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Accounts Payable Automation for Manufacturing Industries

By Athena Rebello

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Updated on: Apr 8th, 2024

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11 min read

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Manufacturing companies often deal with many suppliers, sometimes reaching hundreds or even thousands. These suppliers provide essential components required for manufacturing products, as well as standard office and business supplies. This complex web of supplier relationships generates numerous purchase orders and invoices that must be handled. However, managing these invoices manually can quickly become overwhelming, leading to discrepancies and errors in the process. This is where accounts payable automation steps in.

In this blog, we'll delve into accounts payable (AP) automation for manufacturing industries and uncover how it can significantly reduce turnaround times, optimise processes, and cut costs.

What is the accounts payable process in manufacturing?

The accounts payable process in manufacturing refers to a crucial financial operation within manufacturing companies, and plays a vital role in managing the company's cash flow. The process involves receiving supplier invoices, matching them with internal records, getting the necessary approvals, and paying the bills on time. 

This process is overseen by the accounts payable team, whose main job is to carefully review and confirm that supplier invoices match the terms specified in the corresponding purchase orders. This review includes checking essential details like the items ordered, delivery dates, agreed-upon prices, and payment terms to ensure that they all match accurately.

Challenges of accounts payable in manufacturing

Accounts payable in the manufacturing sector face various challenges that can impact a company's financial stability and efficiency. Let's explore these challenges in detail:

Manual Processing

The accounts payable team in manufacturing often deals with many unstructured documents from various sources and formats. Many manufacturers in India also deal with small vendors, many of whom still provide hand-written invoices. Each document requires careful review, to prevent issues from arising down the line. Hence, manual processing can be very time-consuming and error-prone, hindering efficiency.

Fraud Detection

Payment fraud is an ongoing concern within financial systems, requiring accounts payable teams to remain vigilant in verifying documents and invoices. Manufacturing is especially susceptible to inventory fraud, leading to financial discrepancies.

Timely Payments

Ensuring timely supplier payments is critical for maintaining the company's reputation and securing early payment discounts. Manual processing often hampers this objective. 

How to improve the accounts payable process in the manufacturing industry?

Here are the steps you can follow to enhance the efficiency of the accounts payable process within the manufacturing industry:

Automate workflows

Automation is a game-changer in the manufacturing industry's accounts payable processes. Manual handling is error-prone and time-consuming, ultimately costing more. By automating, you save time and ensure greater accuracy. It accelerates invoice processing, reduces validation errors, and guarantees timely payments. Furthermore, it provides valuable insights into cost-saving opportunities and performance tracking, benefiting the entire organisation.

Manage invoices effectively

Efficient invoice processing is vital. Automation streamlines this process, ensuring bills are paid promptly while optimising cash flows. It allows you to organise and prioritise invoices based on due dates and terms, benefiting the entire supply chain by making operations smoother and more efficient.

Measure efficiency via KPIs

Automation enables effective benchmarking of your accounts payable processes. Key performance indicators (KPIs) such as cost per invoice, payment accuracy, on-time payments, captured discounts, Days Payable Outstanding (DPO), and error rates become more accessible to analyse. Automation platforms provide real-time insights and tools for enhancing these vital metrics, empowering everyone involved.

Strengthen fraud detection 

Manual accounts payable systems are vulnerable to fraud. Automation is the solution to fortify your defences. It introduces a stringent approval tracking system and maintains a transparent audit trail. Real-time status updates, error detection, and automated matching not only safeguard your organisation but also provide peace of mind for all stakeholders.

Undertake frequent and automated reconciliations

Frequent reconciliations are essential for financial integrity, irrespective of the type of industry. It prevents overpayments for undelivered goods and deters fraud. Automation streamlines the reconciliation process, saving time and money. It enhances your ability to identify variances and fraud more efficiently, improving transparency and data visibility. This enhanced visibility benefits reporting, analysis, and forecasting, enabling more informed decision-making.

In the manufacturing industry, particularly, automated reconciliations help identify missing input tax credit (ITC) on supplier invoices. By optimising ITC claims, businesses can reduce their GST cash payouts, thereby unblocking working capital in the process.

How does accounts payable automation transform the manufacturing industry?

Accounts payable automation has a significant impact on manufacturing companies:

Efficiency

With automation, time-consuming manual tasks are replaced by streamlined processes. This includes automating the matching of invoices to purchase orders, eliminating the need for manual data entry into backend systems, enabling electronic approval routing, and facilitating digital payments to vendors. These improvements make the accounts payable process faster and significantly more efficient, freeing up valuable time and resources for other critical tasks.

Visibility

Automation provides complete transparency at every step of the invoice-to-payment process. This means that any issues or discrepancies can be quickly identified and addressed. It also allows manufacturers to respond promptly to supplier inquiries about the status of their payments, fostering better communication and trust.

Scalability

Traditionally, scaling up operations often meant hiring more staff to handle the increased workload. However, with automation, manufacturers can expand their operations effectively without growing their workforce proportionally. This scalability allows them to adapt seamlessly to changing market demands and expand their supplier networks more efficiently.

Quality

Accounts payable automation for manufacturing industries eliminates the common errors associated with manual data entry. This improves accuracy and reduces the risk of lost invoices and payment delays, amongst other issues. Manufacturers can avoid late payment fees and maintain higher precision, contributing to enhanced quality in their invoice processing function and better overall financial management.

Conclusion 

AP automation for manufacturing industries is a game-changer. It simplifies and speeds up the accounts payable process, making it faster and more efficient. Manufacturing companies can save time, reduce errors, and handle financial operations better.

Also Read
Accounts Payable Automation for Retail Industries

Frequently Asked Questions

What is the accounts payable process in manufacturing?

In manufacturing, accounts payable is managing and processing supplier invoices. It involves verifying the accuracy of invoices, matching them with purchase orders, and ensuring timely payments.

What does an accounts payable automation tool do?

An AP automation tool digitises accounts payable processes using technology, replacing manual tasks. It streamlines invoice processing and payment, revolutionising how businesses handle their financial transactions.

What are the advantages of accounts payable automation in manufacturing?

The benefits of accounts payable automation include increased accuracy, cost savings, time efficiency, streamlined compliance, better data visibility, improved vendor relationships, and enhanced collaboration within teams, making financial processes more efficient and effective.

About the Author

A Chartered Accountant by profession and a writer by passion, my expertise extends to creating insightful content on topics such as GST, accounts payable, and invoice discounting.. Read more

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