11 Accounts Payable Best Practices to Streamline Your Process

Every forward-thinking business should constantly be on the look-out for new ways to improve their processes – even if it means diverging from legacy systems. Modernizing your business’s accounts payable (AP) department should be no exception. Are your AP processes taking advantage of best practices and forward-thinking technology?

 

For many businesses, the AP department doesn’t warrant a lot of attention, and thus updates to its processes tend to fall to the wayside. However, challenges in accounts payable can impact the entire company and even relationships with essential suppliers. Your AP department greatly influences your business’s cash flow, meaning that you want to guarantee the absolute best when it comes to accuracy and efficiency. After all, that is what will keep your business profitable, growing, and competitive.

State of AP Report 2021 Download

Understanding the Accounts Payable Cycle

The accounts payable cycle essentially refers to the process of receiving invoices, entering them into your business’s accounting system, and settling the payment after ordering and receiving goods or services from a vendor. However, there are a few nuances to the accounts payable lifecycle that present opportunities for streamlining your AP processes.

 

The following outlines a standard accounts payable cycle without automation:

  1. Receive an invoice via email or mail
  2. Review and manually enter or scan the invoice
  3. Route the invoice to appropriate department heads for review and approval
  4. Once approved, send out the payment owed
  5. Finalize and notate the closed payment for company records

 

It’s important to note that even if your business no longer receives invoices by mail, that does not mean that your accounts payable processes are automated. In fact, some organizations with manual processes will actually print invoices received via email to manually enter them into the accounting system. To learn more, check out MineralTree’s AP automation definition.

 

11 Accounts Payable Best Practices for a Successful Business

Here are 11 accounts payable best practices that your business needs to adopt to fund growth, streamline processes, reduce costs, enhance service levels, and seize new investment opportunities as they arise.

 

         1. Make Electronic Payments

There is a common misconception among AP teams that suppliers do not want to accept digital payments. However, this is untrue. According to our latest State of AP report, suppliers conversely cite customers’ unwillingness to move away from check payments as the biggest obstacle to accepting ePayments. Although the two groups are playing the blame game, data from vendors and AP teams shows that both want to move to digital payments.

 

Paperless AP processing can reduce the risk of delayed payments, lost paperwork, and mounting paper costs. Most vendors give the option of electronic invoices, allowing your AP department to (at the very least) scale down the amount of manual payment tasks.

 

Many AP departments (about 33%) still rely on paper checks to pay invoices. This manual process of writing and cutting checks is not just time-consuming, it’s expensive. In fact, each check costs nearly $5.00 per invoice. If they were to take a different approach to invoice payments and optimize their payment mix, these companies could save money on hard costs and improve efficiency just by diversifying their payment options.

 

With AP automation, electronic payment methods easily pay vendors without adding new processes to an existing AP workflow. Electronic payment methods are often faster, cheaper, and more secure than simply sending a check. Additionally, some digital payment options, such as virtual cards, offer cash back rebates which can result in a new revenue stream for your business.

 

         2. Standardize Your Accounts Payable Workflows

Standardizing your AP workflows is crucial to improving the efficiency of your end-to-end accounts payable processes. Start by setting up a structured system for managing invoices from start to finish. Important features of this system should include various invoice entry methods, receipt application and reporting, and credit or collection management.

 

The end result of standardizing your AP workflows varies widely from business to business, but certain principles remain true across organizations.

  1. The larger a business is, the more opportunities there are for broken or disjointed AP processes.
  2. Having multiple AP departments in your business can cause redundancy.
  3. Even if the business has multiple locations, invoice processing and payments distribution should be managed by one central AP department.

 

Keeping all of your business’s invoices in a central location will help your AP department locate and organize invoices by priority and date, further helping to facilitate the AP audit process. Implementing an AP automation solution will ensure that all invoices are digitally stored, easily accessible, and automatically synced to your enterprise resource planning (ERP) system.

 

         3. Improve Vendor Relationships

Your accounts payable department is only as successful as its vendor relationships. Strong vendor relationships help you to get better deals on the goods and services you need to run your business. If any of your vendor relationships are on edge because of a poor payment track record, looking into the inefficiencies in your AP processes is past due. The truth of the matter is that late or error-prone supplier payments can disrupt the flow of goods and services for your business. Fewer errors and clear communication results in positive supplier and vendor relationships.

