8 min read
23 Sep 2021
8 min read
23 Sep 2021
Accounts payable (AP) is the department within an organization that tracks payments owed to suppliers and other creditors and makes sure those payments are approved and processed on time. As such, accounts payable teams need to interact with vendors, as well as with other departments within the organization.
While accounts payable processes are critical to business, AP departments face a number of challenges and pitfalls that need to be overcome, such as:
The good news is that these challenges are not insurmountable. Adopting better practices, pursuing accounts payable process improvements, and embracing automation can help you overcome these issues, making the AP department more efficient as a whole. But first, you need to think about how you can optimize your invoicing process, put in place tight controls, and ensure that internal best practices are defined and adhered to.
With that in mind, here are 10 accounts payable best practices that can help you improve the efficiency and accuracy of your end to end accounts payable process, gain the benefits of automation, boost cash flow and improve your vendor relationships.
Many accounts payable challenges can be avoided with greater automation. A sophisticated AP automation solution can help you automate manual processes and eliminate the need for paper. For example, automating invoice processing and data capture can speed up invoice approval times. By avoiding the need for manual data entry and other points of human error, an effective solution can also increase the accuracy of your AP processes.
Embracing digital formats and paperless processes can improve visibility over your AP processes. For example, encouraging suppliers to take advantage of electronic invoicing can remove huge volumes of paper from the invoicing process. Removing the need for paper invoices not only helps automate processes, but can reduce costs and boost your ESG credentials.
Accounts payable workflows can be unnecessarily complicated – and every superfluous step adds time to the process, as well as creating additional risks of error and fraud. Conversely, a simpler workflow is likely to be more efficient and less risky. Aim to automate and cut unnecessary steps from the AP process wherever possible and create a standardized workflow template that’s easy to follow.
A central, digital repository of your suppliers/vendors helps to cut down on human error, as well as creating operational efficiency. But it’s not enough to have the right solution in place – you should also make sure that your information is kept up-to-date at all times. That’s why a supplier management solution that gives your vendors self-service access can reduce the burden on your AP team, reducing the number of incoming vendor queries and giving your suppliers the tools they need to maintain their details for you.
The better your relationships with suppliers, the more likely it is that they will be supportive of any changes you make to your AP policies. And the best way to build strong relationships is through clear and efficient communication. Aim to improve relationships with your suppliers by creating strong two-way channels of communication that ensure nothing gets missed. You can also strengthen relationships by offering access to a self-service invoicing solution that allows suppliers to submit invoices by flipping purchase orders or completing a simple form online.
If you’re looking to optimize the performance of your AP department, it’s important to have clear, quantifiable goals. Setting sensible KPIs for your AP department not only tells everyone what they are working towards, but also allows you to monitor performance on an ongoing basis and make adjustments as needed. Common AP KPIs include days payable outstanding (DPO), invoice processing costs, invoice approval times, uptake of electronic payment methods, uptake of early payment discounts, and payment error rates.
AP teams are often the target of fraud – and while many fraud schemes arise from criminals outside the organization, accounts payable employees can also represent a fraud risk. To reduce the risk of internal accounts payable fraud, it’s essential to have proper controls on data entry and visibility in place to make sure access is limited to the right individuals, as well as enforcing the separation of duties where appropriate. Choose systems that enable you to control who within the team has visibility over accounts payable data, and who is able to make changes.
Another way businesses can optimize the accounts payable process is by establishing a prioritization system for incoming invoices, rather than simply paying them as they come in. This might mean focusing on the highest value invoices or prioritizing the invoices most likely to be problematic. This approach may enable companies to prioritize invoices in line with their cash flow needs and generate additional supply chain efficiency.
Auditing your accounts payable process is essential when it comes to making sure the process is fit for purpose – and in some cases it may be a regulatory requirement. It’s also important to review the outcome of AP audits to identify and address any deficiencies or potential risks. The use of AP automation software can make the AP audit significantly easier, as it connects documents and messages that relate to specific transactions and builds a trackable audit trail.
Finally, it’s important to make sure your AP department is sufficiently protected from a single point of failure – for example, a situation in which payments cannot be processed because a particular individual is unexpectedly absent. This should be addressed by cross-training multiple people to carry out essential processes and having an established back-up plan in place to ensure AP activities can continue if the usual process is disrupted.
When a business purchases items or services from a supplier, accounts payable will be the ones to track it.
Before we can talk about how to optimize it, it’s useful to first outline what exactly we mean by the…
Supply chain collaboration is a hot topic today – and it’s easy to see why as companies that collaborate effectively…