How to Best Manage the Accounts Payable Process? Here's How.
A business is only as viable as its cash flow is healthy, and a highly efficient accounts payable process is therefore crucial to the success of any business.
Managing the accounts payable (AP) process may seem straightforward enough, but the devil truly is in the detail when it comes to keeping the AP process running optimally.
Streamlining, standardizing and carefully managing all aspects of the AP process is key, and once this is achieved, utilizing the best accounts payable automation software will take your AP efficiencies to another level altogether.
Here are eight tips for best managing the accounts payable process.
1. Standardize and streamline your AP workflow
Seek to turn your AP workflow into the equivalent of a well-oiled machine by standardizing and streamlining key workflow processes and procedures. This not only heightens efficiency but minimizes the risk of errors.
Switching from paper-based to digital invoicing is a significant streamlining step in itself, greatly assisting an AP department's ability to maintain optimal efficiency and payment management. Digitizing invoicing also allows for easy reviewing of accounts, both individually and collectively, to prioritize payments easily.
Select the right vendors with ease
Selecting the best vendors to work with takes time and effort, and it's essential to the success of a business that the best products and prices are carefully sourced.
To make the process of finding the right vendors easier, create an easy-view database of approved vendors, including product, price, and payment option comparisons. This will assist staff in making informed choices for ultimate productivity and optimal cost-effectiveness.
Track supplier data
Data crunching is a hallmark of the digital era - no longer reliant upon manual data analysis, there are crucial insights that businesses can easily access through the data it holds, and this is true of vendor-related information.
By tracking vendor variables such as bulk purchase savings, early payment discounts, and more, AP can ensure that the best deals are being accessed. Plus, these insights can make a big difference when it comes to making decisions and negotiating terms when it comes time to renew a contract.
Review contracts efficiently
When entering a new contractual agreement, it's essential to carefully review the contract details, but contract reviews must be an ongoing task for optimizing AP processes.
A designated staff member needs to carry out regular reviews of all contract terms and make comparisons to ensure that all agreements bound to are in the best interests of the company. This is especially important prior to renewals, and any changes will need to be looked over by a legal representative.
Reporting accurately is undeniably key to a smooth-running AP department. But how is this best achieved?
Ways to improve reporting include:
- Automating reconciliations
- Regular checking for unreconciled items
- Creating a double-check system for matching invoices to contract/purchase order terms
- Establishing a centralized platform where staff can track all payment status
Creating and maintaining a central file storage location (a single repository) is the best approach for maintaining an accurate system that is reliable and prevents unnecessary errors.
This one-stop-shop system also makes it easier to navigate disruptions such as key staff members being away, as the remaining team knows exactly how and where to find the information they need.
2. Go paperless
We are now deep into the digital age, and any paper-based systems are increasingly being considered archaic.
Not only are paper invoices bad for the environment, but they take up valuable filing space, take time to produce, and can be easily misplaced, leading to wasted time, errors, and the potential for making payments late.
By switching to digital invoices, payment turnarounds can be shortened, errors prevented, and the payment process streamlined for ultimate efficiency, saving the business time and money.
As well as keeping suppliers and other payees happy, facilitating an efficient payment process can help with avoiding late fees and potentially saving money through vendor discounts for early payments.
Given the nature of digital invoices, they are far easier to store, analyze and track. Without the encumbrance of having to sift through filing cabinets packed full of documents, staff members can easily access and view invoices to track payments, check status, and more.
3. Budget meticulously
It's essential to keep your AP budget up to date and functioning optimally. Without meticulous, regular management, your budget can easily fail, leaving insufficient funds for paying suppliers, and it can be a slippery slope down from there.
A clear and well-thought-out budget can help to create an invaluable snapshot of how the overall finances of a business are tracking; when kept up to date, the breakdown of projected expenses and cash flow can help staff and management to make informed, on-the-spot decisions.
You can use a standard spreadsheet template for setting up a simple budget, but there are many options for budgeting programs and software that can help you to really up your game.
4. Build up a cash reserve
While your budget is essential for carefully plotting out cash flow forecasts and planning for expenses, building up a cash reserve is crucial for helping to weather the occasional storms brought about by unforeseen circumstances.
If the market you serve has a few quieter months than expected, or an expensive piece of equipment breaks down long before it should, having some spare funds in a cash reserve can help to keep the business financially on track.
Avoiding having to make late payments to vendors and suppliers is another key win, avoiding damaging any key relationships that the business may rely upon.
Paying vendors back late should be avoided at all costs; not only can it trap you into a negative cycle of ongoing late payment penalties and interest, but it can significantly impact your reputation.
5. Prioritize good supplier relationships
Maintaining good relationships with vendors and suppliers is key to a smooth-running AP process.
Your vendors naturally favor good payers who are respectful and reliable to work with, so maintaining healthy partnerships must be prioritized. It is also prudent to ensure you stay in your vendor's good graces in case you need to call on them one day for some one-off payment flexibility.
Other than being a highly reliable payer, you can create valuable relationships with your vendors by checking in with them to see what their preferences are.
Do they prefer that each invoice is paid separately, or are bulk payments acceptable? Are they happy with electronic payments, or do they still work on a paper-based system?
To improve any damaged vendor relations, ensure that future payment due dates are accurately scheduled, and reminders set, and create approval systems that avoid any payments being missed when staff are out of the office.
You can also consider setting up self-service portals to allow suppliers easy access to inventory and payment tracking information.
6. Schedule payment reminders
It's all too easy to convince ourselves that we will remember important tasks, such as paying vendors on time, but in reality, a busy office environment can easily result in missed payments.
Scheduling reminders is one of the most effective ways to ensure that payments are never missed. Making payments on time is crucial for maintaining good relationships with suppliers and avoiding penalties and interest payments.
There are a few options for scheduling payment reminders. Of course, you can simply use your calendar app of choice, but many AP software systems also come with built-in reminder options that you can sync to your everyday calendar.
7. Take advantage of all discounts
Every little helps. It all adds up. You've heard the sayings, and they are true. When cash flow is nice and healthy, it can be all too easy to rest on our laurels and overlook opportunities to make small savings, but they all add up.
So, be sure to take advantage of all available discounts, and park those savings into your cash reserve for a rainy day.
Check in with your vendors to see what discounts they offer and under what terms; many offer early payment discounts, and incentivizing electronic transfers over paper checks is still quite common as well.
8. Automate your workflow
Once you have streamlined your processes and centralized your data and AP information, it's time to focus on workflow automation.
While streamlining and standardizing processes helps to reduce errors, and improve overall efficiency, any continued reliance upon manual processing is still hampering any optimization efforts; the more mundane tasks, such as data entry, that you can automate, the better.
An automated invoice system is a great place to start, with software available that can automatically retrieve invoice data, automate approvals, and more.
How to manage accounts payable? Move with the times!
Optimizing your accounts payable process is as much about moving with the times as anything else; many of these tips focus on options that require modern technologies and software to fully achieve.
Going paperless, using tech to automate processes, centralizing your data for easy access to all staff (and remotely) - all these and more utilize modern, high-tech solutions to archaic practices, so first things first, consider whether your firm is sufficiently 'moving with the times.'
From there, organization, attention to detail, and data analysis are the hallmarks of a well-run AP department. A smooth-running AP department is crucial to the success of any enterprise.