After years of payments mysteriously disappearing or accumulating late fees from missing vendor's due dates, accounts payable departments are finally getting serious about figuring out how to create a plan that will improve accounts payable efficiency. Most companies believe they need to quickly streamline their process with an Accounts Payable automation solution and not worry about budgeting or evaluating the impacts on their goals. Outlining company goals, your current budget, and cash management in the present and past all effect how successful you'll be in increasing your Accounts Payable efficiency and implementing invoice processing and payment automation. This is something your business needs to plan for not sometime next year but this quarter. Let us explain why.
What goes into an Accounts Payable budget?
It goes without saying that in order to make the most out of your business's Accounts Payable budget, you need to understand the factors that blend to create this important part of the purchase to pay process. But what are those factors? Capital asset budget, cash collections schedule, cash payments schedule, cash budget, and budgeted balance sheet.
- Capital asset budget - A budget that reflects the business' plans to invest in certain assets for a long period of time.
- Cash collections schedule - The schedule that tells a company when it can expect to receive cash from a customer.
- Cash payments schedule - When a company will pay cash for direct material purchases according to an existing schedule.
- Cash budget - A budget estimating the company's inflows and outflows all together.
- Budgeted balance sheet - Projection of what the company thinks its assets, liabilities, and equities will be at the end of the year based on their targeted performance goals.
While cash collections schedules, cash payment schedules, and budgeted balance sheets are all pieces of the Accounts Payable budget and matter for your business, capital asset budget and cash budget affect whether the expense is realistic to add to your firm's debt this quarter or if you will need to wait until next year. Let's talk about why cash budget and capital asset budget are so important to Accounts Payable in a little more detail.
Capital Asset Budget
Capital budget is the main budget you want to pay attention to when determining how Accounts Payable automation will fit into your budget. That's because the capital budget evaluates whether a project is going to add value to the business long-term. Enterprises often consider the performance of their production as a project to invest in, that's where Accounts Payable automation fits in. Once the firm decides that it wants to consider investing in Accounts Payable automation, the capital budget will help them determine if the current and future costs of this major purchase will be worth it. The capital asset budget is an ongoing evaluation because the firm has to use it for the entire or most of the quarter to get an accurate forecast of cost savings.
Cash budgeting provides a quick overview of how much cash your business currently has to spend. Cash budgets are prepared every month and sort through a year to two years’ worth of expenses you know will come up or you plan to add. That way, you can avoid a cash shortage and pay your yearly debts without stress. This is great news when you're trying to estimate the affordability of Accounts Payable automation for your company this quarter and beyond. Bottom line, your cash budget gives you accurate information on how much money you can spend before you accidently break the bank with any type of expense.
Once you have a clear idea of the individual aspects of your Accounts Payable budget, specifically the capital asset budget and the cash budget, you can look at how implementing smart technology to automate the entire invoice to payment process for your company will benefit your budget with goals that are specific, attainable and timely.
How to Determine if Automation Will Benefit Your Accounts Payable Budget with SMART Goals
Understanding which part of your accounts payable budget is only half the battle. Something else to consider is how your goals reflect the need for Accounts Payable automation software and positively impact you. Your goals can include the inefficiencies in production and financial health of your company.
What exactly are SMART goals?
SMART goals give accounts payable departments a clear direction and understanding of the level of success they want to reach by a certain time period. Additionally, the goals are Specific, Measurable, Achievable, Relevant, and Timely hence the SMART acronym.
Before you formulate your Accounts Payable goals, you need to know the AP department's pain points and where the current invoice processing and payment workflow is lacking or succeeding to have a smoother transition to the Accounts Payable automation system and the problems you want the system to solve.
The most common pain points for businesses and employees for the invoice processing and payment workflow are:
- Too much paper (ie. paper invoices)
- Data entry errors
- Long cycle times
- Losing documents during the Accounts Payable process
- Complex systems that are one size fits all
- Sending late payments and receiving late fees
Now that you have an idea of your pain points and your budget, we're going to give you an example of a SMART goal. Our first example will be solving long cycle times. Only saying "long cycle times" is vague. To make this goal more specific, we would say "reduce long cycle times." This tells us the area in our Accounts Payable process we're targeting and "reduce" makes it actionable.
