Accounts Payable, traditionally operated independently, focusing primarily on processing invoices, making payments and managing vendor relationships. Compliance considerations, especially tax-related, were typically addressed in silos, often after the completion of the AP process. However, the introduction of GST has completely changed the scenario, making it one of the most crucial facets of the regime, as it helps in deciding the rightful input tax credits (ITC) to be availed. The need to claim accurate ITC has made it imperative for businesses to meticulously manage their AP processes.
Businesses under the GST rule must deal with many invoices. They spend considerable time on invoice management, specifically Accounts Payable. If your company is also going through the same thing and you are tired of manually processing invoices, it is time to transform your business through Accounts Payable Automation, the perfect solution to answer all your worries.
In general, accounts payable is a layered process for managing vendor or supplier invoices from receipt to payment. This process often leads to an inefficient environment if done manually. A smart AP automation solution uses technology to streamline the invoice process. It will not only save you time and money but also help avoid late payments.
Accounts Payable Under The GST Regime
Accounts payable is a critical business process and particularly under the GST regime its importance has grown exponentially due to its close association with claiming input tax credits. A high-volume business might receive hundreds and thousands of invoices per day, and the AP team may find it difficult to manage them manually. Only an organized AP system can guarantee all invoices due are tracked and paid properly.
Let’s understand how AP cycle of recipient gets impacted by the supplier’s compliance with government regulations.
Importance Of Supplier’s Compliance In AP
Every GST-registered business must file the details of all outward supplies made during the tax period on the 11th of every month in GSTR-1. Thus, all the invoices generated by a GST-registered business to another GST-registered business get reported to the government every month. Based on suppliers’ reported invoices, the government sends the purchase invoices for the recipient in form GSTR-2B on every 14th of the month. To claim accurate input tax credit, a recipient must reconcile the invoices on which he will claim it with his GSTR2B. Finally, the taxpayer based on outward supplies reported in GSTR1 and input tax credit available in GSTR-2B determines the final tax liability, pays the same and then files the GSTR-3B by 20th of the month. Post GSTR-3B filing due date, every recipient also needs to check if the payment of tax has been made by his supplier i.e. GSTR3B is filed or not. If GSTR3B is not filed by any supplier, then he needs to also reverse the input tax credit already claimed. The compliance status of the supplier has a dual effect, influencing not only the Input Tax Credit (ITC) but also dictating the release of payments; in instances of non-compliance, the recipient may either withhold payments or initiate appropriate actions.
AP automation solution uses technology to streamline the invoice process right from digitization of invoices to making automated payments to compliant vendors and blocking payments to non-compliant vendors as per business policies defined. It can not only save you time and money with minimal errors while recording the purchase entry but will also help you manage efficient payments thereby improving working capital.
Is AP Automation A New System That Is Difficult To Adopt?
You would be surprised to know that AP automation is not a new technique but has been around for years. It gained importance with the introduction of the GST regime, when businesses are required to manage numerous invoices at a time and match the same with government registers every month before claiming input tax credits.
However, many organizations are still struggling with their archaic and outdated system of processing invoices, entering invoice data manually, creating paper invoices, matching purchase orders, and filing interminably. Records show that manual invoice processing must go through almost 12-15 steps, depending on the company and industry. This process often leads to instances where invoices are either overlooked or inaccurately reported. Such occurrences frequently result in delayed claims of input tax credits, subsequently impacting the organization’s working capital. However, the implementation of Accounts Payable (AP) Automation solutions can significantly streamline this intricate procedure, reducing it to a more efficient 4-5 steps.
AP automation pivots on workflow automation from invoice arrival to payment. It streamlines the accounts payable processes by seamlessly inputting invoice data into the company’s ERP (enterprise resource planning) or accounts payable system, allowing quick payments to the supplier. This transformation enhances the management of working capital, contributing to increased operational efficiency and financial effectiveness.
Benefits Of AP Automation Under GST
Now, coming back to AP automation, what is imperative is a comprehensive transformation of the entire Accounts Payable cycle. The initiation of this transformation can be achieved through the digitization of invoices to overcome various drawbacks of manual processing of invoices, such as data entry errors, long turnaround times, and a lack of compliance. In this process, the invoice data fields are automatically extracted from the invoices and synchronized with the company’s existing ERP system. This process not only ensures the synchronization of purchase invoices in the books with the supplier’s reporting in their GSTR-1 but also significantly diminishes the occurrence of mismatch cases during Input Tax Credit (ITC) reconciliation. Such discrepancies often arise from fundamental inconsistencies in capturing invoice numbers. Another crucial step involves the automatic matching of purchase order-based invoices with corresponding purchase orders and goods receipt notes before formal recording in the ERP system.
