Is your organization getting all of the early payment discounts that it can? If so, you’re among only 33 per cent of organizations who are, according to a recent Paystream Advisors survey.
If not, there are a number of benefits to using an accounts payable solution including speeding up the invoice lifecycle, capturing early payment discounts, and providing savings of thousands, or even millions, depending on the size of your organization.
Our experience of working with over 1 million procurement and accounts payable professionals has shown us that there are five simple ways to ensure that you become one of the 33% who always capture early payment discounts.
Secrets to Capturing Early Payment Discounts:
Centralize Invoice Receipt
If not already in place, develop a formal policy that requires all invoices to be sent immediately to the AP department, and make suppliers aware of this policy as well. This prevents invoices from being held by the purchasing department or field approvers until after the opportunity of the discount has passed.
Procurement and AP Alignment
One of the most effective ways to begin seeing early payment discounts is to align your procurement and AP teams. Successfully working together from the discount negotiation process through to facilitation requires effective communication. AP can also have a hand in sourcing, a task normally left to procurement, by fuelling the process with insights into the budget and input on matters regarding the suppliers’ accounting team. Procurement and AP are also a great pair when it comes to spend analytics, as both have a part to play in ordering, approving, and making payments. In order to make this partnership work, both teams are encouraged to develop common goals and find a way to track progress together. As with any team, a focus on culture and team building will keep the collaboration healthy and beneficial to both.
Perfect Invoice Data Capture Process
There are a variety of ways that invoice data can be captured and entered into a finance system. The effectiveness of your process depends on determining which system works best for your organization based on a number of factors:
- How many invoices do you receive? If it is a low volume, then manually keying in the information may be a cost-effective solution for you. However, if you have a high number of invoices, it may be more effective from both a time and money standpoint to outsource the data capture process.
- What is the format of the invoices you receive? Electronic invoices are preferable, as they allow for the transfer of documents in a standard format. Paper format or PDF will require either manual keying or scanning so that they can be read by Optical Character Recognition (OCR) software, either in-house or from an outsourced partner.
- Finally, you should consider the type and amount of data you need to extract. Invoices with few line items can be keyed in manually. However, if there is a lot of necessary information on the invoice, OCR may be the most accurate way to capture it.
Automate Invoice Matching
Automated three-way matching is a way that organizations can match a large number of their invoices. It acts as a “handover” from procurement to AP, matching line item data from the purchase order, the goods received note and the invoice. Automating the matching of line item data allows the invoice to move through the AP process without any information needing to be manually entered or checked. This saves the time of AP staff and prevents errors.
Automate the Invoice Approval Process
In a survey by PayStream Advisors, AP professionals listed ‘manually routing invoices for approval’ as their primary challenge within the AP process.
Slow processing times not only create an unwise use of employee resources and increase the risk of human error through manual input but also can make you miss out on those early payment discounts.
Thankfully, AP teams have the ability to automate their approval process. Once decided, approval routes can be configured into your finance system to determine the path that an invoice needs to follow to become verified and approved. Leading finance platforms even offer the ability to verify and approve an invoice with one click from a mobile device, using email.
Through the optimization of some key accounts payable processes such as the ones listed above, you’re not only on your way to capturing early payment discounts, but you’re also avoiding late payments and penalty fees that arise through slow and inaccurate manual processes. Additionally, as PayStream notes, you’re also realizing better compliance with regulatory requirements and improved visibility over liabilities.
Considering that two-thirds of AP staff spend 1-8 hours a week resolving AP issues, such as tracking down paper invoices, an increase in employee productivity is also another bonus to optimizing the AP processes. In fact, optimizing the process allows many organizations to restructure their AP staff, reallocating staff from low-value tasks such as manual entry to more strategic positions. This places a higher value on the amount that the organization is spending on labour.