15 Ways to Improve the Accounts Payable Process
Ira Brooker 
Written: November 20th, 2020 Updated: April 13th, 2023
In an era of ongoing economic uncertainty, having a capable, efficient accounts payable department is more critical than ever. The stability and reliability that comes with accounts payable process improvement can make a big difference in understanding your cash flow, maintaining strong customer relationships, and other important elements of keeping your organization’s workflows moving smoothly.
There are many ways to go about setting up the best accounts payable systems for your company. In this article, we’ll discuss fifteen tips that can help you improve your accounts payable system and be on your way to more efficient and profitable business practices.
“Automation, in its many forms, is undeniably the foundation to enable successful communication in 2022 and beyond.”
Gina Armada, MHC CEO
1. Eliminate Paper Invoices
Remember being assigned to make an outline before you wrote a paper in school? That wasn’t just busywork. Making an outline of your process before getting started is always an excellent way to visualize each step and consider what changes need to be made to make your AP system more efficient.
Mapping your AP process can take a number of forms, from drawing up a flowchart on an office whiteboard to preparing a PowerPoint presentation of your workflow to writing out individual steps on sticky notes. For purposes of easy shareability and editing, however, an automated AP system is the most reliable way to go.
An automated AP software solution allows you to visualize your entire process from beginning to end without having to keep track of written documents or separate files. The data generated by an automated system makes it easier to identify bottlenecks, inefficiencies, and other problem areas. By mapping your workflow, you can take action to address those concerns before they become a larger issue.
2. Streamline and Standardize Your Workflow
Periodically reorganizing and standardizing your AP workflow is key to building a solid structure that ensures nothing gets lost along the way. Every workflow is different, but there are several processes within AP that most any business can improve upon. Here are some key processes to set up and streamline:
Selecting vendors
Finding the right vendors takes time. You have to get quotes from the companies that offer what you’re looking for and compare to find the option with the best cost and product for you. Make things easier in the long-run by keeping a list of approved vendors that team members can rely on.
Create a cheat sheet that offers an at-a-glance comparison of go-to services or products, their prices, and payment options. This not only helps ensure the product you’re ordering is what you need and within budget, but also makes it easier to help negotiate better deals in the future.
Tracking data from suppliers
Data is crucial to measuring your company’s success—including information related to vendors. At the very least track basic contract information such as renewals and payment deadlines, but also try to keep tabs on variables like discounts for bulk purchases, rebates, etc. This sort of information ensures you’re getting the best deal and can prove helpful when the time comes for contract renewal.
Reviewing contracts
When you begin a new vendor relationship, you’ll need to review the contract to get a clear idea of what’s expected. But contract reviews should also be a regular process. To facilitate this, designate a person or a team to keep an eye on the contracts’ terms and dates, especially before renewals. And if you make any changes to a contract with a vendor, have legal experts review it, too.
Invoicing
Your invoicing system is the backbone of your accounts payable department, so streamlining it can make a significant impact. Going paperless and setting up digital invoicing makes for efficient and timely payments. Beyond that, actions like regularly reviewing accounts payable aging reports can help you prioritize what needs to be paid and when.
Procurement
Procurement can be an especially tricky process to manage from an accounts payable standpoint. Rogue purchasing and purchasing overrides can quickly create chaos, putting cash flow and timely, accurate payments to suppliers at risk. To calm the waters, carefully assess the purchasing habits and workflow of your internal buyers. Strategies like providing an approved vendor list or even tracking outstanding payables by vendor and payment terms can help.
Reporting
Without accurate accounting records and reporting that detail exactly when and what to pay vendors, it’s impossible to run accounts payable. Some ways to improve reporting include double-checking that invoices match the terms outlined in the contract and the purchase order, automating reconciliations, and checking unreconciled items regularly. As important as these processes are, another critical component to streamlining workflow is having a centralized location where team members can track all payments and progress.
There are many benefits to having a single repository. First off, it builds confidence that data is accurate and up-to-date, preventing errors like duplicate invoices and thus possible overcharging through duplicate payments. It also acts as a failsafe: If someone is out sick or on vacation, other team members know exactly where to find that work in order to step in. By keeping everything organized and in one place, you’ll save time, money, and manpower, because everyone will be able to track the work together.
3. Automate Your Workflow
Though the above solutions will help streamline processes, streamlining will only take you so far. Streamlining consolidates steps and centralizes information to reduce redundancies, but processes might still rely on manual completion of tasks, like data entry and approvals. To ensure these processes are truly efficient, automation is key.
