Top 5 Best Practices in Accounts Payable
 Finance & Accounting

Top 5 Best Practices in Accounts Payable

Rick Johnson
Rick Johnson
August 28, 2023
Last updated on:

August 28, 2023

|

Read time: 4 mins

Businesses need to manage accounts payable effectively for better financial management. Proper accounts payable management helps them on several counts - from improved vendor relationships to enhanced accuracy and compliance; and from stringent reconciliation to quick decision-making. All this is possible only when businesses adopt and implement the best accounts payable practices.

Implementing best practices in accounts payable has a significant and far-reaching impact on a business’s financial well-being and operational efficiency. It streamlines the payable process and allows businesses to focus on automation and electronic invoicing. This results in prompt invoice processing and approval times. Ultimately, such promptness, nurtures vendor relationships and directly impacts the bottom line. 

In this blog, we will explore 5 best accounts payable practices that empower organizations to optimize their accounts payable processes. 

According to a report by Bottomline, only 56% of accounts payable teams currently use electronic payments.

Best Practices in Account Payable

Here are the  5 Best Practices in Accounts Payable: 

1. Streamlined Invoice Processing

Streamlined invoice processing refers to optimizing and simplifying the steps involved in handling and managing invoices within a business. It accelerates invoice approval cycles, reduces errors, and enhances accuracy in financial records. 

Therefore, as a best practice, you first need to streamline your process of invoice processing. The first step in this direction is eliminating paper-based processes and adopting digital solutions. 

Today, automated tools are helping to streamline invoice processing in highly efficient ways. The big advantage is that it optimizes workflows to digitize, capture, validate, and approve invoices, minimizing manual intervention.

As a business owner, you can transform your invoice processing by automating the process with the help of tools like invoice management software, accounting software and others. These tools also provide real-time insights into financial data for better decision-making and cost control. 

Did You Know?
Forty-four percent of businesses in the USA are looking to add automation to their payables processes.

How to improve the account payable process and measure its performance?
To enhance the accounts payable process, optimize invoice processing, implement clear communication with vendors, automate tasks, and strengthen financial controls. To track improvements, monitor performance using key metrics like invoice processing time, error rates, on-time payments, and vendor satisfaction. To learn more about accounts payable KPIs, read our blog Top Key Performance Metrics to Measure Accounts Payable Performance.

2. Clear Vendor Communication

When you have clear communication with vendors, you eliminate confusion related to expectations, terms, and requirements. If this happens on a consistent basis and with all your vendors, you can make them align their products or services more accurately with business needs, leading to improved quality and satisfaction.

Therefore, establishing clear communication should be a top priority for any business owner. The best practice in this direction is to have effective tools and strategies in place. 

For instance, a Vendor Management System (VMS) helps centralize vendor information and interactions. Likewise, implementing a robust email communication platform and project management software ensures timely updates. Utilizing collaborative document-sharing tools like Google Workspace or Microsoft 365 enhances document exchange. While tools are indispensable, what helps the most is meetings. Try to have virtual and in-person, foster an open dialogue, and clear Service Level Agreements (SLAs) which outline expectations.

Effective Communication Tips
Image 1 - Effective Communication Tips

3. Robust Financial Controls

Implementing robust financial controls in accounts payable is essential to prevent fraud, errors, and mismanagement. The key elements of robust financial control include invoice verification, matching purchase orders and receipts. 

To maintain robust financial controls, you should go for a suite of essential tools and technologies like invoice processing software, expense management, etc. These tools help your businesses automate invoice validations, expedite invoice processes, and more. Also, expense management software enables them to handle employee expenses and streamline reimbursement processes. Combinedly these tools help with cost saving by reducing accounts payable processing time, preventing errors and optimizing cash flow management. 

4. Efficient Payment Processes

Efficient payment processes in accounts payable involve optimizing the disbursement of funds to vendors and suppliers. It encompasses several key elements, such as automated payment workflows to reduce manual intervention and errors and electronic payment automation techniques like ACH and wire transfers for speed and security. 

As a business owner, you should rely on a diverse array of tools and technologies designed to streamline and optimize the payment lifecycle to maintain efficiency in your payment systems. Such tools enable secure, swift, cost-effective electronic payments, encompassing ACH transfers, wire transactions, and international remittances. On the other hand, various invoice and expense management software solutions will help you automate invoice approval workflows and efficiently manage employee expenses, ensuring strict adherence to payment policies.

According to a report by Pymnts.com 98% of businesses believe automated AP will improve their speed of managing payables.

Tips on Negotiating Payment Terms with Vendor
Image 2 - Tips on Negotiating Payment Terms with Vendor

5. Accurate Record-Keeping and Reporting

Accurate record-keeping and reporting in accounts payable are foundational best practices that involve meticulously documenting financial transactions. This encompasses precise data entry, comprehensive storage of invoices and receipts, and regular reconciliation of accounts to identify and rectify discrepancies. Timely generation and sharing of financial reports, such as accounts payable aging and cash flow statements, ensure transparency and provide insights for informed decision-making. 

Moreover, these practices serve as an essential audit trail by offering a historical record of financial activities which are valuable during audits and financial planning processes. They help build confidence among stakeholders and reinforce trust in the business’s financial integrity. 

Accurate record-keeping and reporting in accounts payable benefit from various tools and software solutions designed to enhance precision and efficiency. Accounting Software simplifies data entry and automates transaction recording, whereas document management systems help organize and securely store invoices and receipts, ensuring easy retrieval and audit readiness.

Conclusion

Accounts payable processes are poised to undergo significant transformation driven by technological advancements. Automation, artificial intelligence, and blockchain will streamline invoice processing, reducing manual tasks and errors. Smart contract implementations on blockchain could facilitate secure and automated payments, enhancing transparency and trust among vendors and businesses. 

Moreover, the shift towards sustainable practices may incorporate environmental considerations into vendor selection and payment strategies. It will align accounts payable with broader corporate social responsibility initiatives for a more efficient, environmentally-conscious future.

At Invensis, we have been providing tailored accounts payable services to businesses across the globe over the last two decades. Our finance & accounting professionals have assisted businesses in simplifying their accounts payable workflow and establishing superior control over their finance. Contact us to keep your financial position healthy and transparent. 

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