Nobody likes to talk about money, but like it or not, money is the grease on the wheels that keep a business running. That’s why having a capable, efficient accounts payable department is so critical.
However, there are many ways to go about setting up the best accounts payable systems for your company. In this article, we’ll discuss eight tips that can help you improve your accounts payable system and be on your way to more efficient and profitable business practices.
1. 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.
In contrast, 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.
2. 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
3. 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.
4. 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.
5. Set up Reminders for Payments
Another way to improve the accounts payable process is to simply set up calendar reminders of payment due dates. Chances are with a busy accounts payable department, you’re 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.
6. 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.
7. Streamline and Standardize Your Workflow
Reorganizing and standardizing workflow is another great way to improve your accounts payable process. Having a solid structure in place for your processes will ensure no balls get dropped along the way. There are several processes within AP that you can improve upon. Here are some key processes to set up and streamline:
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 it makes it easier to help negotiate better deals in the future.
Tracking data from suppliers
One of the most important things in measuring your company’s success is data—including information related to vendors. At the very least, of course, 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.
Obviously, 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 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.
Your invoicing system is the backbone of your accounts payable department, so streamlining it can make a significant impact. Clearly, going paperless and setting up digital invoicing makes for efficient and timely payments. Beyond that, though, actions like regularly reviewing accounts payable aging reports can help you prioritize what needs to be paid and when.
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.
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. It also acts as a failsafe: If someone is out sick or on holiday, 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.
8. 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.
But with an automated invoice system, software automatically ports data from the invoice — often through — into your ERP system. Generally, these softwares offer other efficiencies and automation, too, like transparent invoice tracking and automated approvals.
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 Software 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.
Learn more about how your accounts payable department can save time and money today.
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