8 min read
10 Nov 2021
8 min read
10 Nov 2021
Accounts payable is a department that sits centrally in a business’s core operation. There’s a lot on the line – managing invoices efficiently is key to maintaining strong relationships with suppliers and making the most of your working capital. Here are our top tips for making sure you’re managing accounts payable effectively.
The high-stakes process navigated by the accounts payable department is deserving of effective management. Since accounts payable are responsible for the prompt and accurate payment of all incoming invoices, their capacity to perform effectively can have significant benefits for a range of other operational areas. Better adherence to established best practices in the accounts payable process is likely to contribute towards improving relationships with key suppliers, making best use of working capital, and avoiding fraud, all of which can have a tangible impact on the bottom line.
But the work handled by the AP department isn’t always simple, and the complexity involved with the process that they navigate day in and day out makes it easy for inefficiencies to go unnoticed and fester. There are a range of ways that the accounts payable process can be made more effective, including the use of AP automation, but we’re here to focus on the ability of more effective accounts payable management to bring about positive change.
Accounts payable management is the handling of a company’s unpaid debts, otherwise known as liabilities, to its suppliers or vendors. Managing accounts payable involves several activities, including communicating with suppliers, paying invoices according to a chosen strategy, and taking actions to prevent fraud.
Every facet of accounts payable management essentially aims to achieve the same goal: to improve the company’s working capital position while preserving strong supplier relationships. Although accounts payable seems like a simple operation from the outside, the nuances of how it is managed can transform its efficacy, turning it into a highly efficient and productive department.
The accounts payable process involves several composite steps and can appear to be complex at first glance. It essentially boils down to three main steps – completing a purchase order, completing a receiving report, and finally receiving, processing, and paying the resultant invoice – but each of those steps contains several individual processes, which themselves can involve checks and balances.
One of the simplest methods to improve the management of the accounts payable process in your business is to gain clarity on how exactly the process currently works for your accounts payable department and how it can be simplified. This can typically be achieved by speaking directly with all accounts payable stakeholders, from the Financial Director to the AP team themselves, and getting their thoughts on where improvements can be made to unlock efficiencies. Examples of simplifications that can be made to the accounts payable process include:
Aside from reviewing the way certain parts of the accounts payable process are carried out, it’s also useful to outline the full process as it works in your business in a single easy-to-understand guide that’s made available to all stakeholders. This can provide seamless clarity and help ensure everyone is on the same page.
Accuracy is, understandably, one of the most important elements of an effective accounts payable department. There are many potential points of failure in the process that, if tripped over, can cause inaccuracies in data that lead to incorrect payments. Avoiding or mitigating these points of failure is one of the best methods for improving the performance of the department overall. Typical areas of the process where accuracy is most important include:
Some of these steps, most notably scanning and processing invoices, can be easily automated, resulting in a near complete removal of the chances of human error. However, others aren’t as easily managed by software, meaning it’s important that accuracy is stressed as a priority to all accounts payable team members. Setting accounts payable KPIs that focus on accuracy, including tracking the number of payment errors or supplier disputes, can help to shed light on how accurately AP duties are being carried out, making it easier to rectify any shortcomings.
Fraud is a permanent concern for accounts payable departments. Especially in the age of digitalization, fraud can be insidious and incredibly difficult to prevent proactively, which is why it’s even more important that you take whatever steps you can to minimize the chance of your accounts payable department falling victim to it.
There is a wide range of potential entry points for fraud attempts to infiltrate the accounts payable process, coming from both internal and external sources. They include:
But for as many methods of fraud that can be brought to bear on an accounts payable department, there are an equal number of techniques to reduce the threats posed by fraud. One of the most powerful is to improve access controls to key software, including payment processing, restricting anyone but authorized team members from sending payments.
Traditionally, accounts payable departments were relatively decentralized, relying on physical storage for invoices, for example. Now, though, with the advent of purpose-built AP software and other digital solutions, there’s little excuse not to embrace centralization and the benefits it offers.
Centralization in accounts payable departments unlocks huge efficiencies and makes the process much more easily managed. Software that allows for many different user accounts to see the same data (with the aforementioned access controls to limit the potential for fraud) minimizes the friction in cross-department processes and means that visibility over the state of accounts payable is massively improved.
Using a centralized software system also usually brings more control, as all employees are forced to adhere to the same common standards and practices, while checks, balances, and limits can be imposed automatically. Centralization also typically involves going paperless, which offers further benefits, including reduced paper costs.
As you may have picked up while reading the four tips above, the best way to improve how you manage accounts payable is to implement technology and leverage its power to unlock efficiencies and reduce risks. AP automation offers enhanced reporting, providing insights into payment statuses, outstanding balances, early-payment discounts, and vendor performance in real time. Detailed reports empower finance teams for data-driven decisions, cash flow optimization, improved supplier terms, and enhanced operational efficiency.
Software solutions like Taulia’s Invoice Automation and Supplier Management can revolutionize the way an accounts payable department runs, reducing errors, improving ROI, and freeing the AP team up from manual processes that eat their valuable time.
The procurement team plays an integral part in many businesses, managing the purchase of goods and services from vendors.
When a business purchases items or services from a supplier, accounts payable will be the ones to track it.