How to Organize Your Accounts Payable Department

MHC Marketing    June 5th, 2017

How to Organize Your Accounts Payable Department

In today’s work, businesses are always finding new ways to stretch their dollar. From improving energy efficiencies to sourcing better priced materials, businesses must increase their profits while maintaining quality. The same can be said for a business’ accounts payable department.

No matter the size of the business, every company has bills to pay. For small businesses, the bills they get can generally be handled by a few members of staff. For larger corporations, however, they might get thousands of invoices per month, requiring the efforts of an entire accounts payable department. Regardless of your accounts payable department’s size, you can implement some best practices to improve your bottom line.

Learn accounts payable tips and tricks to streamline your processes and enhance your cash flow.

Accounts Payable Basic Structure

Even if you have a tiny accounts payable department or even lack a formalized department entirely, properly organizing your accounts payable is crucial. Without a stable structure, you could be missing out on opportunities to save your business money. Here are a few basic accounts payable organization ideas to keep in mind:

Centralize Accounts Payable

Almost all organizational issues within your accounts payable system can be handled by centralizing the department. Whether you’re a sprawling enterprise or a small family business, keeping your accounts payable information all in one place is essential.

Centralizing your accounts payable department ensures your staff and management know where to go to handle invoices. It also enables your accounts payable staff to finish tasks more quickly and makes performance tracking easier. In short, centralization improves your department’s organization and speed, helping you cut operational costs.

Use an Accounting Program

If you’re a small business receiving a few bills a month, a manual or spreadsheet-based system will typically work well for you. However, if you’re receiving a few bills every day, you would benefit more from an accounting program.

These programs help you keep everything organized and in one place without the potential for error associated with manual methods. If you’re not already familiar with an accounting program, there are plenty of classes available for you to learn.

Personally Track Progress

Do not leave everything up to someone else. If you’re the CEO of a company, you should regularly keep an eye on your books, even when you’re running a large corporation. While letting an administrator enter the data on a regular basis can help reduce your workload, review these expenses and entries on a daily or weekly basis to check for errors.

If your business is truly too big for you to handle this, hiring a dedicated accounts payable professional is a step to consider.

Keep an Accounts Payable File

Keep a dedicated digital and analog filing system for your accounts payable department. Each invoice should be stored with relevant account information and contain the date of arrival, the due date and any pertinent comments. While most bills these days can handled electronically, any paper bills should be kept as well, along with their stub and envelope.

This file should include any business credit-card purchases, which should be deposited the same day they’re expensed. If you don’t know how to organize accounts payable files, you can pursue classes or personal training on the subject.

Pay Bills in Batches

Pay your bills on time, but be sure to pay them in weekly batches, rather than individually. This makes it easier to track outgoing checks in your ledger. Choose a day and time each week for yourself and an assistant to do this, or, if someone else is responsible for sending these checks out, review and approve the list of outgoing checks before they’re mailed.

Standardize the Purchasing Process

Make sure you have a particular purchasing process within your business. Employees and management should know who can and cannot make purchases for the firm and what level of approval they need to get before making substantial purchases. This minimizes confusion both for you and for employees.

These are broad-sweeping accounts payable organization ideas will help most aspects of your accounts payable department. However, you can employ other, more targeted practices as


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Client and Vendor Management

Keeping track of your customers and vendors is an essential part of cutting costs and maintaining healthy business relationships. Make sure you’re keeping clients and vendors happy by doing the right thing at the right time for each entity. Additionally, keep track of your vendor contracts for money-saving opportunities, such as batch sales. Here are a few ideas for properly managing and maintaining relationships with your clients and vendors:

Manage Customer Relationships

Always track information about your customers. Every interaction should be logged so you know what to expect and what to do with each client. Flag any particularly important notes, such as communication preferences. Do the same with your vendors whenever possible.

Keep Detailed Contract Records

After you’ve negotiated a contract with a vendor, keep this data safe. Keep an electronic version of the contract and summarize the terms of the contract for easy reference in your purchasing and payables systems.

Inaccurate contract records can result in payment errors and delinquencies, which can disrupt your supply, so ensure that they are copied accurately and updated regularly.

Keep W-9 Files for Vendors

Always make sure you have a W-9 on file for each of your vendors. This allows you to keep everything together and prevents unnecessary hassle come tax season when you need to prepare your 1099 – inappropriate 1099 reporting can result in substantial fines.

Welcome New Vendors

It’s good practice to greet a new vendor with a letter that informs them of where to send invoices, along with any information they need to include on their invoices, like vendor ID numbers or project numbers.

This can help ease your processes by making sure your vendors provide the information your accounts payable department needs. Vendors also appreciate this practice, as it means their payments process more quickly.

Acknowledge Inequity

For many companies, especially retail companies, the holidays often come with lots of inequity between accounts payable and accounts receivable. If your business isn’t financially prepared, this can mean you’re relying on your vendors’ credit.

As soon as this occurs, be honest with your vendor about the inequity and when they can expect to be paid. By just acknowledging the inequity and thanking them for their patience, you can more easily maintain vendor relationships.