For example, you might still be entering invoice information by hand, which not only increases the chances of creating errors in the data but also takes a fair amount of team members’ time. After all, people can only type so quickly.
With an automated invoice system, software automatically ports data from the invoice into your ERP system. Software solutions offer other efficiencies and automation, too, like transparent invoice tracking and automated approvals.
“Our purpose at MHC is to make people’s work lives simpler. We remain committed to delivering automation solutions that increase operational efficiency while elevating experiences for the people getting work done at their organizations each day.”
Gina Armada, MHC CEO
4. Avoid AP Fraud
Fraudulent activity is a major concern for every AP department, and even more so in an era when cybercrime is reaching epidemic levels. An AP system that relies heavily on manual processes leaves your organization open to a number of fraud risks, both internal and external. Those threats can come from falsified invoices and expense reports, social engineering scams, stolen checks, and any number of other sources.
In his webinar “Techniques to Reducing the Probability of Fraud in Organizations,” Dr. Rocco Lueck notes that “while organizations will spend a lot of time on detection, preventing fraud is also a big part of it.” While an automated software system can’t guarantee 100% protection from fraud, eliminating manual processes provides a number of strong safeguards. By removing many of the easiest opportunities for fraud, automation helps prevent bad behavior before it can begin.
5. Eliminate Paper Invoices
One of the easiest ways to add efficiency to your accounts payable process is to move to a digital invoicing system. Paper invoices take up unnecessary filing space, and they’re much easier to misplace, leading to more guesswork, wasted time, and even late payments down the line.
Using digital invoices can shorten payment times, help prevent errors, and streamline your process, ultimately saving time and money. Faster payments not only put you in the good graces of suppliers and partners, they can help you avoid late fees. You might even save money with early-payment discounts from vendors.
And since digital invoices are, well, digital, they’re easier to track and store. No more rooms full of filing cabinets or hassling with inter-office mail that gets lost in the shuffle, resulting in duplicate documents and mystery statuses. Instead, team members can easily look up any invoice to check the status, making everyone’s lives easier.
6. Eliminate Data Entry Mistakes
The accounts payable process involves a whole lot of data, and all of that data has to come from somewhere. Unfortunately, a manual data entry process makes it all too easy for avoidable mistakes to make their way into your AP system. Manual data entry can be a repetitive and tedious task, which increases the risk of incorrect calculations, duplicate payments, missing invoices, and many other missteps that can cause serious delays and miscommunications.
Investing in automated accounts payable process improvements helps to eliminate human touch points that inevitably lead to human errors. An automated solution with optical character recognition (OCR) can automatically extract necessary data from invoices and documents of all kinds, from PDFs and Word documents to emails and faxes to scans of paper invoices. An automated 3-way matching system instantly compares invoices against corresponding purchase orders and receipts of goods or services to ensure that all data points match. 3-way matching also flags any errors for further review and re-routing.
7. Avoid Duplicate Payments
Making multiple payments on the same invoice can be a real headache for your AP team, but worse than that, it can also damage your relationships with vendors you depend on to keep your business running. Duplicate invoices occur when more than one invoice is processed for the same payment. This can happen when an invoice is lost or misplaced, when payment is delayed long enough that a vendor submits a second invoice, when a recordkeeping error misses an invoice that has already been paid, or when an employee or vendor submits a second invoice with fraudulent intent.
Automating your accounts payable functions helps your business avoid duplicate payments in several ways. A centralized dashboard provides at-a-glance visibility into which invoices have already been paid and which remain outstanding. Automated processing can automatically flag any errors or exceptions that might lead to an invoice being processed a second time. Faster processing times and automated reminders and notifications for approvers cut down on delays in payment and the miscommunications that come with them.
A recent webinar by Mary Schaeffer notes that preventing duplicate payments can have an even more beneficial ripple effect. “Anything you do to stop duplicate payments or to guard against them will also help you guard against fraud,” Schaeffer notes.
8. Set up Reminders for Payments
Another way to improve the accounts payable process is to simply set up calendar reminders of payment due dates. A busy accounts payable department is often managing many payments on different timelines, so though it may seem like a minor step, reminders are essential to on-time payments and maintaining goodwill with suppliers.
There are many ways to set up the best calendar alerts for you and your team. You can do it directly in a calendar application. Alternatively, some accounts payable systems have built-in reminders that sync to your calendar. Whatever the method, make sure to set up the reminders with all of the relevant payment information and final due dates.
