Accounts Payable Best Practices
The most successful companies constantly look for ways to optimize all of their internal processes, and accounts payable is no exception. No matter how big or small your business may be, there are always bills to pay. That’s why it’s in your best interest to understand and update your practices regularly. Adopting as much of this as possible now will make things easier as you grow.
It’s critical to recognize how important the AP department really is in your business. Many organizations downplay how significant this is. But, financial systems are only second to Human Resources when it comes to where companies invest their money. Realizing the money-saving and efficiency improvements and possibilities for this part of your organization can substantially impact your overall success.
It also helps to get more stakeholders involved. Your company leaders need to be sharing information about vendors and receiving information about suppliers from accounts payable. Procurement and accounts payable also need to be working closely together. Decision-makers should be aware of the information available through AP so they can make better decisions about purchases and vendors and accounts payable need to be aware of decisions that could influence their work.
Audit and Simplify your Accounts Payable Workflow
Reduce the number of check runs and consolidate all of your data into a central repository. To check runs every month is plenty enough. As the check run is prepared, invoices need to have matching paperwork and approval signatures.
It helps to work from a master vendor list. This can help accounts payable determine the vendors that have been approved and ensure all compliance requirements are met. Your master vendor list should be carefully scrubbed to ensure any suspect or flagged vendors are examined. This is crucial for larger companies that may be dealing with hundreds or even thousands of suppliers. A registration system can help reduce the risk of fraud. Ongoing monitoring prevents inaccurate information from making its way onto the list. A fraudulent name can mean wasted money, but even an inaccuracy on a legitimate vendor’s address line can mean payments never make it to their intended target, so it is essential to have a well-organized offender list.
Establish Controls and Limit Access
Work to establish separation of duties and internal controls within your accounts payable process. Only specific employees should have access to the master vendor files. This gives you better control over which vendors are approved and it also helps to oversee exactly where the payments are going so you can identify mistakes in vendor data.
Always prioritize your invoices and pay them in order of importance, by the due date and payment terms. each checked my nice to have a cash disbursement ceiling for easier budgeting.
You should not pay invoices early unless you can do so without negatively impacting your cash flow and capture an early payment discount that makes paying before the due date worth it.
When setting invoice priorities, do your best to avoid paying any of the invoices late. Even one day past the due date could harm your supplier relationship and credibility.
Though it may be tempting to pay invoices immediately as they come in, this can hurt your cash flow in real-time. Invoice processing at least should be partially based on when the payment is due.
Use Technology Well
this means using any system in the study. The process of laser-printed checks can anything in between. Your accounts payable process needs to set up transactions to flow correctly. Technology provides a way to analyze and reduce human error, while also facilitating the approval process.
Organize Vendor Data with a Supplier Portal
To establish improved vendor interactions and good relationships, use a supplier portal. This helps to increase communication between both parties and it also organizes our data and empowers the vendors. Everything from invoicing to tax records along with payment details can be kept in a central repository. Merchants can easily update their information at any time and the system will change it automatically.
Train Vendors and Suppliers on Your Invoicing System
Send a letter to all your vendors and suppliers that explains your invoicing policies and numbers. Insist that they use it. Trying to merge your system with the systems of dozens of suppliers and vendors is more likely to result in costly errors. Maintain a healthy relationship with providers and continue to send requests until they consistently follow your invoicing process.
Going paperless helps in multiple ways. First, the lack of paper reduces the chance of lost or missing invoices. It saves time and money because you don’t have to waste paper or spend time tracking people down for approval. It reduces the likelihood of someone making changes to the invoice once it has been issued, too.
accounts payable automation software helps to create automated systems for your entire department. It makes it possible to skip time-consuming manual data entry and scan paper invoices directly into a program that begins to match it with the proper corresponding paperwork. Automation speeds up the approval process while offering an additional set of eyes on your accounting system.
Eliminate AP Fraud
Any area of the business where the money is handled can be high risk. Always Implement policies and procedures to mitigate the risk. Look for dummy vendor accounts where employee fraud can happen. Develop system parameters set so that the staff members that cuts the check are not the same stuff that can create new vendors.
Renegotiate Payment Terms
No one says your vendor payment terms are set in stone. Generally, invoices come in at a net 30, net 60, or net 90 days. Regardless of the terms you’re given, you always have the option to call and renegotiate. Even if they say no, it’s always a good idea to call ahead with late payments. In this situation, some vendors may waive any late fees.
Look for Discounts
The accounts payable system becomes more efficient with the less money you owe. Take time to look for early payment discounts. They aren’t often advertised so make sure you ask. Call your vendors and find out what kind of discounts or rebates they offer for paying invoices early. Some creditors will also reduce interest rates for a certain number of payments made in full on time.
Reduce Verification and Signature Responsibility
Usually, a Chief Financial Officer or another executive is the one who signs the check. However, they can never be involved in assembling the check run. The AP department should be running the aging and choosing which invoices to pay out along with assembling the right documents including purchase orders and delivery receipts and printing the checks. The CFO simply needs to verify the invoice amounts and sign off on the checks.
Check for Duplicate Payments and Records
Even with technology and automation solutions, duplicate payments and records may still be an occasional issue. Though most software will flag an issue like this for manual review, it’s still a good habit to check for duplicates on a regular basis. Duplicate invoices and payments cost your company more than just money.
Reconcile Accounts Daily
At the end of every business day, take time to reconcile all the accounts. This keeps records accurate and simplifies things at the end of each accounting cycle. When accounts are reconciled daily, there’s much less room for error to arise or the need to deal with complex messes before reporting.
Even though t’s extra work reconciling your account at the end of every day is a good habit to get into. If something occurs where you have to make an additional payment to a vendor and it’s not recorded, and then your books won’t match which can hurt cash flow and reflect poor bookkeeping practices.
Review Data Regularly
Keeping a consistent visible eye on your bottom line including counts accounts payable ensures a business always keeps proper tabs on cash flow. It also helps to identify red flags and avoid some of the most common bottlenecks. Advanced analytics and reporting will show trends in your AP processes, identify risk and reduce fraud, increase working capital, improve cash-flow planning, and establish an audit trail for all activities.
“AP best practices are essential, but changing too much at once can be overwhelming. Rather than increase error potential, aim to make slow, steady, and incremental progress.”
Have a Backup System
Having a technical accounts payable PDF or checklist available encourages employees to back up information more often. Check servers regularly and use a technology plan that ensures it is secure, compliant, and stable. Data loss can have devastating consequences for a business, so it is critical to make sure the system automatically backs itself up regularly. However, it’s still important to check it on a regular basis to look for issues.
Track Disputes and Resolutions
To maintain good relationships, it’s crucial to address and resolve any invoice disputes as quickly 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 in the future. That’s why it’s critical to keep track of all vendor disputes and resolutions so you can track your funds more efficiently.
Aim for Transparency
It should be easy for all relevant people in your organization to get information about vendors, payment terms, discounts, payments, and any other information they may need. It should also be accessible from any device they use while keeping things fully secure. Automated systems can reduce redundant invoices and other issues, but being able to track information securely in real-time and keeping it transparent means more eyes on the data. This helps to catch errors before they cost the organization money.
Taking steps to integrate as many of these best practices as possible can help streamline your overall process.
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