Invoice Management

Invoices are the basis of your accounts payable system so learning how to manage these appropriately is a critical part of running accounts payable departments smoothly. Process and track your invoices with the following tips:

Track All Invoices

All invoices should come to your accounts payable department before they’re paid. This allows department managers to log the invoice as a separate entity within your system. Without this tracking system, records of an invoice may get lost, causing problems when it comes time for an audit.

In this same vein, all invoices should be logged separately, and copies should be kept with appropriate notes, such as account or special handling notes.

Pay From Original Invoices

Always pay from the original invoice when possible. If you must pay from a copy due to loss of the original, make sure to check your records for the same invoice number and dollar amount. Any discrepancies should be sent back to the vendor.

Set Invoice Entering Policies

Have a solid policy for employees who have to enter invoice numbers so they enter invoices with a consistent format. When each employee has unique rules about entering leading zeroes, you could have multiple copies of the same invoice on file or spend unnecessary time tracking down a single invoice in your system. Such policies help maintain consistency, which helps maintain operational speed.

Keep the Audit Trail in Mind

When in doubt, think about what information you’ll need come audit season. To keep everything easily trackable, input invoices individually and always track the amount of the original invoice, even if you don’t plan on paying the full price. Detailed notes of everything are important for your audit trail.

Fraud and Error Management

Fraud and errors can happen whenever you employ humans in a company. From embezzlement and fraudulent bills to simple transcription errors, the accounts payable department can be a hotbed for fraud and error. Fortunately, you can combat both by implementing checks and balances in your systems. Some ideas for error mitigation include the following:

Separate Duties

This simple fraud minimization method requires different levels of authorization for various operations. For example, while junior employees can process and print checks, only managers of a certain rank can approve and sign them. You might even require a second signature on checks over a certain amount.

Use these controls and balances throughout your business operations to minimize fraudulent activity and keep low-level employees from accessing any information they don’t need to perform their duties.

Separate Operations

This type of operational separation combats both fraud and error by giving employees control over a narrower portion of your business’s operations. For example, employees may embezzle from your company by setting up a “dummy vendor” and paying invoices to themselves.

Alternatively, an honest employee may accidentally enter and pay a vendor twice for the same service. Avoid these errors and fraudulent activities by having different people in charge of vendor management and check issuing.

Train and Check Expense Reports

All employees must be trained on filing expense reports if it is to be a regular part of their work. Regularly evaluate your employees on this topic to make sure they are comfortable and accurate when creating expense reports. If the process is too complicated for them, use expense report software to help automate the process.

Reduce the potential for error or false reporting by segmenting your employees’ expenses into separate business credit cards, making it easier to check your employees’ work. You can even implement software that uploads data directly from the account for comparison against the employee’s report.

Consider Using Vendor Portals

Supplier portals help cut out the middle man in your system, reducing the roles your employees play in creating vendors and paying invoices. Instead of having employees set everything up, a supplier portal allows vendors to track and verify orders electronically, send invoices, receive payments and make edits. This helps reduce errors and fraudulent activity, improving your company’s order accuracy.


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Automating Processes

If you’re a mid to large size business, automating some of your processes may be a good way to cut down on your labor. Although electronic data interchange is not suitable for every business, the automation these systems offer help reduce errors and maximize profits. Some of the benefits of process automation include the following:

Minimize Errors

Since automated systems do not require human interference, they reduce the occurrence of human error. Some problems automated systems minimize include those associated with paying incorrect amounts, inputting wrong check or invoice numbers or even paying too early or too late.

Maximize Profit Opportunities

Some automated systems can check electronic communication with vendors, mining information to identify opportunities for savings, such as discounts and rebates.

Streamline Workflows

Automation can help your AP workflows reach a new level of efficiency. By tracking activity, automated systems can identify bottlenecks in the system, sources of error and other problems. You can then take this data and develop appropriate solutions to improve efficiency, creating an avenue for constant improvement in your accounts payable department.

Automate Reports

Automated reports give you a better picture of your business. For example, aging reports can help you identify checks that have not yet been cashed, while error reports help you identify problem areas in your processes.

Integrate Systems

Some automated systems can integrate with scanning systems, collecting data from scanned invoices for input into the system. These systems can integrate with check printers and bank records, automatically updating the system when checks are printed and cashed.

The availability of these functions depends on the level of automation you choose. However, all automated systems can guarantee a higher level of accuracy and speed than your employees.

Find out more! Discover the Differences Between Accounts Payable and Accounts Receivable,
Between AP and Notes Payable, and Between AP and Accrued Expenses

Manage Accounts Payable With MHC

Learning how to handle accounts payable effectively is an ongoing process that takes months, if not years, to perfect when you’re working with primarily manual systems. Streamline your process more quickly with a system that does most of the work for you, like our Accounts Payable Automation software.

MHC Software helps manage your company’s workflow more efficiently, automating the data collecting and entry processes. This user-friendly solution works for any business using any platform — no matter what system you’re currently using, our platform can immediately integrate into your current business operations.

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