Getting stuck in a rut is never a good idea for any part of a business, but have you ever thought that perhaps your accounts payable processes could be in need of an overhaul?
It might not have occurred to many finance leaders that this area needs a revamp, but it's actually a good idea for all forward-thinking organizations. Accounts payable (AP) doesn't need to become all-singing, all-dancing overnight, but a regular review could help to prevent late payments, disgruntled suppliers and even unhappy employees who are stuck doing menial jobs.
If you haven't assessed your AP lately and have a sneaking suspicion that your finance department is spending too long on invoices, then this may be a good time to take a fresh look at how efficient your system is - and to investigate new methods of making it more streamlined.
It might sound daunting, but boosting efficiency can be easily achieved simply by making some small changes. Here are ten steps to streamline your accounts payable.
1. Assess what's wrong
Going back to basics and mapping out your entire AP process is essential if you are to spot potential gaps and work out what new tasks any new system will have to manage. Go back over your records for at least a month (but preferably three) so you can see any obvious trends - descriptive analytics could be a handy tool here in presenting the results visually.
This should help to clearly outline factors like invoice cycles, issues with fraud, cash flow bottlenecks and compliance risks that could otherwise be slipping through the net. Other problems like out-of-date vendor records clogging up the system should also be flagged up here.
You can then take your data and make accounts payable key performance indicators (KPIs) to find out how effective your company really is in achieving its objectives.
2. Standardize your AP processes
Ensuring everyone is singing from the same hymn sheet is next, as inefficiency is the only outcome if different people are carrying out tasks in different ways. For example, it's important to have a plan for what to do with supplier invoices once they come in, as this could prevent bills from sitting on desks in one area and being processed quickly in another.
According to a study of 250,000 invoices by Due, 63% were paid within 30 days. It also found that invoices that hadn’t been settled within 90 days only had an 18% chance of being paid at any point in the future.
This should be an opportunity to review all legacy and paper-based systems as you work towards simplification and find places where standardization can be brought in.
3. Accept electronic invoices
One thing that slows down the accounts payable process significantly is not accepting electronic invoices. If you’re unwilling to accept ePayments, relying on paper invoices can increase the risk of delayed payments and lost paperwork, not to mention the added cost of paper and printing.
By diversifying their payment methods and accepting electronic invoices, companies can save money and improve the efficiency of your accounts payable department. Nowadays, there’s a range of AP automation tools that allow for seamless electronic invoicing, which is often much faster, more affordable and more secure than relying on paper invoices.
4. Have payment systems in place
It might sound obvious, but knowing in advance how your accounts will be paid is a big step towards simplifying the process of them actually being paid. For instance, are you using Automated Clearing House or credit cards? Do you have more fixed or variable expenses? Do you know who you spend the most with and when?
Knowing the answers to questions like these will help you to work out better methods of completing tasks, such as assigning all credit card payments to be done by the 15th of the month or direct debits to be cleared on the 1st and then checked up later.
5. Enhance existing vendor relationships
It’s important to build strong relationships with vendors to ensure you get the best deals on everything you need to run your business. When these relationships are successful, you can rest assured that your accounts payable processes will run more efficiently. Late or erroneous supplier payments can result in disruptions to your business’ flow of goods and services, so clear communication and attention to detail is essential in facilitating these positive relationships.
Streamlining your AP department’s processes using automation tools can help to reduce or eliminate late payments. Here, using electronic payment methods can help ensure payment procedures run more smoothly as they are predictable and provide more visibility into the entire process. This means speedier deposits and no need for physical checks in addition to reduced processing costs and less stress when it comes to your invoice management process - so everyone’s happy.
6. Early payment discounts
Exploring opportunities for early payment discounts is a great way to maximize your potential savings and ensure vendors receive their payments in full and on time. Be aware that if expenditure costs are more than the early payment discount threshold, it may not merit the extra spend.
It’s important to be aware of which vendors offer these kinds of discounts and any interest or late fees they may apply. Once you have this information, you can prioritize payments or use it during contract negotiations. Implementing automated AP software can also improve your cash management by enabling you to capture early payment discounts quickly.
7. Use accounts payable automation
In today's modern, fast-paced world, there are numerous benefits of AP automation software, from simplifying invoicing processes to reducing the burden of menial jobs for your finance team.
It can be customized to complete tasks such as automatic invoice capture, data uploading and synchronization to your enterprise resource planning programs, which most companies will agree is a serious time-saver.
According to figures from MineralTree, 38% of companies were starting to automate their accounts payable in 2020, up from 24% in 2019. This is perhaps unsurprising given that it could take the average cost per invoice down to as little as $5, Levvel Research found, as well as freeing up employees to perform more useful tasks and improving relationships with vendors.
8. Conduct frequent reports
Reports allow you to get an overview of your business so it’s important to carry out routine reporting to ensure you’re consistently pinpointing ways to improve your payment processes. Having frequent visibility into your business is key to identifying bottlenecks within the AP process, as well as any existing or potential risks that are slowing it down.
Regular reporting can also help you to identify trends, reduce fraud and establish an audit trail for all of your various business activities. Additionally, the information gleaned from these reports can help you to understand the value and volume of your invoices and payments to discover ways to increase cash flow and business capital.
9. Remove manual data entry
Manual data entry is extremely outdated in the accounts payable process. If your accountants are still spending their time on tedious data entry tasks, it’s time to embrace automation.
Entering data manually into all of your systems not only takes up a lot of time and incurs additional costs for your business, it also makes you more prone to errors and misinterpretation. AP automation software can help to reduce these risks and save your business valuable time and money by eliminating manual data entry, speeding up the data extraction process and allowing you to manage invoicing more efficiently.
Using an enterprise resource planning (ERP) system in tandem with AP automation software can help to further minimize the chances of data errors by enabling you to automate many of your firm’s crucial functions including inventory, sales, supply chain, and order management. According to a recent Insights for Professionals report, almost 70% of organizations agreed that ERP software has provided them with greater visibility into their data and over half (50.24%) said that they’re benefiting from optimized processes. Using these technologies together will help you achieve a streamlined and error-free accounts payable process to maximize your business’ resources.
10. Archive effectively
A good accounts payable system will keep everything organized right up to the last stage in the process, which is record-keeping for future reference. Retaining data so it can be retrieved quickly whenever it is needed is essential, so having a standard procedure to make this happen shouldn’t be ignored.
Accurate record archiving will keep regulators happy should audits come calling, as well as making compliance management less of a headache for all concerned.
Again, AP automation software can assist here when it comes to laying down a paper trail without the need for tedious data-inputting that can leave employees bored and dissatisfied.
When done well, accounts payable processes can effectively serve the needs of businesses of all sizes. However, even if your system is looking bloated and sluggish, you can see from the steps above that it isn't too difficult to begin making changes that can positively affect both the finance team and the whole organization.
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