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The Future of Finance: Tackling the Evolving Accounts Payable Challenges in 2023

Accounts Payable Challenges
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In the intricate world of financial management, accounts payable plays a pivotal role in ensuring the smooth operation of businesses, particularly in larger organizations. Maintaining a healthy cash flow and fostering strong vendor relationships are paramount to success. Yet, the path to achieving these goals is riddled with challenges that accounts payable teams must navigate daily. Ignoring these accounts payable challenges can have dire consequences, leaving businesses vulnerable to disruptions and strained supplier connections. 

One prevalent challenge faced by accounts payable departments is the absence of a matching purchase order when an invoice arrives. This mismatch can trigger a cascade of complications, leading to delays in payment processing and potential disputes with vendors. Similarly, the perplexing situation arises when a late invoice notification is received, but no recollection of the original payment request exists. Failing to address these issues promptly can disrupt operations, tarnish the reputation of the business, and jeopardize essential supplier partnerships. 

According to IOFM: here are few statistics which shows how big the AP challenges are:

  • Only 24% of businesses that manually process fewer than 20,000 payments per year pay all their purchase order-based invoices on time.  
  • Companies that manually process fewer than 20,000 payments per year have a median cost per invoice of $15.97. Those that use automation have a median cost per invoice of $12.98.  

These issues arise due to manual invoice processing, incompatible systems, and limited resources. In addition, they can adversely impact businesses by resulting in unnecessary late fees, vendor supply issues, and credit problems. 

Top Accounts Payable Challenges:

Replying to supplier queries 

Did the supplier send their invoice by mail, email, or fax? Who was it addressed to? Did they not receive it, or is it sitting on their desk waiting for approval? Manual AP processes often result in lots of finger-pointing between the AP manager, purchaser, and supplier. 

In addition to this, with increasing volumes of invoices and supplier queries, the AP team can often get bogged down with manual processing of invoice-containing emails, leading to additional costs, missed replies, and slower response times. 

Zycus AP Smart Desk connects to and manages your AP email inbox, automatically checking, processing, and simplifying response processes.  

The solution automatically suggests relevant replies to supplier query emails, making life easier for the AP team. 

Lengthy manual processes 

If your office still relies on paper-based processes, consider the number of hands an average invoice passes through before it is finally approved for payment. Each person involved increases the risk of errors or lost documents, causing delays in processing. Slow processing times often result in late invoices and disgruntled vendors continuously inquiring about payment status. Not only does this extended processing period incur costs for office supplies, but it also requires additional labor hours for manual invoice handling. 

To alleviate these challenges, Zycus Invoice Extraction leverages the power of Merlin AI to automate the extraction and organization of invoice data. By reducing the need for manual effort, this solution boosts the productivity of your accounts payable team and significantly accelerates average invoice processing speed by over 50%. With Zycus Invoice Extraction, you can streamline your accounts payable processes, mitigate errors, and enhance overall efficiency while saving valuable time and resources.

Duplicate Invoices 

AP managers frequently find themselves bombarded with a recurring question: “Has this invoice been processed already?” This query arises all too often during our discussions with customers and prospective clients. Compounding the issue, AP departments that rely on manual processes often lack visibility into the invoice status, leaving them unable to provide a definitive answer. 

The risk of duplicate payments looms large, primarily due to errors inherent in manual data entry. Discrepancies stemming from manually entered supplier details, invoice amounts, or coding can inadvertently result in a single invoice being paid twice. This unfortunate situation underscores the importance of streamlining and automating AP processes to mitigate the occurrence of duplicate payments. By leveraging technological solutions, businesses can minimize the risk, enhance accuracy, and gain better control over their invoice management, fostering greater financial efficiency and vendor satisfaction. 

Processing Non PO Invoices 

While many companies implement “No-PO, No Pay” policies in an effort to streamline their accounts payable processes, non-PO (purchase order) invoices continue to persist. The presence of non-PO invoices is primarily attributed to certain purchases that do not necessitate a purchase order. For instance, small one-time expenses like office supplies or repairs may not require the creation of a purchase order. 

Surveys conducted by the Institute of Finance and Management (IoFM) reveal that non-PO invoices constitute approximately 47% of the total invoices received by enterprises. This substantial percentage underscores the prevalence of non-PO invoices in business transactions. Moreover, another institutional study discovered that 27% of companies have policies in place where purchase orders are not required for transactions below a specific dollar amount.  Know more about processing Non PO invoices

Missed discounts 

Manual processes in organizations often lead to limited visibility into invoice statuses, creating a higher risk of duplicate payments. When invoices are processed and paid more than once, it can significantly increase operational costs and result in unnecessary cash outflows. Unless the accounts payable (AP) department identifies the duplicate payment promptly and takes appropriate collection measures, there is a high likelihood that the company will incur permanent financial losses. 

