Accounts payable management is essential for any business, no matter how big or small. Optimizing financial processes and making sure they are fast, efficient and seamless is what can help your business thrive, improving cash flow and relationships with vendors. Even though it is a mundane, back-office function, any business can benefit from improving, advancing and simplifying these processes.
But first, let’s take a closer look at the accounts payable procedures that can and should be optimized.
- Invoice receipt & verification. After an invoice has been received, it has to be recorded in the accounting system. Then, it must be verified for legitimacy and compliance with the company policies.
- Approval of invoice. To ensure that invoices are within the company’s budget, they are to be approved by the appropriate people.
- Payment processing. Once the invoice has been approved, the payment is processed by the billing department using the method agreed upon with the vendor.
- Documentation. For the payment processes to be efficient, fast and smooth, all payments must be properly documented. That involves keeping receipts, invoices and approval records for all transactions.
- Reconciliation. To make sure that all money is accounted for, all the vendor invoices and statements must be compared to the internal records and verified.
As you can see, it’s a complicated process that involves many people. And as with any ordeal that involves a human factor, many things can go wrong. In this article, we will go over some strategies to help minimize those occasions and limit areas subject to mistakes.
Why optimize accounts payable?
Structuring and optimizing your AP management can have lots of benefits for your business. First of all, having a smooth accounting process means having mutual trust with your vendors. If you are late with your payments, you may be charged extra. On the other hand, if you pay early, you may be given a discount.
Having a clear and neat accounting system whereby all your invoices are sorted and receipts are reconciled means fewer surprises later on. Proper, timely management helps you avoid mistakes. And even if they do happen, with a solid system in place, you have a chance to catch and fix them early on.
And finally, proper management of accounts payable ensures uninterrupted cash flow. Paying your accounts on time can help you manage and plan your finances better.
5 Tips for Better Accounts Payable Processing
Optimizing your AP processes can help you avoid mistakes, reduce the workload of all the people responsible, and focus on other issues, like exceptions, looking for better deals or new
opportunities.
Use Accounts Payable Software
Using a specialized software can help you simplify accounts payable processes and centralize all the data. A good AP software will simplify invoice management, organize your bills for you, send reminders about due dates, verify three-way matches between deliveries, invoices, and purchase orders. Having all the financial information available in real time is integral for transparency and efficient decision making.
When choosing an app, keep the following in mind. A reliable software should provide functionality like batching, easy export, and automated reconciliation of purchase orders. For maximum efficiency, it should be able to integrate with other accounting platforms as well.
Go Paperless
Using less paper is not only beneficial for the planet, but for your business as well. It can help you cut costs, speed up processes and limit mistakes. Although the initial time investment is significant, it will be profitable in the long run. Here are a few tips for going paperless.
- Scan and convert all your invoices to PDFs;
- Prompt your vendors to send all future invoices via email;
- Apply APM software to access payment data from anywhere, anytime;
- Opt for online payments instead of checks, automate them if possible.
Of course, converting all your paper into PDF can be hard at first, and might take a while. However, sending and receiving invoices online will help you save so much time by speeding up processing. You will also have to deal with less paper clutter. Automating payments and using APM software will help you reduce the chances of mistakes such as double payments or loss of data.
Centralize Vendors
Employ a system where you keep track of all the vendors, their invoices, prices and purchase orders. It can be done using a new database, or, in the accounts payable software itself, if it offers such functionality.
The database must include information such as names, payment and contract terms, and contact details. Ideally, the suppliers should be able to update the data themselves in case of a relocation or change of contact information. Standardizing your suppliers’ data will ensure the following:
- Streamlined workflow with less time wasted.
- Review their performance and quality in a timely manner.
- Help with relationship management.
Standardize & Simplify Approvals
Ideally, a reliable accounts payable management software should already ensure that your approvals are centralized and standardized. However, you might want to do it manually. Here’s how you can achieve that and why you should consider it.
Standardized approval process will ensure transparency, efficiency, and compliance. On top of that, a standardized process will eliminate the chance of fraud within the company, as well as help manage vendor relationships.
To ensure that the entire company follows the same protocol, you must first define the terms for everyone to follow. Assess your company’s needs and see what process will be the most efficient for the majority.
- Set limitations and thresholds for approval depending on the amount of transaction or employee’s access level;
- Use approval systems that will ensure centralized, paperless communication;
- Provide training for everyone involved. Prepare a written guide if necessary.
Monitoring and ensuring compliance with the company policy is one of the essential benefits that such standardization provides. Making fraud impossible or much harder will ensure that all the company funds are accounted for, leading to savings in the long run.
Track KPIs
Tracking key performance indicators can help you identify potentially problematic areas before any issues arise. Those metrics may vary depending on the type of business you run, however, below are some of the most common ones you should keep an eye on when optimizing your accounts payable process.
- Turnover ratio
- Error rates
- Processing time per invoice
- Aged invoice ratio
- Invoice approval time
- On-time paid invoices
Collecting and analyzing this data on a regular basis is essential for monitoring progress and finding opportunities for improvement. Take note of trends and patterns, see if there’s any correlation with the season or any other variables.
Depending on your findings, you can execute changes to your accounts payable processes or business in general. Finding weaknesses in a timely manner can save you from losses in the future. At the same time, KPI tracking can help you locate strengths and capitalize on them.
Invest in Education
Educating and training your employees involved in the accounts payable procedures will help you keep everyone on board. In a bigger operation, it can be harder to unify and standardize processes, which is why company-wide training is essential when it comes to optimizing and improving your workflow.
Automating processes and using appropriate software will give people more time to look for improvement opportunities. With more time and proper automation software, your team will be able to reduce errors, improve flow and save money.
Compliance regulations and communication training will improve the company’s reputation. It will guarantee that the business is done ethically and legally, which is the cornerstone of growth and success.
Common Accounts Payable Mistakes
Mistakes do happen, but optimizing your process, employing the right software, training personnel and ensuring everyone works in compliance with the company policy will help you avoid them. Below are some of the mistakes you should beware of. And if you do find them in your business, it means it’s time to make some changes.
- Duplicate payments
- Errors in data entry
- Poor communication or lack of it
- Poor feedback from vendors
- Delays in payments
- Mismatched purchase orders
- Lack of discounts
- Poor record keeping
- Lack of timely reconciliation
- Employees not following the compliance protocols
All these mistakes are fairly common, yet they can be easily corrected with proper training and better AP practices.
Wrapping Up
Optimizing your accounts payable processes is not an easy task, yet a very rewarding one. Using AP software, centralizing vendors, standardizing approval processes and tracking KPIs will make sure your business operates more efficiently and at a faster pace. If your company is prone to seasonal surges, implementing these changes can help you go through these seasonal spikes without hiring additional personnel. And doing all that paperlessly is another way to keep better tabs on your business and save money and time. Make sure that you are educating and training your employees as you implement these changes and watch your business grow and flourish.
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