15 Key Best Practices to Improve Accounts Payable in 2020
Here are 15 tips for accounts payable best practices you can use today:
- Simplify the accounts payable workflow
- Limit access and establish controls
- Prioritize invoices
- Make good use of technology
- Eliminate AP fraud
- Renegotiate payment terms
- Reduce verification and signature responsibility
- Organize vendor data with a supplier portal
- Look around for discounts
- Go paperless
- Automate your processes
- Check for duplicate payments
- Review data on a regular basis
- Keep track of disputes and resolutions
- Reconcile accounts at the end of each day
Successful companies are always looking for ways to optimize internal processes, including accounts payable. No matter the size of your business, there will always be the need to pay bills.
Thus, it’s in your best interest to understand and update your accounts payable best practices on a regular basis. Here are a few tips and tricks to get you there:
#1) Simplify the accounts payable workflow
Reduce the number of check runs and consolidate all data into a central repository. Two check runs per month is plenty. When the check run is prepared, all invoices should have matching paperwork and approval signatures.
#2) Limit access and establish controls
Establish separation of duties and internal controls within your AP process. Grant only specific employees access to the Master Vendor File for better control over which vendors are approved. It also helps to oversee exactly where payments are going and identify any mistakes in vendor data.
#3) Prioritize invoices
Each check run must have a cash disbursement ceiling for easier budgeting. Invoices should always be prioritized in order by the due date and payment terms.
Don’t pay invoices immediately as they come in. This can hurt your working cashflow in real-time. Invoice processing should be partially based on when the payment is due.
#4) Make good use of technology
This can mean utilizing any system to speed up the process, from laser printed checks to optical character recognition (OCR) and everything in between. Your accounts payable module should be set up so that transactions flow properly. Technology is a way to analyze and reduce human errors on a massive basis and facilitates the approval process.
#5) Eliminate AP fraud
Anywhere money is handled can be a high-risk area for a business. Always implement policies and procedures to mitigate risk.
Look for dummy vendor accounts where employee fraud can happen. Have system parameters set to where the staff that cuts checks cannot create new vendors.
#6) Renegotiate payment terms
No one says your vendor payment terms are set in stone. Usually, invoices come in at a net 30, 60, or 90 days. Regardless of the terms given, you can always call to renegotiate. Even if they say no, it’s always best to call ahead with late payments. In this case, some vendors may excuse any late fees.
#7) Reduce verification and signature responsibility
Typically a CFO or higher up is the one that signs the check but they must never be involved in assembling the check run. The AP department should be running the aging, choosing which invoices to pay out, assembling the right documents (purchase orders and delivery receipts), printing the checks, etc. The CFO should simply verify the invoice amounts and sign off on the checks.
#8) Organize vendor data with a supplier portal
To establish improved vendor interactions and good relationships, set up a supplier portal. Not only does it increase communication between both parties, it organizes your data and empowers the vendors.
Everything from invoicing to tax records and payment details can be kept in one spot. Merchants can update their information at any time and the system will change it automatically.
#9) Look around for discounts
The accounts payable system becomes more efficient with the less money you owe. Early payment discounts are out there, you just have to ask. They aren’t often advertised.
Call your vendors and find out what type of discounts or rebates they offer for paying invoices early. Some creditors will also reduce interest rates for a certain number of payments made on time and in full.
#10) Go paperless
Paper invoices and paper checks are becoming obsolete. That’s because the more business processes we digitize, the less of a need there is for manual cash management.
There is no need for an actual paper trail anymore because audits can be performed through software systems. Consider going digital with your payable team and investing in helpful technology.
#11) Automate your processes
Accounts payable automation software will help create automated systems for your entire payable department. You can skip the manual data entry and scan an invoice directly into a program that will immediately begin matching it with the proper corresponding paperwork.
An automation solution speeds up the approval process and offers an additional set of eyes on your accounting system.
#12) Check for duplicate payments
Whether you have an automated program for payment processing or are matching invoice numbers manually, it’s important to always check for duplicates—on both sides. Both duplicate invoices coming in and duplicate payments going out.
It’s a lot easier to take care of the issue before it leaves your hands. It reduces leaks in your cash flow and keeps your books organized.
#13) Review data on a regular basis
Consistent visibility on your bottom line, including accounts payable data, can assure a business they always keep proper tabs on cash flow. It helps to identify any red flags and avoid common bottlenecks. Advanced analytics and reporting will:
- Identify risk and reduce fraud
- Show trends in your AP processes
- Improve cash flow planning
- Increase working capital
- Monitor the value and volume of invoices and payments
- Establish an audit trail for all activities
#14) Keep track of disputes and resolutions
To maintain vendor relationships, it’s important to address and resolve any invoice disputes as soon as possible. If a vendor issue arises where you were overcharged or a discount wasn’t applied and you make the payment, you lose the ability to argue it down the road. Therefore, it is critical to keep track of all vendor disputes and resolutions to track funds more efficiently.
#15) Reconcile accounts at the end of each day
Even though it’s extra work, reconciling accounts at the end of every day is a good habit to get into. If something happens where you need to make an additional payment to a vendor and it’s not recorded, then your books won’t match the bank. This can hurt cash flow and reflect poor bookkeeping practices.
Regardless of the company size, establishing some accounts payable best practices now will help save a business time, money, and optimize future workflows.