6 Accounts Payable Best Practices to Streamline Your Process

Every forward-thinking business should be constantly 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 business’s 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 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.

 

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.

 

6 Accounts Payable Best Practices for a Successful Business

Here are six 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. Accept Electronic Invoices

The first step is to eliminate paper invoices wherever possible and to begin accepting electronic  invoices. 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 on the amount of scanning involved in processing.

 

With AP automation, suppliers can send electronic invoices to a unique email address that initiates the automated invoice capture process. Once invoices have been automatically received or manually uploaded, your accounts payable automation solution will sync to your business’s ERP to ensure the centralization of data. When possible, set up online payments for your regular vendors to further cut down on manual processing. With online bill pay, your AP department will no longer have the added hassle of traditional mail.

 

         2. Standardize Your Accounts Payable Workflows

Your business can improve the efficiency of your accounts payable processes by creating standardized workflows. Set up a structured system for managing invoices from the time you receive an invoice to when you pay it. 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 Supplier Relationships

Your accounts payable department is only as successful as its supplier relationships. Strong supplier 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 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 will offer these discounts and who charges interest or late fees. 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 tends 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 provides 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.

 

Ready to Streamline Your AP Processes?

In addition to implementing these accounts payable best practices, it is critical that businesses provide their AP departments with what they need to work effectively and productively. 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. With fewer preventable and time-consuming errors to correct, your business will be able to avoid costly fees, tackle early payment discounts, focus of 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?

 

MineralTree

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.