The right accounts payable management processes can ensure creditors and suppliers are paid on time and that businesses lose less time fixing errors. An efficient accounts payable system frees up maximum capital from the balance sheet, paving the way for new opportunities. A good system for accounts payable is also essential for avoiding costly errors. Mistakes can take time and resources to fix, which can divert team members from business projects. Any delays in payment can also cause steep penalties and additional costs. Finally, mistakes can cost a company in the long run by damaging business relationships.
Using the right accounts payable management procedures is an essential component to a business’ success. The following tips and practices can be utilized as an accounts payable internal control checklist to make your processes as efficient as possible to save you time and money.
How to Manage Accounts Payable Effectively
There are several ways you can start improving your accounts payable management processes to reduce errors, save money and enjoy other advantages:
- Recognize the importance of accounts payable. Many businesses downplay the significance of this aspect. However, financial systems are only second to Human Resources when it comes to where a company invests its money. Realizing the money-saving and efficiency-improving possibilities within this part of your organization can have a substantial impact on overall success.
- Keep track of key metrics. Keep track of vendor terms, clauses and agreements to ensure everyone is meeting their duties. Keep scorecards to reflect how well vendors perform, but also regularly analyze data about invoices received, payments sent, services and products received and more. Keeping track of this data and ensuring it is examined can help you manage cash flow more efficiently and address any issues with vendors or accounts payable processes.
- Get more stakeholders involved. Company leaders should be sharing information about vendors and receiving information about suppliers from accounts payable. Purchasing and accounts payable should also be working closely together. Decision-makers should be aware of the information available through accounts payable to make better decisions about purchases and vendors, and accounts payable should be aware of decisions that could influence their work.
- Make it transparent. Make it easy for every relevant person in your organization to access information about payment terms, discounts, vendors, payments and other information from any device they need with full security. While automated systems can reduce redundant invoices and other issues, being able to track information in real time securely and keep things transparent means more eyes on the data, which can help catch errors before they cost your organization money.
- Work from a master vendor list. This list can help accounts payable determine which vendors have been approved and ensure all compliance requirements are met. Your master vendor list should be carefully scrubbed to ensure any flagged or suspect vendors are examined. This is especially important for larger companies with hundreds or even thousands of suppliers. A careful registration system can help reduce the risk of fraud. Ongoing monitoring can prevent inaccurate information from entering the list. A fraudulent name can mean money wasted, but even an inaccuracy on a legitimate vendor’s address line can mean payments never make it to their intended target, so a well-organized vendor list is a must.
How to Streamline Accounts Payable
Does your accounts payable process seem complicated and overwhelming? Worse yet, are you expending too many company resources on this part of your business without even realizing it? There are several ways to make your accounts payable department leaner and more efficient:
- If you have multiple locations and invoice service providers, suppliers and vendors from each of these sites, you may be expending excessive resources on accounts payable and creating redundancies. Handle all payments from one location to improve efficiency and save money on labor costs associated with these tasks.
- Have one team member or group handling your accounts payable. You can reduce costs by having one person or one team handling all invoicing, bill receipts, purchase order complication, bill payment processing and other parts of your accounts payable system. Not only will it cost less and take less time to have one group of people handling the system, but your dedicated team can become more familiar with this part of your business. This will help them become more knowledgeable, efficient and able to detect and address problems early.
- Digitize and automate delivery receipt, dispute resolution and other task. If you can process invoices, receipts and other necessary steps without active input from your team, you can save time and money. An automated and digitized system can also reduce instances of human error, which will help cut costs and reduce disputes.
- Use purchase order requisition more often.
Best Practices for Data Input
Data is an important part of any accounts payable system. Missing or inaccurate data can spell significant losses as it can lead to more mistakes and more time dedicated to locating and fixing errors. Missing information and paperwork can also create compliance problems, which is why instituting these best practices can be helpful:
- Use simple item ledgers. Although digital record keeping can make it easier to search for items and specific data, it’s recommended you choose a simple-to-use item ledger whether you’re using a paper-based or digital system. Look for a ledger that’s intuitive, consistent, accurate and reliable. It’s easier to input item IDs and other information when the system is easy to use and works consistently.