 

In addition to streamlining your AP department’s processes to reduce – if not eliminate – late supplier payments, consider converting to electronic payment methods when paying supplier invoices. E-payments are digital transfers of payments, in real time, and are mutually beneficial for both your business and your suppliers. Suppliers gain payment predictability and visibility, faster payment deposits, and fewer trips to the office to retrieve written checks (something that is especially helpful in today’s remote workforce). Your business benefits from reduced processing costs, reduction of non-core activities, and fewer headaches in your invoice management process.

 

Keep in mind that strong supplier relationships can have a significant impact on your bottom line. Work from a master supplier list to help your AP team to determine which vendors have been approved and to ensure that all compliance requirements have been met. Choose your suppliers carefully and keep track of their performance. Your master supplier list should be monitored to make certain that any flagged or suspect vendors are examined. Ongoing monitoring can prevent inaccurate information and reduce the risk of accounts payable fraud.

 

         4. Go After Early Payment Discounts

Just as you want your business to receive payments on time and in full, so do your vendors. Maximize your savings potential by exploring any available early payment discounts, volume rebates, or trade spend initiatives. Of course, keep in mind that if the expenditure exceeds the benefit of the discount, it may not be worth the extra spend.

 

Find out which vendors offer these discounts and who charges interest or late fees. Then use this knowledge to prioritize payments or in contract negotiations. Automated AP software allows for better cash management and faster approvals, enabling you and your AP department to automate payments and capture early payment discounts more efficiently.

 

         5. Measure Against Accounts Payable KPIs

Consistent visibility into your accounts payable data assures that you can optimize cash flow and helps you to be more strategic in your business decision-making. Understanding key metrics, and how your AP department is stacking up against them, will help you to make key decisions about where to focus your workflow and process optimization efforts. Important KPIs to track include:

  • Total Number of Invoices Received
  • Total Number of Invoices Processed
  • Average Cost Per Invoice
  • Average Time to Payment
  • Number of Discounts Captured
  • Rate of Incorrect Payments
  • Percent of Spend by Payment Method

 

Setting clear accounts payable KPIs will help your business to measure visibility into invoice cycles, data on vendors and spend categories, and fraud. Implementing advanced reporting and analytics can further help you to identify bottlenecks or trends in your AP processes, improve cash flow analysis and planning, and reduce compliance risk by verifying that you have an audit trail of all accounts payable activities.

 

         6. Automate Your Accounts Payable

The most important of all accounts payable best practices is to automate your system. A fully automated accounts payable workflow will truly streamline the end-to-end invoice process. Digital workflows not only allow your AP department to receive invoices in a swift and orderly manner, but also manage approver assignments, general ledger posting, and provide real-time reporting and notifications.

 

Another benefit of using an automated AP system is that it enables you to set up red flag alerts for any unusual activity, helping your business to target fraud risks and human error. Automating your accounts payable processes also allows you to save money by reducing the number of professional work hours needed to handle tasks such as manual data entry. Instead, your accounts payable team will be able to focus on those critical projects that keep your business moving forward.

 

         7. Run Reports Regularly

Reports make it easy to get an overall snapshot of the business. f you lack routine reporting, you may miss out on new ways to improve your payment process. Consistent visibility into your bottom line is key to identify any new or existing risks, bottlenecks within your payment process, or ways to better manage cash flow. Running reports regularly will also help your business:

 

  • Identify trends within your AP process
  • Establish an audit trail for all business activities
  • Reduce risk and fraud
  • Increase cash flow and working capital
  • Understand the value and volume of invoices and payments

 

         8. Take a More Strategic Approach to AP

Accounts payable departments are often considered the cost center of a business instead of a value center. Shifting this focus and taking a more strategic approach to AP will prove that the accounts payable department offers significant returns to businesses if managed correctly. This starts by using reports to effectively measure progress against KPI’s and identify any process bottlenecks that will help to optimize the AP workflow. And by gaining insight into these processes through data and analytics, you can better demonstrate the value of AP and how it can improve business performance to CFOs.

 

For AP teams, it’s easy to use an automation solution to get an understanding of which vendors are strategic to the business. Switching even just these suppliers to virtual card payments can have a long-term impact on the company’s bottom-line and profits, by eliminating expenses associated with paper checks. Additionally, an AP automation solution like MineralTree can help enroll vendors in these payment methods.

 

Companies can also use analytics to gain insight into important metrics such as Days Payable Outstanding (DPO). There is no right or wrong DPO, since a lower DPO can improve vendor relationships and a higher DPO can improve cash flow. However, AP teams need to have a good understanding of what the company’s goals are and have the ability to identify ways to improve their payment process, take advantage of early pay discounts, and identify strategic vendors.

