Invoice Processing Best Practices In Accounts Payable

Invoice Processing Best Practices In Accounts Payable _ PLANERGY Software

Invoice Processing Best Practices In Accounts Payable

Most business owners and CEOs don’t spend a lot of time thinking about accounts payable. It is, however, all the bills that have to be paid. Many would much rather think about accounts receivable because it’s all the money a business has coming into it. That said, ignoring your accounts payable processes, or forgetting to regularly evaluate them can backfire on business operations. In the end, it can cost your business more money due to fraud, theft, and increased transaction expenses. Take a closer look at some of the invoice processing best practices in accounts payable that your organization can use today.

Prioritize Based on Due Date

To make sure everything is paid on time so that you can capture early payment discounts and avoid late payment fees, you should prioritize your invoices based on their due date. Seems easy enough, right? Wrong. Don’t fall victim to the clean desk rule, which involves paying invoices as they come in. If one vendor gives you a net 15 payment agreement and another gives you a net 30, you can use the time as an advantage to pay them both off on time.

It may be tempting, paying both invoices when they come in can strain your cash flow as compared to using the allotted 15 days and 30 days respectively to pay out the invoice. Pay close attention to the payment terms of each vendor you work with as much as you pay attention to the due date in the payable system.

In addition to prioritizing your bills based on due date, you should also prioritize them by Bill type as well. You should sort the credit card bills by date and interest expense so that you’re paying the cards with highest interest first and then working your way down. This will save you money in the long run.

Build Internal Controls into Processes and Procedures

Even if you’ve strongly vetted each and every one of your staff members and trust them to do the right thing, internal fraud is always a risk. To prevent this type of business fraud from costing you money, you need to establish Separation of Duties and internal controls within your accounts payable process.

Only specific employees should have access to the master vendor file. This limited access allows for better control as to which vendors are approved vendors, where your invoices and checks are going, and can make it easier to track things if you were to find a fraudulent vendor into the system to move money out of your business.

Building internal AP review processes helps to improve efficiencies while reducing expenses. You can maintain these internal controls without needing multiple approvals and extensive review procedures for every invoice. For more information on how to establish internal controls in your organization, check out our blog post on this topic.

Regularly Check for Duplicate Payments

You’re still running your AP manually, you have to continually check for duplicate payments. This can help stop leaks in your cash flow. Of course, the alternative is to automate your accounts payable process as this helps to dramatically reduce or even eliminate the possibility of making duplicate payments.

This is another area where your vendor relationship matters because if you do find a duplicate payment the vendor may or may not be willing to return it to the original payment method, because of what the transaction does to their books. They may give you the money back in the form of a credit on your account which will help you in the future, but it won’t help you right now when you need that money to pay another vendor to keep the business running. You also can’t rely on another accountant to catch your mistake and make the effort to rectify it.

No Single Person Should Handle All Steps

Separation of Duties is a crucial internal control for every accounts payable department. If a single person is preparing the invoices, writing the checks, and processing the payments, it becomes incredibly simple for fake checks and check tampering to occur on your business accounts.

A national study found that 77% of all business fraud is committed by people in one of 6 departments including the purchasing department. The Separation of Duties also ensures that your AP process runs smoothly. If a single person is in charge of everything and takes vacation time or a sick day, then you’re not creating or processing invoices in a timely manner which could negatively impact your cash flow.

“Procurement can make things easier by using purchase orders for everything.”

Track Disputes and Resolutions

Any disruption and invoice payments will create problems with your business’ cash flow. By keeping tabs on any invoice discrepancy, you can keep your cash flow on track while also organizing your AP processes, maintaining good vendor relations, and keeping your books in order.

If you find that a vendor issue arose where you were overcharged for something or the discount you were promised wasn’t applied and you approved the check without reviewing it, you’re essentially throwing money out the window. Keeping track of disputes helps you keep an eye on your vendors. If you find that a vendor habitually charges you differently than what is in your contract or is consistently sending you an invoice late, it’s a sign you need to find a new supplier.

Cross-Train or Rotate Your Staff

If your AP department consists of only one person, and that person gets sick or goes on vacation, all of your invoice processing comes to a halt. CrossTrain a few people on your team so that in the event your main accounts payable staff becomes unable to work, you don’t have to rush to find someone else to take over in the meantime.

You will find vulnerability in gaps in service due to turnover or absence. Downtime between employees in the hiring process can be extremely difficult for your company and it means that valuable time is spent in crisis mode. Like above, it’s important to remember that every member of your staff isn’t going to be on every scheduled workday.

You don’t want your vendors to wait until the employee comes back from vacation to get a check from your company. Not having a single point of failure by outsourcing your accounts payable or at the very least cross-training others on your team ensures that your business will be covered during any absences. Plus, it serves as a theft deterrent because there’s always a second set of eyes reviewing the processes.

Use Automation to Cut Costs

Manually handling your accounts payable is not only unnecessarily expensive due to the cost of paper, printing, mailing, and storing the document, but is ridden with human error potential. From misplaced invoices to duplicate invoices and other data entry errors, relying on paper is a thing of the past. After the rules are in place, automation helps to improve efficiencies and controlling costs for your business, because you run paperless. No more paper invoices mean no more storage or lost files. OCR software scans the paper invoice into the system and then accounts payable automation takes over from there.

Using a web-based bill payment portal allows your business to prioritize bill payments, map out the review and approval workflow by invoice, and keep electronic records of payments with your invoices in a centralized location. Plus everything happens in real-time, so you can really streamline your efforts.

Automating your AP also helps match the purchase order to the invoice, making sure you only pay for items you receive, and items you ordered. If the invoice numbers don’t match or there is any kind of discrepancy, the AP automation rules will flag the issue in your ERP and accounting system. This way, a human can step in to figure out the issue and solve it before the invoice is paid.

Watch for Uncashed Checks

If you paid a vendor a month ago that they still haven’t cashed your check, follow up to make sure that it gets deposited. Just because you received the invoice doesn’t mean the supplier received your payment.

It is possible that the vendor forgot the check, never received the check or even lost it. But by establishing a standardized follow-up procedure, your AP department can ensure they take the right course of action to prevent any further cash flow issues or late fees for your organization.

Reconcile Accounts Daily

Reconcile your business account everyday. If something happens that you need to make an additional payment to a vendor and this isn’t recorded in your ledger, then the amount in your books does not reflect the amount in the bank. Discrepancies of this nature damage your cash flow and demonstrate poor bookkeeping practices. Neither of these things is good for your business.

Keeping documentation that supports the fact that the balance in your ledger is correct helps save your bookkeepers and accountants a lot of headaches while also ensuring your cash flow and books stay in order.

Regularly Review Data

Keeping consistent visibility into your finances and KPIs ensures that you are aware of your cash flow. This enables you to be more strategic with any decisions that need to be made. The analytics and advanced reporting make it easy to:

  • Improve cash flow analysis and planning
  • Reduce fraud
  • Identify trends and bottlenecks in your processes
  • Minimize compliance risk with an audit trail for everything
  • Monitor the volume and value of invoices and payments
  • Ensures you’re on track to hit all your KPIs.

Timely invoice processing is key to maintaining good relationships with your suppliers. If supplier invoices aren’t paid on time, you’re not only risking damage to the relationship, but you’re costing your company more money in late fees. And if the supplier drops you, you could be left hanging with a slew of upset customers of your own. Timely processing also ensures your bottom line stays where it should be to offer consistent business operations.

PLANERGY automates invoice processing using OCR and AI technology

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