AP Automation is a vital part of a company’s procure-to-pay (P2P) process and brings numerous benefits to an organization, including, faster processing of invoices, a reduction in errors, cost optimization, fraud prevention, improved compliance, and control. Most importantly, it also increases environmental friendliness with the reduced use of paper.
Top 7 Ways How AP Automation Can Help You Redefine Your Business Landscape
Whatever we have discussed so far is enough to establish the importance and benefits of AP automation over manual processing. Now, let us discuss 7 key factors of AP automation that can simplify your operation and change the business landscape under the GST regime:
1. Faster and smoother invoice processing
For a large business entity dealing with thousands of GST invoices, AP automation significantly reduces the turnaround time. It ensures the timely and accurate dissemination of information. The automated process can minimize the length and improve the productivity of the approval sequence while going through the AP system. Right from automatically extracting data from invoices and populating them into the appropriate fields in the accounting system to routing them for approval, everything is done with the highest degree of accuracy.
2. Cost optimization
AP automation can save businesses a significant amount of time and money. With manual invoice processing, businesses must allocate resources to process invoices, which takes up a lot of time. Automating the process eliminates the need for manual data entry, and businesses can process invoices faster and with fewer errors. An automated invoice processing system assures optimal use of human resources. The process is driven by AI (artificial intelligence) and modern data extraction technologies, the software can automatically capture data from invoices, and the system can match invoices with purchase orders and receipts. This reduces the time required to process invoices, and businesses can allocate resources to other tasks. This helps to reduce costs per invoice by a considerable amount. Not only does it reduce the processing cost, but it also reduces the cost incurred in addressing vendor disputes, as the process is end-to-end automated. The software can also identify duplicate invoices, which can result in overpayments. Automating the process can prevent such errors, saving businesses money in the long run.
3. Higher degree of security and fraud elimination
AP automation leaves little scope for confidential and sensitive business data getting leaked, which has a higher probability in the case of manual processing as invoices contain various crucial details. Automated processes can detect and prevent fraud by performing checks at every point of connection and conducting regular audits. It helps minimize the chances of getting scammed through fake invoices and duplicate payments.
4. Streamlined Vendor Management
AP automation can streamline vendor management for businesses. The software can capture vendor data, and businesses can track vendor performance. They can track the number of invoices received from each vendor, the time it takes to process invoices, and any issues with payments. This information can be used to evaluate vendor performance and negotiate better terms.
Automated invoice processing can also improve vendor relationships. The software can send automatic notifications to vendors when invoices are received, approved, or paid. This improves communication and reduces the need for manual follow-up. The software can also provide vendors with real-time visibility over the status of their invoices, reducing the need for manual inquiries. This overall helps in timely reconciliation and better ITC claim.
5. Fewer errors and better reconciliation
Manual processing of invoices is error-prone, as people are bound to make mistakes due to many factors and reasons. Even a small error can lengthen the whole invoice process significantly, since it must go backward in the validation route. AP Automation reduces the risk of incorrect data entry, and mistakes in the payment process. Similarly, in a manual process, reconciliation becomes a major issue, if disputes are not resolved when they arise.
As mentioned earlier, invoices recorded in ERP must match with GSTR-2B in order to claim input tax credit. Reconciliation can take days going by the manual process, which would result in a delay in payment and consequently in claiming ITC. But AP automation resolves the disputes instantly through automated supplier notification and through checks at every level of processing.
6. Valuable insights through real-time reporting
One of the most important advantages of using AP automation software is that it can provide clear visibility into the business scenario at any point in time. Organizations, big or small, need to have a clear picture of their financial position. An AP system can help plan future spending, model revenue streams, and design better growth strategies. The real time reporting makes it possible to gauge the actual status of the invoice approval, a crucial aspect of cash flow. It helps in assessing the healthiness of the business with ease. They can track the status of invoices, and the software can provide alerts for any delays or errors.
AP automation also provides businesses with greater control over their invoice processing. The software can enforce invoice approval workflows, ensuring that invoices are approved by the appropriate personnel. This reduces the risk of unauthorised payments and ensures that businesses comply with their internal policies and external regulations.
AP automation is scalable, and it can accommodate businesses of all sizes. Manual invoice processing can be difficult to scale as businesses grow. With manual processing, businesses have to allocate more resources to handle the increased workload. Automating the process eliminates the need for manual data entry, and businesses can process invoices faster and with fewer errors. This enables businesses to handle a larger volume of invoices without adding any extra resources.
In all, after the introduction of GST, AP automation is coming out as a game-changer for businesses. It can streamline invoicing processes, eliminate manual data entry, improve data accuracy, enhance security, and increase efficiency leading to better GST reconciliation and higher ITC claim in same monthly cycle. As the business landscape becomes more competitive, businesses that embrace AP automation will find it easier to scale and comply efficiently at the same time.