- Check item IDs and other data after system upgrades. Computer, software and system upgrades are part of business life, but even small changes can wreak havoc on data entry. With item IDs, ensure the numbers on the vendor list and in the financial system match exactly and aren’t repeated. Carefully look over periodic price lists, item IDs and other data after an update to ensure the information in the system continues to be accurate.
- Have a system for backup. Using a technical accounts payable best practices PDF or checklist could encourage staff members to backup information more frequently. Check your servers often and instate a technology plan to ensure cyber security, compliance and stability of your system. Losing your data can be devastating, so make sure your system automatically backs itself up and check it regularly for any issues.
Best Practices for Invoices
Invoices can be a problem area for businesses. In fact, only 20% of companies studied by MasterCard had optimized invoice payment systems and an efficient account payable process. The right invoicing system can help you avoid payment mistakes and can save you money. Below are a few accounts payable process improvement practices in this area:
- Go paperless. Businesses are adopting paperless invoicing at a rapid pace. By the end of 2017, it is predicted that up to 38% of companies will be using paperless invoicing, a steep increase from approximately 9% in 2015. Paperless invoice processing can reduce the risk of delayed payments, lost paperwork and other issues. It can also make it easier for businesses to look up invoicing information when needed. You could save as much as 70 to 90% of your accounts payable costs from going digital.
- Separate the duties. Have different individuals in your accounting department approve purchases, receive ordered items, make payments and handle reconciliation. These departments or employees should have access to the same data so they can verify information, but keeping duties separate can reduce fraud risk.
- Have a system in place for paying different invoice amounts. If the price you’re paying is not the same as what’s listed on the bill, have a process in place for explaining the discrepancy.
- Train vendors and suppliers on your invoicing system. Send a letter explaining your invoicing policies and numbers and insist others use it. Trying to merge your system with the systems of dozens of vendors and suppliers is inefficient and more likely to result in costly errors. Maintain a healthy relationship with providers and continue to send requests until they follow your process for invoicing consistently.
Best Practices for Payments
Payments can present a significant challenge for businesses for many reasons. A critical issue stems from duplicate payments. This can occur if a vendor sends multiple invoices after an initial payment is either not received or not paid on time. The multiple invoices can create confusion, meaning a business pays twice. In many cases, this duplicate payment is not detected for some time, if ever, robbing the business of capital that it may sorely need. There are several ways to avoid this problem:
- Record invoices quickly and correctly, readying them for payment. Send all invoices to accounts payable immediately and make sure they’re inputted at once — they should not be permitted to be left on employee desks. Instead, establish a process for getting these invoices recorded with the right purchase order number or other identifying information. Each invoice should have an invoice number you and your vendors agree on, and your staff uses consistently.
- Have a system of approving invoices within a given period. It can be useful to use a digital system that automatically approves invoices or sends a notice when an invoice hasn’t been approved.
- Create a system for checking invoices against items received. A common form of fraud targeting businesses involves fraudulent invoicing and payment systems. A company will place an unsolicited call to a business offering to sell office supplies or other supplies. Sometimes, the fraudulent company never sends these items, but the targeted company will still receive invoices for the undesired items. Fraudsters hope a company will automatically pay the invoices without checking. Obviously, this can be quite costly. Always have a system for ensuring the payment is made after the services or supplies have been legitimately ordered and received.
- Have a system for resolving disputes. Someone at your organization should be in charge of the settlement of differences before sending another invoice. Whether fraudulent invoices have targeted your company, a vendor delays its shipment or the delivery arrives damaged, someone should be able to resolve the issue before sending more invoices. If one person or team is in charge of dispute resolution, this ensures the same personnel who understands the situation handles all attempts at escalation.
- Pay close attention to your due dates. Avoid paying late at all costs, since this can result in added charges and duplicate payments if a second invoice is issued.
- Some vendors offer discounts for early payment. Take advantage of this by having your team pay these vendors early to save money. You can set up a digital system to ensure you send payments for these vendors first.
- Pay with credit cards if possible. Business credit cards make it easier to track all your business purchases in one place. You may also be able to take advantage of rebates and card spend. If a vendor does not accept credit card payments, consider negotiating for this form of payment in your next contract.
