Effective accounts payable management is important because it has a positive effect on your cash flow. It strikes a balance between paying your dues and allocating your company’s resources. If your organisation’s accounts payable or AP increases, it means you’re using credit more often when paying for services or products you need. If it dips, it means you’re paying dues faster than you’re purchasing anything.
Ineffective accounts payable management has a negative impact on your bottom line. It means you’re mismanaging your finances and you’re spending more than you should. If you’re dealing with this problem, here are some of the best practices that can get you back on track.
Make the Steps of the Process Simpler
Manual processing of accounts payable (AP) is an inefficient way of accomplishing tasks. It’s not just time consuming, but it also increases the likelihood of mistakes and requires a lot of labour. Your AP team will spend a lot of time going through invoices, get approval from their superiors, and pay suppliers in a timely manner. All these are tiring, and they might spread themselves thin because of other tasks they need to do.
Simply the steps of your accounts payable process. Reduce its number and delegate tasks clearly. Consult with your team on ways you can make the process more efficient. Their insights are valuable because of their direct involvement. Automate some manual tasks such as encoding, verification, and duplicate detection. Provide them with autonomy when it comes to non-critical decisions regarding invoices. Segregate payments into batches to reduce mistakes. These are just a few suggestions on how you can improve the efficiency of your accounts payable process.
Improve Accuracy of Data
Your accounts payable management will only be effective if the data you use is precise. Mistakes in encoding and financial data collection has a negative cascading effect on your cash flow. There might be shortages in cash or miscomputations in the payment you send to a vendor because of inaccurate data. Consult with your team to determine which part of the accounts payable process incurs the most mistakes. Conduct regular bank reconciliations to make sure invoices are correct and there are no duplicate transactions. Review supplier contracts to determine if the prices, discounts, and terms are exact. Create digital copies of invoices to make them less prone to mistakes.
Enhance Governance and Controls
Fraudulent activities can catch your organisation off guard. These can occur internally if your company lacks the internal controls necessary to prevent and identify fraud. You’ll have to implement control policies to improve security. Delineate tasks and process payments in batches so that no single employee is responsible for decision making. Create and follow an audit trail for recording transactions, communication lines, and actions of those in accounts payable processing. This enables you to trace any possible fraudulent activities taking place. Apply policies that limit approvals; doing so blocks unauthorised payments and suspicious and/or unscheduled large purchases. Designate controls to accounting platforms, tools, and systems you use. This practice limits access to them and makes it easier for you to determine fraud.
Teamwork and Centralisation
Collaboration within teams that have a stake in accounts payable management have a positive impact. They can work together to prevent fraud, identify errors, and find ways to improve process’ efficiency. Decentralisation has its benefits when managing accounts payable, but centralisation is also vital to the efficiency of your AP process. Use secure accounting cloud-based platforms to store data and share it with relevant business units in your organisation. This makes sure everyone involved has access to the same financial information, vendor details, invoices, and due dates. Apply common internal control policies so that your team follows and implements the same rules when processing accounts payables. Consider automating and scheduling payments. These practices boost collaboration within units.
Reduce Paperwork
The days of loads of paperwork for any accounting process are over. You’ll still need physical copies of financial statements, receipts, and other similar documents. However, you can generate digital copies of these and store them online. This reduces the amount of paper you need to maintain. Digitalisation and automation make your team’s work easier and more efficient. You can reduce their administrative and redundant tasks that allow them to concentrate on more analytical work and decision making. These improvements enable you to reduce costs and save more money which you can use for investments that spur the growth of your company.
Automation also makes it easier to send payments on or before their due date. Artificial intelligence (AI) can streamline some aspects of your process and eliminate redundancies. You can also create a vendor portal that allows for faster and convenient communication.
Better Vendor Relationships
Your relationship with vendors can get you privileges and advantages. Some of the perks you can get include preferred prices, flexible terms, faster response and delivery times, and future beneficial partnerships. It’s important that you pay them on time and coordinate with them if you encounter problems with their invoices and requests. Early compliance allows you to negotiate for possible discounts or lower prices.
Establish a document management system for your vendors. This makes sure you have updated information about your contracts with them and if they also provided you with up-to-date details about their company. Invest in an electronic payment system to improve the efficiency of your payment collection and eliminate mistakes.
Applying the best practices mentioned above allow you to detect fraudulent transactions, reduce business costs, and improve the efficiency of your AP process. If you think your employees lack the experience and expertise in accounts payable management, you might want to consider outsourcing to a reliable service provider.
We at Robookkeeper can be your solutions provider when it comes to managing your accounts payables. Our team of experienced accountants are aware of compliance regulations and use software to make processing more efficient. Our small business accounting services might just be what you need. We can customise the package we provide to meet your requirements. Connect with us so that we’ll know what you need.
