Accounts Payable (AP) is the department in a company that handles accounts payable. Essentially, it’s the people part of a company’s purchasing. Accounts payable are responsible for receiving all invoices from vendors who work with the company and ensuring that appropriate payments are promptly made. The accounts payable department is crucial to any business. It’s responsible for paying invoices and ensuring all vendors are paid promptly. AP is also one of the most complex departments in any company.
Here are some tips for automating accounts payable.
Maintain accurate vendor records
Accurate vendor records are essential for smooth AP operations because they provide vital information about each vendor’s status with your company, including payment history and outstanding invoices. Maintaining accurate records is more than avoiding late payments; it’s also about ensuring that vendors can’t take advantage of mistakes made by accounting staff who may need to be more familiar with their company’s policies or procedures for paying particular vendors on time or as a whole.
Implement a streamlined process.
The first step to streamlining your AP process is determining where the breakdowns occur in your current workflow. To do this, you’ll want to map out the steps of your current process, either manually or with software such as Microsoft Visio. Once you’ve done this, please review it and look for areas where there’s duplication of effort or where a step can be eliminated. The goal here is to ensure that each person involved in the process only needs to do one thing at a time and that they can pass information seamlessly between them.
Regularly reconcile statements
Most companies receive statements from vendors on a monthly or quarterly basis. It’s important to reconcile these statements regularly to avoid surprises at the month’s or quarter’s end with unpaid invoices. You can use an automated reconciliation system to ensure your accounting department doesn’t have to conduct these reconciliations manually.
Prioritize invoice approval
Once you have an integrated system, you can start automating AP processes by prioritizing invoice approval based on how much money is due or how quickly it needs to be paid. For example, if a vendor requires payment within 30 days but only sends one monthly invoice. Set up your system so that it automatically approves this vendor’s invoices within 30 days of receiving them by the accounting department unless more urgent invoices need higher priority.
Negotiate favorable payment terms
Negotiation is an essential component of good AP management. Start by reviewing your company’s payment terms with vendors, looking for opportunities to reduce costs and improve cash flow by extending credit terms or offering discounts in exchange for early payments. Consider using third-party factoring companies that specialize in receivables financing.
Leverage technology
If you manage your AP manually, consider implementing an automated system. Automation will save you time and money by eliminating redundant tasks like data entry and reconciliation. A good option is invoice management software, which allows you to track open invoices, pay vendors electronically and manage internal accounts receivable. You can also use it as a financial management tool by running reports on cash flow and profit margins by customer or vendor name.
Take advantage of early payment discounts
If you’re paying on time, ask for a discount. Suppliers and vendors often offer discounts for early payment, so you can save money if you pay faster. Some vendors may offer additional discounts if you pay with a credit card or electronic check instead of a check or wire transfer. It’s worth asking about these incentives before purchasing from a vendor. Accounts payable automation tools can help you take advantage of early payment discounts by automating the payment process and ensuring that payments are made on time every month.
Monitor aging reports
The AP department should review the aging report regularly to ensure it is on time. After all, late payments can be costly and can jeopardize your relationship with vendors. If an invoice is more than 60 days past due, contact your customer immediately to see if there’s a problem or if they need additional time to pay. The longer an invoice remains unpaid, the harder it will be for you to collect money from them in the future or even in the present.
Establish strong communication channels
Employees and managers must be able to communicate with each other effectively. This means having an open line of communication with your accounting department, so they can keep you up-to-date with necessary information regarding payments and invoices. If you have questions about anything related to your AP process, contact them immediately so they can answer your questions promptly.
Use automated invoicing software
Automating the invoice process can save you a lot of time, and it’s easy to do. Just enter your purchase orders into the software and let it create invoices for you. You can even automate payments and have money automatically transferred from your bank account to vendors’ accounts when the bill is due. This helps ensure your vendor gets paid on time without worrying about you forgetting to pay them or being late. Automated invoicing can also help you get paid faster, which is often a problem with manual processes.
Use electronic data interchange (EDI)
This is a method of submitting invoices electronically rather than by mail or fax. It’s easier on your staff and can save you money by reducing errors since there are fewer chances for human error when employees use standardized forms and processes. EDI also reduces the time it takes to process payments, which can help you manage cash flow more effectively.
Send reminders
If you’ve sent an invoice but have yet to receive payment, send a reminder letter saying that if payment isn’t received within ten days, you’ll assume the invoice is rejected and stop working on the project until it’s paid. This gives the client time to pay without waiting for another invoice or being charged interest on late payments.
Conclusion
Most businesses have implemented automated systems for AP. A good software solution will help you streamline the process, maintain accurate vendor records and negotiate favourable payment terms. Thisfavorablewill be more prepared to make the tough decisions that are a part of your daily workflow.