- Avoid paying from copies. Pay from original invoices rather than copies unless you can verify your records. Paying from originals reduces the risk of paying the same invoice twice.
- Make sure there is a W-9 on file for a vendor before paying them. At the end of the year, when you need to comply with 1099 reporting, you may end up spending a lot of extra time and resources if you don’t have W-9s on hand.
Best Practices for Error Prevention
To err may be human, but any mistakes in accounts payable can result in added expenses for your business. You may not be able to eliminate all errors, but you can prevent them:
- Make accounts payable more transparent. Make sure to enter information into a centralized system where all relevant staff members can gain access to orders, invoices, payments and other data. When everyone is looking at the same numbers and forms, it is more likely someone will notice and weed out the errors.
- Offer relevant training. Train your staff in best practices, in the use of your current data entry or software programs and in accounts payable systems. Encourage continuing education and updated training as systems change and software is upgraded. Investing in the skills of your employees can offer a high return on investment, since a well-trained staff may be less likely to make errors.
- Enter invoices and data individually rather than in batches. Batches of invoices may be difficult to search and could increase the likelihood of duplicate payments.
- Ask someone to check for errors. Books go through an extensive editing process before being published. Films are reviewed with test audiences and by experts before they are released. Invest in your own business by having a professional review your figures and your systems. Run an internal audit of your accounts payable processes. Detecting errors and correcting them as well as identifying the sources of those errors can help you avoid mistakes in the future.
Best Practices for Customer Organization
Accounts payable works with both internal providers, such as other departments, and external providers, such as vendors.
With internal providers, there is sometimes a lack of understanding about what accounts payable does and how their work affects other departments. Engaging in team-building exercises can help your employees get along. More importantly, getting everyone in the same room to discuss the importance of each department and learn what each team can do to support others can be invaluable.
For external providers, reliable communication is important to nurture these relationships and ensure accounts payable does not spend time answering questions that have readily available answers. There are a few ways to improve communications. Clearly indicating in a letter or a separate vendor page online what vendors need to do to get paid, what the expectations are and when payment can be expected can help providers feel more heard and knowledgeable about the process. Following up as needed can also address issues such as incorrectly submitted invoices or other problems.
Keep in mind that strong vendor relationships can have a significant impact on your bottom line. Choose vendors and suppliers carefully and keep track of their performance. Use this data when negotiating for better terms or deciding which vendors to work with in the future. Keep all service level agreements with vendors in your systems to ensure you are abiding by the agreement and all parties are meeting their obligations under the terms of the contracts.
Automating and Streamlining Your Accounts Payable
One of the best accounts payable practices is to automate your system. Automation can reduce the risk of losing an invoice, forgetting to make a payment and human error or memory failure. You can also use an automated system to set up red flag alerts for any unusual activity, helping you target fraud and mistakes. Automating accounts payable also lets you save money on work costs by reducing the number of professional working hours needed to handle every task. Instead, your team can focus on those mission-critical projects that keep you moving forward.
Check out Our AP Automation System to learn more about our accounts payable automation services. We design our business solutions to reduce manual paper processes so you can improve efficiency. We help you stay transparent and able to manage and monitor each of your duties while ensuring you have the means to stay compliant. Vanguard AP Automation also offers a central repository for all supporting business documentation, so you don’t miss the paperwork and forms you need. Our bolt-on solution fills the process automation gaps left by many ERP and core applications, giving you the resources you need to make accounts payable reliable and accurate.
Vanguard AP Automation offers a free, no obligation demo, so you can try before you buy. As a true enterprise solution, you can integrate our document management and workflow solutions into one or more businesses applications, even those running in diverse environments. We make our options work for you. Best of all, we offer all the functions and features you need, comparable to much more complex systems, but at a fair and equitable price.
What makes Vanguard Systems different? We offer Blue chip performance at a fraction of the cost and meet you where your business is right now. Business leaders created and designed all of our solutions to work in real business scenarios. We based our services on practical application so you can be sure they will work for you.
Part of our “built by businesspeople for businesspeople” approach means making our solutions accessible. Part of it involves developing solutions with the features you need. You can use our system without a team of IT experts for maintenance and support. We designed our system to work as hard as you do.
Contact Vanguard Systems today for a free demo to see how we can make a difference for your organization.