor. Perhaps most importantly, your accounts payable module needs to clearly show you which payments have been made, which have been made but have not yet cleared, and which have been processed.

The master vendor list

Your accounts payable module will not only track individual payments but also provide you with an ongoing vendor database. The vendor list will need to be able to track information such as contact info, addresses, vendor terms, and other data. The precise way that each software package handles the vendor list will vary. You’ll want to make sure that the software supports all the vendor information you need to keep on hand. For instance, you may have a pre-established convention for setting up vendor codes. Does the software support the necessary number of characters and digits your codes require? The vendor list should also be easily sorted and exported for printing.

Purchase order and invoice reconciliation.

Your accounts payable software should include controls to identify the authenticity of each payment. No one likes to think they’ve lost money through errors or fraud, but audits often turn up evidence this has happened. Associating each payment record with the original purchase order and/or the vendor bill helps reduce errors and fraud. Your software package should eliminate unauthorized payments specifically by reconciling invoices and PO’s with the corresponding AP entry.

1099 reporting (US)

Throughout the year, it’s likely that you’ll make non-payroll payments to non-corporate entities at some point. As the payee, you are responsible for providing the 1099 tax form. Your AP module should allow you to flag these payments and create the necessary paperwork.

Integration

Accounts payable transactions don’t occur in a vacuum; they’re part of larger business processes. Most importantly, your Accounts Payable module should efficiently deliver the payables ledger information regarding current liabilities to the balance sheet located in the general ledger. In many integrated accounting systems, this happens in real time. If for some reason integration isn’t possible, make sure the Accounts Payable module exports data to the general ledger in a format that it can interpret. Another key integration point is with the purchase order module. Integration with the Purchase Order module is important as both Accounts Payable and Purchase Order processes benefit from mutual access to the master vendor list. Bank reconciliation capability functionality may also be contained in its own application. If this is the case, integration is critical to identify which payments have been made and to reconcile the Accounts Payable and bank records.

Alternate payment methods

Many accounts payable solutions now include support for ACH (Automated Clearing House) payments. The advantage of using ACH payments is that it reduces the cost of physical printing checks, mailing checks, and leads to a quicker turn-around in completing transactions.

Payment planning

The payment terms for different vendors vary greatly. There can also be an advantage to keeping cash on hand, potentially earning interest, until payment is actually required. Conversely, it can be beneficial to make early payments if there is a financial incentive for doing so. Some accounts payable software provide the ability to identify upcoming payments and when it is most beneficial to make the payment and take advantage of cash discounts offered by your vendors.

Advanced reporting

The level of reporting functionality will vary greatly between different solutions. Not all accounts payable packages will include the functionality, but the ability to customize fields, report using complex instructions, and create graphical reports can create additional efficiencies.

Rebates and vouchers

Accommodating the payment of funds that may or may not actually be cashed, creates a unique accounting challenge. Certain accounts payable modules will provide specially developed tools to manage these transactions.

Common Pain Points

Small businesses should make sure their software can handle the volume of invoices they deal with each month, as well as save the necessary data on the vendors they have a relationship with. Starting out, you may just have a few invoices here and there for just a few vendors, and you’ll likely need to only save basic contact details about the vendor. But a growing business will soon realize that their AP system might not be able to handle the volume of records they are keeping in it, which means you’ll have to upgrade the system for more storage, pay for data backup services, or simply delete historical data.

• Converting to automatic digital systems from manual paper methods. A recent report found that companies process an average of 290,667 invoices each year, 58% of these invoices arriving by U.S. mail. A company using a manual AP system may pay up to $35 more to process an invoice compared to companies with automated processes.

• Accounts Payable Fraud. The Association for Financial Professionals found that 74% of surveyed organizations in 2016 were victims of payments fraud, which has grown from 61% back in 2013. This makes it just as important as ever to spot fraudulent accounts payable activity before it spirals out of control. Some preventative measures you can take to reduce your chance of fraud in your accounts payable area are: convert payments to electronic methods, reconcile checking accounts promptly, keep any paper blank check stock under lock and key, introduce a centralized check writing review process, and have two separate individuals handling check writing and reconciliation.

Market Trends

• The emergence of cloud technology. Progressive IT teams are much more in favor of cloud systems that do not require monitoring of a vast amount of physical hardware. Deployments become far simpler, and automatic updates allow you to have the most up to date solution possible.
• Integrated AP automation solutions vs stand-alone (best-of-breed). Integrated AP solutions are the more convenient option for a company to use. Typically the module is included with most core accounting packages and will sync in with any accounts receivable or general ledger tools in use by the program itself, to perform necessary checks and balances. However, with the emergence and popularity of cloud solutions, stand-alone AP solutions have become a much easier solution to implement. Stand-alone solutions typically offer more in-depth functionality as they don’t have the restrictions of needing to match with other records in AR or have to have automatic postings to a GL. Rather, reports and dashboards can be created within the AP automation program itself. With an easier solution to implement, companies are beginning to take advantage of the additional functionalities provided by a best-of-breed AP automation solution that will help their AP staff save time and be more efficient.
• The demand to become a profit center. Many AP departments will be urged to take a proactive role in adding more value to their organization, which means finding ways to reduce invoice processing costs, earn rebates, take advantage of early payment discounts, and achieve a reduction in invoice processing time. All of these goals can be set by AP departments which will make you more efficient. AP Automation software is the leading driver in allowing a business to achieve these goals.