9. Look for Discounts
Just because you have a healthy cash reserve and payment reminders in place doesn’t mean you shouldn’t actively look for discounts, too. Even small savings can add up in the long run. Then, you can put those savings toward your cash reserve or profits.
The best way to discover discounts is to stay in touch with your vendors. Many will offer discounts for early payment, while others might give a discount for paying via direct deposit rather than check. But you’ll likely never know about these discounts if you don’t ask.
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10. Evaluate Your Relationship with Your Suppliers
Perhaps one of the most overlooked aspects of your payment process is how you work with vendors.
Just like everyone else, vendors prefer to partner with people who help them and respect them, so ensuring these relationships are set up for success is a great way to keep things running smoothly. Plus, maintaining healthy partnerships often means suppliers are more likely to be flexible if you ever need leeway with payments.
The best way to make sure your relationship with a vendor is on solid footing is to take a close look at how your process fits in with their needs.
Collaborate with them to determine how your accounts payable process can better suit their needs. Do they prefer e-payments or paper checks? Are they okay with bulk payments, or do they need each invoice paid separately?
If you have a tense relationship with some of your suppliers due to consistent late payments, consider some of the below actions to shore things up:
- Set up calendar reminders for payment due dates
- Set up a tiered approval process to prevent bottlenecks when people are out of office
- Create self-service portals so suppliers can track inventory and payments received
11. Budget Appropriately
While you’re working on maintaining the best relationship with your suppliers, it’s essential that you keep your internal budget up to date and organized appropriately. After all, if there’s no money to pay suppliers, you’ll quickly end up in hot water.
A budget helps establish a realistic picture of overall finances by breaking down projected cash flow and expenses. A standard budget will calculate net profit by subtracting projected costs from your income. Knowing each of these breakdowns is essential to planning for scheduled payments.
A simple spreadsheet will do for setting up a budget, but there are also many types of budgeting software and programs that can help streamline the process.
12. Build a Cash Reserve
Since your budget just encompasses planned income and costs, it’s a good idea to build a cash reserve for a rainy day or any unforeseen events. Say your office printer breaks and you need to replace it, or there’s a slight downturn in sales for a few months. Having a cash reserve will help keep your company financially healthy and ready to weather anything that comes your way. When it comes to your accounts payable process and making sure suppliers and vendors are paid on time, this cash reserve is particularly important.
If, for example, you’re stretching repayment periods with some vendors to increase cash flow for a big project, you’ll want to have cash on hand for other vendors who demand payment ASAP.
But be wary of waiting to pay vendors back. If your cash reserves run out, you could become trapped in a vicious cycle of late payments that not only threatens your good standing with suppliers but also runs up interest.
13. Keep Contact Information Updated
Things seldom sit still for very long in the modern business landscape. Finding out after the fact that a vendor’s address has changed, a new representative has taken over a longstanding account, or a new preferred payment method has been put in place can result in costly miscommunications and payment delays. Make a policy of regularly reviewing and updating contact information for all of your regular suppliers, and be sure to keep them informed of any contact changes in your organization as well.
14. Keep Track of Disputes and Resolutions
When accounts payable errors and disputes do inevitably arise, it is important to document them thoroughly. Overcharges, missed payments, duplicate payments, and other common AP errors take a lot of time and effort to rectify, and even more so if the facts of the matter are in dispute. Recording all disputes and their resolutions in your AP system provides a source of truth for future reference, helping your team avoid any further confusion or conflict.
15. Reconcile Accounts on a Regular Basis
Setting a regular schedule for reconciling accounts is an excellent practice for any AP team. This helps to catch possible issues before they become a bigger problem. A daily reconciliation schedule ensures that all of your books match at the end of the day. That can be especially useful in the event of an internal or external AP audit.
Find out more! Discover the Differences Between Accounts Payable and Accounts Receivable,
Between AP and Notes Payable, and Between AP and Accrued Expenses
Finding the Solution to Your Accounts Payable Needs
Setting up an efficient and effective accounts payable department may seem daunting, but by following the steps above, you’ll be on your way to transparent and successful business practices in no time.
To get there, though, a great software solution makes all the difference. MHC offers a myriad of ways to optimize your accounts payable processes, with features like invoice and approval automation, tiered approvals, self-serve vendor portals, and more. Contact us today to schedule a demonstration of the many ways MHC software solutions can keep your workflow moving smoothly.
