How does your enterprise manage Accounts Payable (AP) obligations?
How are your Accounts Payable Turnover looking like?
These are a few crucial questions that every organization needs to answer and work towards. Because time is money when it comes to AP management.
AP management is vital for the smooth functioning of any business entity. As it involves nearly all of a company’s payments outside of payroll. For an organization’s financial statements to be explicit, the account payable balances should be accurately recorded.
Today, finance teams are entrusted with a huge task – from supporting growth strategies to long-term business planning. There are a few things that are standing in the way of effective accounts payable management. These include excessive dependence on paper, spreadsheets & e-mails to process vendor invoices, approvals, and payments.
Did you know that 26% of small and midsize organizations use spreadsheets to manage their expenses? And, 49% of these organizations use a handwritten record to track, manage, and analyze spend. Can you imagine how this can impact enterprises?
An automated accounts payable system is a great way to overcome these issues, spike effective communication, and improve employee productivity. Here, we have gathered 7 industry-best practices to help you in your accounts payable management.
7 Strategies to Manage Accounts Payable that will Boost Your Cash Flow:
1. Automation: Your magic formula to getting rid of repetitive and mundane tasks
Managing Accounts Payable can be a timely and costly process. Recent research indicates that AP automation can help you save a lot of dollars, depending on your company size. AP automation will lower costs, enable faster payment cycles, reduce staff input, improve control, and better supplier relationships.
There are many tasks that can be automated. The main one being approving purchase orders or making payments against invoices. These tasks are extremely laborious and consume a lot of time. One simple way to deal with these is to automate them by setting up email notifications for:
- pending approval,
- processing payments, and
- matching invoices against purchase orders.
Depending on the level of automation you select, you may be able to:
- scan invoices automatically,
- track delivery receipts, and
- resolve disputes electronically
This helps spike productivity and gives ample time for finance teams to focus on more important tasks.
2. Centralize your accounts payable processing and reporting:
The 2nd important strategy is to centralize your AP processing and reporting through a shared service environment. This will help you ensure all employees adhere to common practices and standards. This aids in measuring their performance against established business metrics as well.
You can accomplish more tasks in a faster time frame and with fewer resources – ultimately reducing enterprise costs.
3. Setting up supplier/vendor portals:
Setting up a well-planned vendor portal enables suppliers/vendors to electronically track:
- status of orders,
- delivery schedules,
- potential product shortages, and
- payments received.
This will save a lot of time, cut down on manual errors, and improve order accuracy.
4. Designing an effective AP management workflow:
This is a crucial strategy to manage accounts payable that most organizations tend to skip. Creating an AP workflow will enhance the efficiency of your accounts payable processes. They can help you:
- identify and resolve system bottlenecks,
- streamline process handoffs, and
- improve liquidity management in the most effective manner possible.
The key here is to choose the right workflow system that best suits your organization.
5. Reducing fraudulent errors:
Automation will help you minimize fraudulent money transfers, theft, or costly errors. You can add additional security layers by scheduling a one-time setup of recurring payments. Thereby, reducing the risks associated with payments to a great extent.
Setting up stringent security policies. Multi-stage approval from department heads and spot checks will help reduce the risk of fraud.
6. Record and back-up complete audit details:
Set up a system to record the complete transaction details every time a purchase order is made. It is crucial to record all purchase orders and payment transaction details. This will help you get instant access to complete budget and spend details, thereby, helping you control and monitor accounts payable spend.
7. Shifting to a safer business payment automation mode:
Ensure to generate a transaction ID for every processed payment. The payment automation system that you choose, should automatically capture and get mapped against the invoice. This ensures three-way matching happens in real-time and the payment trail can be tracked at any instant.
The benefits of an automated business payment mode are many. Some of them being:
- improved accounts payable governance,
- streamlined processes,
- total control on budget spend,
- increased productivity,
- effective communication and collaboration,
- faster invoice processing, and
- minimized risks associated with routine invoice payments.
This ultimately contributes to a great relationship with your vendors with no room for errors.
For any modern business, accounts payable is one of the most high-stakes tasks. The risks are simply too great to leave to chance. A poor accounts payable process can damage your relationships with suppliers. Thereby, exposing you to the risk of fraud. The strategies mentioned in this post will help you a great deal to ensure a seamless and responsive accounts payable process. However, we recommend you to come up with an Accounts Payable map yourself that best suits your organization – keeping the above-mentioned practices as your guidelines.
Remember: A little planning, in the beginning, will get your organization moving towards the success path.
Explore how automation and enforcing AP control strategies will boost your cash flow!