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Strategy

How SMEs Can Optimize their Accounts Payable to Drive Down Back-Office Costs


by Catherine Dahl

By choosing the right solution, small and mid-size enterprises (SMEs) can optimize their AP, drive more revenue, and constantly keep their fingers on the pulse of everyday operations.

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When assessing operational efficiency, organizations of any size can often find existing bottlenecks waiting to be removed or smarter solutions to be applied. In the finance department, one of the greatest opportunities for improving efficiency is often in the accounts payable (AP) department. Manual, paper-driven AP processes that keep back-office costs high are common, especially for small and mid-size enterprises (SMEs). 

Considering that a recent Levvel Research study reported that eighty six percent of SMEs enter their data manually compared to only twenty two percent of enterprises, one such opportunity is placed directly in front of us. With precious time and money being wasted by not investing in automation, SMEs are likely to lag behind their more advanced counterparts. 

Accounts payable (AP) forms a large part of traditionally analog processes. By automating this important branch of accounting, SMEs can free up their working capital, bring more liquidity to funds trapped on their balance sheets to boost growth, streamline processes, and seek new investment opportunities. Added to that, automation minimizes human error and empowers staff to focus on more high-value tasks.

But while many SMEs still feel like their day-to-day priorities outweigh long-term strategies, it’s fundamental to understand that automating workflows isn’t modernizing just for the sake of it: It’s an actual step towards excellence and a stronger market position. In the case of AP, how can we advance automation in the most effective way?

Make a business case

For starters, SMEs need to understand that there can be a vast difference between the top and bottom performers. According to the same Levvel Research study, the most effective companies spend on average $2.36 to process an invoice, while those with more manual processes spend a staggering $15.00 more. AP costs can be cut down significantly by automation. 

But the majority of SMEs do not have an AP optimization strategy in place. Traditionally, the tools to optimize and automate these processes have predominantly been the domain of larger enterprises. However, automation technology nowadays has become more mainstream and applicable to the specific needs of SMEs.

It’s crucial that SMEs take a close look at their workflows and make sure they are mature enough for AP automation and select the best game plan for the process. There are many aspects to consider: Does your SME still handle everything on paper? How long does it take to process payments? How are invoices, bills, and other documents stored? And how easy is it to track information?

Having these insights is the best way to start building a robust business case. SMEs must have a well-researched map that tracks both existing processes and identifies clear opportunities for improvement. After all, the key stakeholders, from executives to main team members, must be on board with the strategy and need to understand and support the optimization. It’s crucial to address all doubts and demonstrate the benefits, including workflow flexibility, streamlined processes, and greater efficiency.

Find an automation solution that integrates with your ERP

The main premise of applying automation in the business environment is to simplify processes, not the opposite. That’s why when integrating AP optimization, SMEs need to ensure that the optimization doesn’t clash with their existing systems. 

Likewise, there’s no need to compromise on the Enterprise Resource Planning (ERP) in place. Instead, SMEs should look for a software solution that falls smoothly into their existing systems and complements them, rather than creating additional issues. When evaluating AP automation solutions, it’s important to consider how information flows between the two systems. A seamless integration can save significantly more time than manual importing and exporting. 

Identify a highly tailored approach

Yet, the primary concern for SMEs should be the functionalities of the platform. For example, it’s a common practice to pay vendors by checks – but not all distributed platforms may recognize this payment option. An important consideration is also how payments are held and distributed to vendors, as this can affect bank reconciliation. While the majority of platforms offer helpful features, the bottom line is that each SME needs to pick a solution that precisely fits its business needs. 

To do that, SMEs should prioritize based on their main goals. By determining what their company can afford, they can set a budget and carefully select the automation services. However, when collaborating with more providers, it’s crucial that the provided services don’t overlap. 

Automation for SMEs is no longer a merely unattainable future aspiration. With careful planning and ownership, it can become a tangible investment in the company’s future. As technology becomes more affordable than ever and with plentiful options on the market, what is there to wait for? By choosing the right solution, SMEs can optimize their AP, drive more revenue, and constantly keep their fingers on the pulse of everyday operations.

Catherine Dahl is the CEO of Beanworks.