Exception Invoices and manual follows up 

In an ideal scenario, suppliers would consistently send perfectly accurate invoices for every business transaction. However, the reality is that suppliers, like any other company, are prone to mistakes, human errors, and inefficiencies. When invoices contain incomplete or incorrect data, it creates exceptions in your system, leading to delays and uncertainty. In such situations, your staff often spends days following up and seeking clarification on how to proceed. 

The inefficiencies caused by these exceptions can disrupt the smooth flow of your accounts payable processes. They introduce additional manual work, prolong the payment cycle, and hinder productivity. Consequently, valuable time and resources are wasted as your team strives to resolve these issues and determine the appropriate course of action. 

Risk of fraud 

Accounts Payable as a function is highly susceptible to fraud and anomalies. According to the Association of Certified Fraud Examiners, organizations lose an estimated 5% of their annual revenue to fraud, with the majority of these cases happening in the AP function. Some of the common anomalies and frauds that affect AP functions, include: Phantom vendors, Business Email Compromise and Anomalies in buying pattern. 

Non Compliance with regulations 

Adhering to local tax compliance is a crucial aspect of accounts payable automation, especially in the era of e-invoicing. In many countries, including the United States, the European Union, and Australia, tax authorities have implemented regulations and guidelines for the processing and storage of electronic invoices to ensure their authenticity and compliance with tax laws.

Delayed payments to vendors 

The accounts payable process is plagued by the significant challenge of slow and inconsistent processing. Manual handling of invoices is not only time-consuming but also drains the energy of employees, particularly in large enterprises dealing with a high volume of invoices each month. 

The repercussions of delayed processing extend beyond just internal inefficiencies. Late payments lead to additional costs in the form of late fees and missed discounts on early payments, potentially resulting in substantial financial losses ranging from thousands to millions of dollars. Moreover, late payments erode the trust between organizations and their vendors. This loss of trust can strain vendor relationships, causing delays in the delivery of essential supplies and impeding the timely resolution of payment and delivery-related issues. 

Implementing AP automation solution 

Implementing an AP automation solution is the key to addressing all the pain points mentioned above. By leveraging AP automation, businesses can overcome challenges associated with manual processes and human errors. AP automation significantly speeds up invoice processing and payment cycles, efficiently handling various formats of incoming invoices while ensuring consistent processing. AP teams can swiftly and accurately extract information from vendor invoices and retrieve relevant documents with just a few clicks. Leading AI-driven AP automation solutions like Zycus offer the ability to extract data from invoices, input the data into an ERP system, match invoices with purchase orders and goods receipts, and streamline the approval and payment process. 

One of the significant benefits of AP automation is the accelerated approval cycle achieved through the establishment of streamlined approval workflows. The system automatically sends out purchase requisitions for approval by the AP supervisor, reducing the time required to obtain approvals and complete vendor payments. 

Furthermore, AP automation eliminates the need for manual record-keeping, as all records are digitally stored. This not only saves physical storage space but also mitigates the risk of loss or destruction of important documents. Additionally, AP automation strengthens fraud prevention by allowing the setup of custom controls and providing notifications for any suspicious invoice activity. 

By embracing AP automation, businesses can optimize their accounts payable processes, improve efficiency, enhance accuracy, and reduce the risk of errors and fraud. The result is a streamlined and more secure AP function that enables organizations to achieve better financial control and maximize their operational effectiveness. 

The Zycus AP Automation Solution targets holistic AP transformation and leverages the AI/machine learning capabilities of the Zycus Merlin AI platform. Key features and capabilities of the Zycus AI-led AP Automation Solution include: 

  • Time and cost savings: A template-free approach that delivers improved rates of  straight-through processing with high accuracy and relatively low total costs of ownership (TCO) 
  • Better supplier communications: Automated email review and reply via AP Smart Desk that improves supplier satisfaction and strengthens buyer-supplier relationships with faster response times and no missed emails 
  • Anomaly and fraud detection: Identification of potential fraud cases (duplicate invoice, phantom supplier, etc) plus safeguards against phishing and spoofing 
  • Global compliance: Consistent and up-to-date support for compliance around invoice content, e-invoice, and tax regulations. 

Related Read:

  1. Blog – AI-led AP Automation for Anomaly and Fraud Detection
  2. Blog – Accounts Payable Challenges: How to efficiently process non-PO Invoices?
  3. Top 8 Dynamic Discounting Features
  4. Three ways AP automation can help organizations reduce costs
  5. White Paper -Finance System Strategy as part of Post Modern ERP Strategy
  6. White Paper – Accounts Payable Cheat Sheet for Detecting and Preventing Supplier Frauds
  7. Blog – Why the Accounts Payable Turnover Ratio Matters for Your Business
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