Nonprofit Finance Automation to Fuel Your Mission

Yes. Nonprofits are required to adhere to Generally Accepted Accounting Principles (GAAP) in the United States, which includes the functions of accounts payable and accounts receivable.

Just like for-profit organisations, nonprofits need accounts payable to represent the amounts owed to suppliers, vendors, and other creditors for goods and services received (yet not paid for).

Nonprofit accounting considers expenses like:

• Utilities and rent
• Office supplies
• Equipment
• Professional services (i.e. legal, accounting)
• Maintenance and repairs

Nonprofits may also incur costs for marketing and advertising. All of these expenditures require some form of financial management, regardless of whether the business is fundraising or turning profit.

Subsequently, if a not-for-profit business is using Excel for bookkeeping and accounts payable, it may fall behind or miss important vendor payments.

Effective accounting software helps a nonprofit stay compliant, maintain healthy supplier relationships, and ensure accurate financial reporting.

The majority of nonprofits use the accrual basis of accounting (as opposed to cash-basis accounting). 

Accrual basis is the preferred method because it provides the most accurate view of a company’s financial situation (including real-time cash flow and liabilities). It also ensures transparency for funders, donors, and regulatory bodies.

Revenue
In accrual accounting for nonprofits, revenue is recorded when it is earned, regardless of when cash is received. For example, a grant that is awarded but not yet received, would still be considered revenue.

Expenses
Functional expenses are recorded when they are incurred, not necessarily when they are paid. If a nonprofit receives an invoice for lawn care, the expense is recorded when the services are received (even if the payment is being made later).

Financial Statements
In the accrual basis of accounting practices, nonprofits prepare financial statements such as:

• Balance Sheet (statement of financial position)
• Income Statement (statement of activities)
• Statement of Cash Flows

Internal Control
Accrual accounting helps nonprofits monitor receivables, payables, and other obligations, which is crucial for effective budgeting and financial planning. 

This form of accounting also helps nonprofits maintain a clean audit trail, which is critical for the IRS to continue granting tax-exempt status.

Fund Accounting
Fund accounting is a specialised accounting method also used by nonprofits. This is a specific method used by CPAs to manage and report funds that have a restriction on their use.

Internal controls are important to ensure the integrity of operational and financial activities. Some examples of common internal controls for a nonprofit organisation include:

• Segregation of Duties: Separate responsibilities for authorising transactions, recording transactions, and custody of assets.
• Authorisation: All financial transactions require authorisation from designated personnel. 
• Access Controls: Restrict access to certain systems that contain sensitive financial data.
• Reconciliations: Regularly reconcile bank accounts with your general ledger to ensure accuracy and maintain accounting standards.
• Budgeting and Reporting: Develop and adhere to a detailed budget that outlines expected revenue/expenses, then regularly review reports.

It’s also important to establish clear written policies, including procedures for financial management and conflict of interest. 

Nonprofits should also periodically conduct independent audits and reviews of everything, from day-to-day journal entries, net assets, and disclosures, to short-term assets (including depreciation), the chart of accounts, and other forms of reporting.

Accounts payable automation offers significant benefits to a nonprofit organisation, enhancing accuracy, efficiency, and eliminating time-consuming manual tasks. 

Key advantages of AP automation for nonprofits include:

Greater Cost Savings
AP automation reduces administrative and storage costs. It also enables nonprofits to collect on early payment discounts offered by vendors.

Improved Efficiency
Automation streamlines the entire AP process, reducing the time needed to manage invoice data and make manual payments.  

Streamlined Compliance
AP software provides a detailed, time-stamped audit trail that enhances transparency for all stakeholders involved. It also ensures adherence to policies.

Enhanced Accuracy
Tools to automate AP reduce human errors in manual data entry. These systems can also easily detect duplicated invoices and payments.

Better Supplier Relationships
Automation ensure vendors are paid on time, fostering better relationships and potentially improving the terms of service.

Additional Benefits

• Data protection through secure access controls
• Seamless integration with existing ERPs (like QuickBooks)
• Easily scales with higher transaction volumes
• Real-time visibility into AP status
• Improves cash flow forecasting

To maintain financial health, transparency, and trust, a nonprofit must manage grant payments effectively. 

Here are some critical steps to managing grant payments for donors:

1. Implement a Donor Management System (DMS). This helps to track donor data.
2. Provide Multiple Payment Options. This can include anything from credit/debit card to ACH and online payment platforms.
3. Ensure Secure Payment Processing. Use secure payment gateways to protect donor information. 
4. Automate Accounts Payable. Automate the processing of recurring grant payments to reduce administrative burden and ensure cash flow.
5. Communicate Regularly. Send receipts to donors for tax purposes and to say thank you.
6. Segment Donor Base. Use criteria like donor frequency, amount, and preferred comms.
7. Reporting and Analytics. Use the DMS and AP software to analyse trends and identify areas for improvement.
8. Ensure Compliance. Issue receipts and maintain proper audit trails.
9. Offer Donor Support. Provide a dedicated point of contact to address any payment issues promptly or answer questions.

A nonprofit should also be open to productive feedback about the payment experience to refine the process and enhance donor satisfaction.

Yes, you can manage both grant payments on behalf of donors and business payments in one integrated solution. 

Software geared towards nonprofit accounting will be the most successful strategy and can consistently segregate your payments based on custom rules and regulations.

Solutions like Tipalti will ensure all global compliance and security standards are met, offering an unparalleled level of flexibility when it comes to nonprofit vendor payments. 

Using Tipalti, a nonprofit has the ability to make quick grant payments to 196 countries in 120 currencies using 50+ different payment methods.    

Additionally, Tipalti offers a self-service vendor portal. This gives nonprofits the time to focus on fundraising, strengthening donor relationships, and accomplishing more strategic tasks. 

Tipalti enables a nonprofit to collect all tax forms up front before any payments are made. This ensures tax compliance and removes the manual process of collecting tax forms from vendors at the end of the fiscal year.