How to Streamline Accounts Payable Effectively

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7 Accounts Payable Best Practices that Boost Cash Flow

Did you know that 56 percent of companies face cash flow issues because of accounts payable bottlenecks? Additionally, they also need to handle these issues carefully to maintain good relationships with their vendors and customers. In fact, 23 percent of companies admitted that suppliers refused to work with them again due to inefficient AP processes. Businesses must retain these connections to ensure business continuity and secure the company’s growth potential. In this post, we shall discuss accounts payable best practices to follow in detail.

 

Accounts Payable Best Practices

1. Simplify A/P Processes

One of the most effective ways of accounts payable process improvement is to ensure you simplify them. You could do that by following a couple of steps that include: –

  • Decrease the check run count to two checks per month. 
  • Before preparing for check runs, ensure your accounting team has the invoice backup ready and approved by the concerned authorities. These approvals should be in place before you, as a business owner, approves them.
  • Ensure your A/P team knows about the maximum limit for cash disbursement for every check run. This information helps them pay the high-priority invoices first.
  • Delegate some decisions to your staff so that you’re not in charge of everything. For example, empower them to pay partially on large balances, or to delay payments to suppliers with a higher tolerance.

2. Track Every Due Payment Closely

To smoothen your cash flow processes, a business owner needs to know how much they owe, who do they owe, and when they need to pay up. This information can also be used to create better budgets and make better business decisions. Achieving this stage is simpler if you use efficient accounting or expense management software. If you have a lot of routine, recurring payments, you can set up reminders or automated payments to ease your job. Automated recurring payments will reduce your stress and distractions in the long-term. However, ensure you always review your payments at regular intervals so that you don’t overpay or pay for services you don’t use any more.

3. Pay Invoices in Big Batches

Process Invoices - Accounts Payable

This is one of the most important accounts payable best practices to follow. Even though you should log every expense instantly, paying every invoice as it comes may not be the right strategy. If you’re currently paying your vendors five times a week, you multiply your work by five times for a single week. Imagine the time you waste logging the invoices, forming payment batches, checking each invoice, approving it, and processing payments each week! By restricting the payment cycle to twice a week, you can reduce your workload by 60 percent! Moreover, your vendors still get paid on time. So, it really doesn’t make sense to pay at such a high frequency. Once you check and input the invoices, there’s much less scope for data entry errors. So, it’s easier to handle payments in larger batches. 

4. Leverage Technology to Help your Employees

Due to the technology boom, handling time-consuming repetitive tasks in the A/P function has become simple. Technology helps you streamline such tasks because it: –

  1. Decreases simple errors such as paying a wrong sum against an invoice or inputting an incorrect check number
  2. Establishes automated modules for A/P to ensure smoother payment transactions
  3. Handles A/P transactions with well-designed and high-quality software
  4. Ensures your automated accounting software has terms specifically for each vendor
  5. Processes reports regularly to know what’ll come up in the next few days
  6. Uses laser-printed checks to easily upgrade you’re A/P system and recognizes paid and unpaid bills.

5. Try to go Paperless

Paperless Account Management

Another accounts payable best practice to follow is to go paperless. Handling electronic bills makes the entire A/P process so simple. You no longer have to wait for physical paper bills to arrive in the mail. You’ll also reduce the risk of damaging or losing your paper invoices significantly. Additionally, any risks due to late payment due to these damages can be eliminated. No wonder 52 percent of A/P departments want to move away from paper-based processes. Some vendors even offer electronic invoices as an effort to go paperless and improve efficiency. Even if your suppliers are more traditional, you can always persuade them to go paperless by sending necessary contact information. Another advantage of an e-invoice is that you can easily import it in your accounting software. If you’re still receiving paper invoices, you could scan them to embrace the paperless practice.

6. Keep an eye on Discounts

Discounts on AP

As a good business owner, you should always be on the lookout for discounts. It relieves some of the pressure from your A/P process flow. Some of your suppliers may offer an early payment discount that helps them get paid faster. You need to find if your vendor is willing to give you such an option in exchange for an early payment processing. On the flip side, also learn about the suppliers that levy late payment fees from you. You could also find a discount by regularly purchasing in bulk. This discount can be particularly helpful for the firm in the longer term. However, always ensure you procure only those commodities in bulk that don’t have an expiry date in the recent future.

7. Improve your Vendor Payment Schedules

By tweaking your payment schedule, you too can reap the benefits of having more liquid cash in your business account. You’ll also gain more interest and be in a better position to pay timely and keep your suppliers satisfied. Here’s what you can do to improve: –

  1. Ensure you store receipts and invoices in a single place
  2. Leverage your creditor’s payment conditions by scheduling the A/P process when the payment is due
  3. Focus on keeping budgets and forecasts up-to-date

Conclusion

Paying your vendors on time is critical to ensure that they’ll back you in the future. So, opt e-invoices, accounting software, and go paperless to improve your accounts payable processes significantly. Ensure your vendor doesn’t have to chase you to receive payment by leveraging technology effectively.

Over years, Invensis has built up a comprehensive and wide-ranging clientele across industry verticals. We have been successfully delivering customized Accounts Payable outsourcing services that are suited for your particular business requirement. When you outsource Accounts Payable to Invensis, you are able to control your expenditure patterns as well as demand for special privileges from vendors in the form of price or volume discounts.

Invensis’ Accounts Payable key metrics throws light on available free credits, payable days, purchase order mandates, and Accounts Payable cycle efficiency. Accurate Accounts Payable reconciliation plays a vital role in clearing unpaid bills within the stipulated date. Outsourcing your Accounts Payable management requirement to Invensis will help you to avoid paying fines or interest for late bill payments.

Learn more about our services in detail – Account Payable Services

 

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