4 Ways AP Automation Can Be a Controller’s Best Friend

Managing your accounting operation is challenging and controllers can benefit from automated systems that reduce processing times and increase accuracy. Automation can also make the year-end closing process easier and help the accounting department issue 12/31 financial statements in less time. 

Does your company have an audit performed? If so, use automation to gather required documents in advance and spend far less time fielding auditor questions. Automation is a controller’s best friend and here are several reasons why.

1. Managing credit card usage

If a company uses corporate credit cards for business expenses, it must account for transactions correctly. When you think about credit card usage, keep these points in mind:

Proper approval 

Most firms require some sort of approval process before a purchase can be made, and larger orders may require more than one manager’s approval. You need an automated system that provides you with control over spend by placing approval processes before corporate credit card purchases. 

Ideally, each corporate credit card should come with controls that limit the dollar amount of spending allowed on the card in addition to the type of card including single use, multiple use, or cyclical. With automation, you can set a spending limit for each credit card issued, monitor card use, and adjust spending limits as needed.

Expense category

Are you accounting for all corporate credit card transactions? If any part of the credit card usage process is completed after the fact, you might be blind to the spend occurring and may not find out about a particular transaction until after receiving the credit card statement. As this podcast episode points out, planning is the key to successful business growth.

In an automated environment, cards are assigned to an expense category or general ledger (GL) before the fact. Then when it comes to the moment a transaction is placed, the information including vendor, expense category, and more have already been accounted for within the accounting system.

2. Solve common credit card processing challenges

Manual credit card processing leaves the accounting department in the dark. Your staff may spend time hunting down information and getting transactions posted correctly. Do these situations apply to your business?

Dealing with shadow spend

Shadow spend refers to bypassing company policies and procedures that require purchase approval. Without proper controls, an employee with a corporate credit card can make an unapproved purchase on their own. To learn more, download the ebook called 5 Proven Strategies for Controlling Shadow Spend.

Shadow spend may involve larger dollar amounts, or smaller ones, and both impact accounting process and reporting of financials. Millions of consumers pay for monthly subscription purchases on credit cards, and the same is true for business-to-business (B2B) payments. If there are dozens of credit cards issued, each incurring small monthly payments, the total can accumulate quickly.

Follow up after the statement arrives

Gathering documentation after the fact is not an efficient way to manage an accounting process. However, many companies scramble to gather accounting information. Mull over this example:

• Reconciling the credit card statement: The monthly credit card statements arrive, and a payables employee compares the credit card transactions to the month’s expenses. There are 15 credit card transactions that cannot be matched with an expense.
• Purpose of spending: The payables staff asks the cardholder to explain the purpose of each expense, and if the expense was approved in advance. Four of the payments required an approved purchase order before purchase.
• Handling approval: This step is difficult, because the card user didn’t follow company policy. The cardholder’s manager must decide how to handle the issue. Is the employee warned, or disciplined in some way? The accounting department must pass on the information to the cardholder’s supervisor.
• Adjusting entries: Once the expense accounts are assigned, the accounting department posts adjusting entries to reflect the expenses. A larger company will have more adjustments, and the situation delays production of the financial statements.

If this situation occurs month after month, it can have a demoralizing impact on the accounting staff. Closing the books is more difficult, and the staff will work overtime hours to meet reporting deadlines.

Uncovering financial reporting issues

Despite your best efforts, you may not be able to identify and resolve all financial statement issues related to credit card spending. Consider this example:

Vintage Furniture has three distribution channels. The company sells directly to customers through e-commerce and physical store locations. Vintage also uses salespeople to sell furniture on a wholesale basis to other retailers. Employees in all three distribution channels use company credit cards.

Activity in the wholesale division peaks during the 3rd quarter, when customers purchase inventory for the busy holiday season. The salespeople incur the majority of their travel and entertainment expenses during the third quarter. 

The wholesale division uses a manual process to account for credit card spending, and the accounting staff is not able to quickly identify each credit card expense. In order to get the division’s financial statements issued on time, the accounting manager posts all unidentified credit card expenses into a sales expense account. 

