Tax season has finance departments on pins and needles due to all of the payments and processes to manage before the April 17th deadline. Even though tax preparation and year-end closing processes vary, the rules and regulations remain the same. Although the evolution of technology is changing the tax filing journey, many businesses continue to stick to paper processes instead of taking advantage of the efficiency technology has to offer. The filing journey raises the question, how can finance departments make this year’s filing process simple and secure?
Tax Time is of the Essence
As finance professionals, the workday is already filled with a slew of responsibilities. However, add the bundle of tasks during tax season and businesses are faced with an increase of high-level demands. Stress is driven by having to rush to complete things under tight deadlines, and it can be felt by both managers and employees equally in finance departments. There’s the added weight of limited vacation and fear of missing deadlines due to delayed approvals.
It’s critical to communicate the year-end schedule for the rest of the organization. Implementing a schedule or checklist to track progress and deadlines. One of the finance department’s most sought-after goals is to ensure information accuracy to properly allocate purchase and the largest tax deductions. That includes accounting for every cost from capital to operating expenses which directly impact budgets.
“Be sure to make sure everyone in the company is aware of the year-end schedule. Communicate to all departments that invoices must be received by X date for invoice entry and no later than X date for invoice accrual. I recommend using a calendar and checklist to keep track of all critical deadlines.” – Rhonda Greene, AvidXchange User and AP Expert
The number one challenge is time. Keep in mind that the filing deadlines are not moveable. The bottom line is, tax preparation cannot be done in 30 days. It must be well planned and coordinated between the business and all interdependencies. Planning ahead allows the finance department to prepare the proper accruals and allocations. If your business is on a calendar schedule, the tax prep process may start in September.
Technology is Transforming the Workday
Making the decision to trust technology with payments and data can be daunting. It requires a great deal of research and evaluation of current processes to pinpoint the problems. To build the case for change, managers should test tools that give them visibility and control of paper-based processes. Trading in paper-based payable processes for automation improves profit loss by properly allocating the cost.
In the past, invoices were sent after purchases were made. However, in order to properly manage accounting and tax preparation, it’s critical to have access to the invoice prior to payment. The ultimate success of an automated solution is the ability to use electronic requisitions and purchase orders before purchasing for full visibility and control of budget and expenses.
Around 90 percent of invoices are clean. The other 10 percent bring the pain. There are countless examples of errors and exceptions that ultimately lead to inaccurate billing and payment problems. Requesting a change directly impacts the time and reporting of multiple departments. AP automation helps alleviate the stresses enforcing rules managers to only use accounting codes that are applicable to their departments. The paperless process has invoices received electronically which results in 100% visibility to data regardless of its state of approval.
Most finance departments start the AP automation journey by automating invoices. After finding success with managing paperless invoices, they then move into requisitions. Businesses that trust technology also find that data and document collection are safe and simple. There’s the benefit of increased control of payments and vendor verification. Companies that implement AP automation see immediate improvement in reporting without hours and headaches.
It’s Time to Trust the Paperless Process
According to the NSBA 2017 Small Business Taxation Survey, tax season comes with a number of burdens to bear. The financial cost to the business, auditing concerns, tax form completion time, and paperwork are just a few of the top concerns. The common concern that impacts all of these worries is paper-based processes.
When it boils down to all of the tax season and year-end processes, the pain point most account managers face is the ability to easily access the information needed to close the books. Most of the reports and data are still paper-based. Naturally, paper is the enemy of all payment and compliance processes. Invoices, reports, and checks are still stored in file cabinets and folders for many finance departments.
The core problem for most finance departments is answering the question: ‘Do we have all of the invoices that are obligatory to our business?’ The problem with paper is that we do not have traceability or a predictable accrual process for our financial future. On average, businesses are spending $22 to process one invoice in a paper-based workspace. In addition to high costs, there’s a lack of visibility and clear control.
The challenge of managing 1099s is properly classifying every vendor and their spend level to determine whether or not they are reportable. Payment automation slays the 1099 administration process by implementing rules on the supplier onboarding process. Businesses that implement AP automation gain clarity on the payment method and expected volume for each new supplier that is enrolled as a vendor in the payment system.
The Bottom Line
Leveraging AP automation year round prepares the business for a streamlined year-end process to make tax season simple and secure. Enhanced workflows and approvals allow teams to spend time dissecting reporting results instead of chasing down vendors and approvers. Implementing paperless processes create a strategic finance department that focuses on analyzing the financial future.
About Michael Praeger
Michael Praeger is the Co-Founder and Chief Executive Officer of AvidXchange, Inc., the leading provider of on-demand accounts payables management and automated payment solutions. Since founding AvidXchange in 2000, Michael has been an active participant and speaker on “payables and payment automation” at various industry conferences and considered a thought leader within the industry in developing creative solutions and best practices for payables and payment automation.