 

         9. Use a Supplier Portal for Easy Visibility into the AP Process

According to the 2022 State of AP Report, 43% of AP teams spend 6 or more hours a week answering vendor inquiries. Additionally, 83% of AP teams receive g payment status inquiries from suppliers. Not only is this time-consuming, but it can jeopardize the supplier relationship if questions aren’t answered properly or in a timely manner. Whereas a vendor portals enables suppliers to easily track invoice payments and find the information they need without expending valuable internal time and resources from the AP team.

 

AP automation solutions like MineralTree offer vendors a one-stop, self-service portal called Supplier Central that digitizes information between AP and AR in order to make it easily accessible for vendors. As a result, vendors have increased visibility into the payment process, workloads are reduced for finance teams, and supplier payments are accelerated.

 

         10. Embrace the Hybrid Work Environment

Hybrid work has become a permanent reality for many AP departments, with 68.6% of finance teams in either remote or hybrid work environments. But despite the transformation to new work environments, businesses with manual AP processes will continue to face bottlenecks and inefficiencies.

 

Therefore, it’s essential that firms centralize and automate their accounts payable process so their AP teams can quickly process invoices and execute payments. Not only does this give AP departments more flexibility within their payment process, but it improves visibility, control, and efficiencies relative to manual AP processes.

 

With hybrid work here to stay, increasing payment volumes, and expanding pressures to support quick payments and greater visibility, there’s no time like now for businesses to automate their AP process.

 

         11. Capture Information from Invoices Accurately and Use the Data Immediately

Invoice capture is the process of entering information from an invoice into an ERP system prior to processing.. Traditionally, this process is manual. Businesses can optimize this process by taking advantage of an AP automation solution that automates the entire step.

 

Solutions like MineralTree TotalAP eliminate all manual data entry by automatically capturing and coding header and line-level data with OCR (optical character recognition) and human review to ensure 99.5% accuracy for every invoice. Additionally, data from these invoices can be used immediately after invoice capture, instead of after an invoice is processed, which is the case from most ERP systems.

 

Case Studies: How Businesses Leverage AP Automation to Streamline their AP Workflow

MineralTree has helped many AP departments transform their traditional AP processes with these best practices. Here are just a few examples:

Simple Mills Manages Increases Invoice Volume without Adding Headcount

Simple Mills processes over 1,000 invoices each month, a high number that will continue to increase as the company grows. With MineralTree’s AP automation solution, they are now able to manage nearly 50% more invoices without adding AP headcount, all while ensuring their suppliers are paid on time.

“MineralTree gives me so many intuitive tools to quickly see where invoices stand and take the right action to keep them moving,” said Christina Vera, Senior Accountant of Simple Mills, “This has enabled me to provide more proactive service to our suppliers and become a better business partner inside of Simple Mills.”

Forge Biologics Fosters Strong Vendor Relationships with MineralTree

After explosive growth and demand in the company, Forge Biologics expanded from approximately 30 employees to over 200. But there was one department that couldn’t keep up, their accounts payable (AP) department. With positive supplier relationships at the forefront of their operations, Forge Biologics knew they needed to improve their AP process to maintain these relationships and ensure vendors got paid on time.

With MineralTree, Forge Biologics was able to switch to electronic payments, which has become a key component of Forge Biologics’ payment mix, representing more than 90% of total AP spend thanks to the dual benefits it delivers to suppliers and to the company. Not only does it ensure that vendors get paid on time, but it has allowed Forge Biologics to take advantage of cash-back rebates and early-pay discounts.

As said by Steve Goden, SVP of Finance for Forge Biologics, “Thanks to MineralTree, we’re on pace to earn at least $80,000 in virtual card rebates this year – a significant amount that completely offsets our platform fees and even puts money back into our general funds.”

Ready to Streamline Your AP Processes?

Effective AP management can improve business operations while saving your company money.

In addition to implementing these accounts payable best practices, it is critical that businesses provide their AP departments with the right tools to work effectively. An accounts payable automation solution is critical to future-proof your business and AP processes by eliminating manual data entry, automating invoice approval routing, and verifying the accuracy of payments. It can also help your business to avoid costly fees, tackle early payment discounts, focus on value-added tasks, and improve your organization’s bottom line.

Are you ready to streamline your accounts payable processes? Want to learn more about how to improve your AP processes with MineralTree’s leading end-to-end accounts payable automation solution? Download our Accounts Payable Automation 101 whitepaper today!

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We're transforming accounting by automating Accounts Payable and B2B Payments for mid-sized companies. Our award-winning solution has helped over one thousand businesses transform accounts payable from a source of inefficiency and fraud risk to a secure and strategic profit center that provides visibility into key cost drivers.