7 Wastes That Kill Efficiency in Your Accounts Payable Department
“Time isn’t one of the main priorities. It’s the only one,” is a phrase a business professional might tell you to explain their workflow.
Once you hear those words, a lightbulb goes off.
It should. Efficiency is driven by making time the priority. Not every activity that leads to a positive outcome is by default a value-adding activity.
It’s possible you’re performing non-value-adding activities that are wasting your time. This would include repeating tasks done incorrectly and tasks that could be removed. Accounts payable (AP) departments are often full of inefficient and manual processes that eat up valuable time.
In light of this, we took Triaster’s philosophy on how to eliminate waste in business and adjusted it to apply to the AP world.
Background: Defining the Terms
The decision to increase efficiency is easy. Figuring out how is more difficult. Let’s focus on the building blocks first, in this case, the words used.
Activities are what they sound like. These are the things we do, actions taken, that cost us something.
Deliverables are the natural results of an activity. Examples include a product or service or payment rendered.
This is where the value-stream approach comes into the equation. To figure out what tasks are worth spending precious time on, we ask ourselves: “does this activity add value? Is it an extraneous non-value adding activity? Or necessary non-value adding?”
In AP, an example would be printing and mailing checks. Paying your vendors is clearly something that adds value and benefits your business. However, reprinting a check because of an error is not.
Repeating an activity due to human error is a necessary but non-value adding activity. Taking the potential for error away by killing the check and moving to AP automation ensures that paying vendors remains value adding.
Midground: Efficiency in Business
The importance of efficiency is widely accepted, right?
Often, how to start is debated. A common answer in today’s technological world is to do it through automation.
If you ask Forbes, they’ll say that if you’re looking at increasing productivity while lowering cost, then you would benefit from looking at automating processes. Increasing efficiency in a business process often means eliminating arduous tasks. Here at Medius, we do this by automating payments and accounts payable processes.
Automation done well will protect you from costs and non-value adding activities that can occur because of security breaches. According to IBM, an average data breach in 2022 cost $4.24 million. That’s just the cost in terms of money, the cost in terms of time spent correcting the breach is immeasurable. We’re happy to share that accounts payable solutions can potentially save you thousands – or perhaps millions– of dollars.
Foreground: Application for Accounts Payable
Imagine you’re planning to clean out your cluttered garage. Where do you start?
First, you sort out what needs to go. What’s taking up space? Is there something that is better served elsewhere? Do you have a way to organize what’s left?
When planning how to make your business more efficient it’s the same. Think about your workflow and what might be improved before you lay out a game plan:
- Do you or your vendors end up waiting on materials or information to arrive?
This is a delay often caused by manual processes and unclear processes. - Are you manually entering information into your system? Multiple times and multiple ways?
Redundant and duplicate tasks are another activity that wastes time in AP departments. - Have you had to pick up a paper invoice or check and walk it over to the next person who needs to approve it?
Unnecessary paper-based communication and approval processes that require movement will eat up yet more of your day. - Are there instances of communication issues between you and your vendors?
Paper invoices and checks can be lost, temporarily or permanently, or entered wrong and require re-entering. Unclear communication can confuse vendors and harm your relationship – while wasting AP’s time with inbound status inquiries from frustrated suppliers. - Have you spotted an error in a payment or invoice that required you to repeat an activity?
Human error increases the potential for necessary non-value-adding activities. Despite the ‘necessary’ part of the name, these should be avoided when possible. - Has a check ever been sent to the wrong vendor?
Misdirected checks, or ones with the wrong value amount, can result in correcting and repeating an activity – or lost money if it goes unnoticed. - Are you missing out on opportunities?
Failing to take action at the earliest opportunity or at all can cost you later on. Examples include not recognizing opportunities to go the extra mile by offering electronic payments and failing to create vendor relationships that could later create referrals.
These seven questions and their respective activities make it easy to identify inefficiency and process breakdowns in your AP department.
Conclusion
It’s a fact of life that nothing can be perfectly efficient. There’s always room for improvement, whether small or momentous.
Recognizing the problem, defining the what and where, and finally deciding on a plan of action will cause increased efficiency. We’ve helped hundreds of clients reduce their wasteful activities and increase their efficiency by automating their accounts payable processes and payments.
It’s not too late to make changes now and enter 2023 with fully automated processes and customized workflows!