The manager notifies the controller and CFO that the credit card expenses will be reclassified as soon as possible. However, this temporary classification of expenses creates several problems:

• Invalid expenses: As explained above, some credit card transactions may not truly be company expenses, due to a lack of prior approval. In addition, a salesperson’s personal expenses are not business expenses, and should be removed from the accounting records
• Expense classification: Until the expenses are properly classified, the company cannot analyze profitability, or compare actual results to the budget

Automation can help you assign credit card expenses quickly, and avoid spending hours reclassifying expenses. Year-end is your busiest time of year, and automation makes preparing for an audit much easier

3. Reducing audit documentation time

As your company grows, you may hire a CPA firm to conduct an annual audit of the financial statements. A lender, investor, or regulator may require an audit. Businesses that operate using a 12/31 year end typically have an audit completed in the first quarter of the following year.

To prepare for an audit, the accounting staff must provide a number of documents, and the process can be time consuming. To audit accounts payable and expenses, auditors perform a search for unrecorded liabilities. 

Understanding the search for unrecorded liabilities

One goal of an audit is to ensure that assets are not overstated, and that the liability accounts are not understated. Since assets less liabilities equals equity, this goal helps to confirm the correct equity balance.

• Asset values: Company assets are valued at historical cost, in most cases. If the fair value of an asset is higher than the original cost, the value of the asset is not increased in the accounting records.
• Liability values: If you have a bank loan, the auditor will confirm that the dollar amount of the loan agrees with the lender’s calculation of the outstanding balance. 

The search for unrecorded liabilities ensures that the accounts payable balance is not understated at year end. Here is the audit procedure, assuming a 12/31 year end:

• Company generates a detailed listing of all accounts payable balances at 12/31
• The auditor reviews a listing of checks, debit transactions, and credit card payments made in the first few weeks of the new year (January)
• The CPA firm selects a sample of payments made in early January, and determines if the payment was for an accounts payable balance on the 12/31 listing

The sample usually includes some of the largest payments made in early January. An auditor wants to know if the January payment is for a product or service that was received by the company before 12/31. If so, the firm should include the liability in the 12/31 accounts payable balance.

Assume, for example, that a manager approves a $20,000 purchase order for IT consulting work on December 5th. The IT firm completes the work on December 27th, and the company pays the IT firm on January 8th. The company should record a $20,000 accounts payable balance as an expense, before 12/31.

Saving time with automation

Businesses that operate using accounts payable (AP) automation spend less time producing audit documentation. A software program can generate a read-only version of the accounts payable listing, and a read-only list of payments made in January. When the auditor selects a sample of payments, you can quickly provide additional information on each payment.

The bottom line? You’ll spend less time gathering data, and providing explanations for individual transactions. The accounting staff can focus on day-to-day activities, and reduce the overtime hours needed to support the audit.

As companies plan for the 2022 business year, senior managers must contend with a tight labor market, and increasing labor costs. You can estimate your rate of return on a software investment, based on the number of labor hours saved, and the cost per hour.

4. Measuring your rate of return

According to the Bureau of Labor Statistics, the November 2021 US unemployment rate was 4.2%, a historically low percentage. Robert Half, one of the country’s largest placement firms for accountants, reports that the “median national salary for staff accountants with one to three years of experience in general accounting is $66,750.” Labor costs for more senior positions are even higher.

What is the financial benefit of automating invoice processing and accounts payables? You can find out by analyzing the hours saved using automation, multiplied by the labor rate you pay per hour. When you compare the software costs to your labor cost savings, the rate of return may be substantial.

The role of a controller is challenging, and you need a best friend who can make the accounting process easier. Stampli offers the most powerful AP automation available. You can stop shadow spend by bringing invoice management and credit card management together with the optional Stampli Card. In addition, use the optional Stampli Direct Pay to issue automated clearing house (ACH) payments or to issue touchless paper checks. Launch in weeks, not months, by working with Stampli’s award-winning success team. Contact Stampli, and gain some peace of mind.