Next, we need to make "reduce long cycle times" measurable and time bound. In this case, we're going to measure the progress using a percentage and specify the amount of time we need to achieve this goal. For example, "reduce long cycle times by 10% within the first 6-months of using invoice processing and payment automation for our Accounts Payable process."
We know that this is achievable because our objective is straightforward and a defined completion date. It is also relevant to our Accounts Payable budget because we will reduce late fees and increase speed for the Accounts Payable department. Yooz's state-of-the-art Accounts Payable automation solution can reduce their cycle time up to 20% because its smart workflows and YoozMobile app make it easy for departments to share and receive documents and invoices with each other to get them instantly approved. Anytime. Anywhere.
Another example of goals of automating your invoice and payment process benefiting your budget could be in reducing the late payment fees incurred and even cashing in on early payment discounts from vendors. By reducing the cycle time from days to hours with an automation solution many Yooz customers are able to increase their on-time payment percentage to 90% of invoices being paid on time. With some vendors this can qualify you to receive a early-payment discount. Not only would you be avoiding late fees but you could be saving the company additional costs too.
The SMART goal for your company to have for this example could be “increase on-time payments to 90% of the time withing the first 3 months of implementing Yooz AP automation software to the invoice and payment process.”
How to Make the Most of Your Accounts Payable Budget
5 Ways Yooz Benefits Your Company's Accounts Payable Objectives and Budget
1) Streamlines Your Accounts Payable Workflow
Yooz's all-in-one, powerful Accounts Payable solution leverages smart technologies like artificial intelligence and machine learning, to create an accounts payable experience from purchase to payment. Everything can be done on Yooz's easy to use and customizable platform while securing all of your data in the cloud. Your budget will thank you because you don't have additional expenses from using separate software for each part of your workflow since our software does it all.
2) Saves You Cash
Leveraging Yooz's state-of-the-art Accounts Payable software means you'll reduce costs by 80%! The cash you were spending on unnecessary material expenses, like paper, are now removed. Now you're free to invest the excess cash you budgeted for on value-added projects in your company.
3) Cuts Cycle Time to Hours
Wouldn't you rather invest your cash on actual projects that will bring in more income? When you use our system to reduce long cycle times you save money since you're not spending all your cash paying late fees to unhappy vendors. Using Yooz to pay vendors on time will help qualify you for early payment discounts your vendor may offer. Not only will you have better vendor relations, but you can save or spend the extra cash for another project in your budget because you didn't have to pay full price!
4) Increased Visibility
Having loose documents creates more work and messes up the Accounts Payable department's budget because the cash they thought they had mysteriously disappeared. You can avoid this when reap the benefits of Yooz's digital filing cabinet with "Google-like" search to help you keep track of every invoice to report at the end of the year or quarter. Yooz also increases visibility into the cash management of your business as well. This way you won't have extreme differences in cash out flow and cash inflow on your balance sheet.
5) Digital Transformation
The term and practice of digitally transforming your business is becoming increasingly popular and necessary year after year. Digital transformation keeps you competitive against the competition and saves you money in many ways. The first impact digital transformation has on your budget is completely removing paper from your process to reduce your material expense budget. Yooz makes that easy because we provide full automation from the ability to receive invoices by email to sending payments to vendors online all within our cloud-based accounts payable automation system. Another way digital transformation impacts your Accounts Payable budget is the increased security. Many finance leaders don't realize how using paper leaves their company's financial information vulnerable to unwanted eyes. Yooz stores your data safely in the cloud and only allows authorized users to view and approve certain documents. To take things one step further, we have YoozFakeDetection to automatically detect forged documents and other fraudulent activities.
It is no wonder why accounts payable departments have made automating purchase-to pay invoice processing their top budget priority. But achieving the benefits of automation will remain out of reach for Accounts Payable departments that don’t take the right approach to planning, selecting and implementing a solution that will progress their financial and production objectives for the long-term. Hopefully, this blog helps you get a better understanding of how you can make the most of your Accounts Payable budget through planning and implementing Yooz's Accounts Payable automation solution this quarter. Don’t wait any longer to automate your entire purchase to pay process today!