If your accounts payable process doesn’t yet run like a well-oiled machine, there are a number of things you can do to improve your accounts payable efficiency. Read on to learn 12 best ways to improve your accounts payable process.
Table Of Contents
- Process for Your Accounts Payable Workflow
- Go Paperless or Make the Paper Count
- Automate Invoice Approvals and Matching
- Cut Down on Your Invoices
- Avoid Checks at All Costs
- Set Up Reminders
- Budgets Aren’t Boring – Use One
- Emergency Funds Are Good for Business
- Treat Your Suppliers the Way You Want Your Customers to Treat You
- Negotiate Your Terms with Suppliers
- Shop Around for Cheaper Suppliers or Better Discounts
- Finally, Embrace Technology
Just as in life, your business has to buy things to survive and thrive, and the truth in the saying “you have to spend money to make money” is never truer than in the accounts payable department. The problem is that the accounts payable process often gets bogged down, mistakes are made, and sometimes money is lost due to incurred late fees.
When you have an accounts payable process that deftly manages your invoices and pays the bills on time, you are able to have a good grasp on how your business is doing financially, maintain great relationships with your vendors and contractors, and likely save money as many suppliers offer a discount for paying quickly.
1. Process for Your Accounts Payable Workflow
This is especially important if you have an accounts payable department and is just as important for small businesses where there is only one or just a few people managing the accounts for your business. If there is any possibility that you will have to replace someone or ask someone to step in quickly, you need a set process for the accounts payable workflow.
To start designing the process, simply ask your current staff to note down each and every step they complete and when they do it, when nothing goes wrong. As you work through the steps pause on anything that isn’t optimized, talk to the relevant staff members, and figure out what goes wrong and what you can do to correct it.
Ensure that everyone has access to the files they need to keep the workflow moving smoothly and ideally use a cloud-based accounts payable software so there are never any barriers to keep you from staying on top of your debts.
This tip is key in how you can improve your accounts payable department, don’t skip it just because it takes some work.
2. Go Paperless or Make the Paper Count
Going paperless is a great way to improve accounts payable efficiency, as it means all of your invoices are digitized on your chosen software. If a vendor won’t send you an electronic invoice (which is highly unlikely) scan it and upload it yourself.
If any invoices still seem to slip through the cracks on a regular basis, use primarily online software and print just one of every invoice so you have a digital copy and a paper copy. Keep the unpaid invoices in a stack somewhere visible and write PAID on it once you’ve done so, along with the date, how you paid, and any employees you spoke to. Then, move the piece of paper to a paid folder.
3. Automate Invoice Approvals and Matching
The key to a smoother and less labor-intensive accounts payable process is in automation. An automated accounts payable software will take care of manually routing invoices, doing manual data entry, and having to use paper which is bad for the environment and easily lost – which can lead to incurred late fees.
When a large part of your accounts payable process is automated, you can verify your invoices to perfectly line up with your purchase orders and requisition information. This frees up your accounts payable department to do the work only they can do.
4. Cut Down on Your Invoices
This doesn’t mean you need to stop spending, but rather shift your spending. Take a look at your recent invoices and find the small purchases that have been made, especially ones that are to suppliers you don’t often use. Instead of receiving invoices for these purchases put them on a business credit card.
When done correctly, you can cut down on the number of invoices your accounts payable department has to handle, potentially gain benefits from your credit card, and have an extra incentive to pay off the card all while maintaining a great relationship with your supplier.
5. Avoid Checks at All Costs
This is one of the simplest process improvement ideas accounts payable departments, but it has a big impact. Checks are going the way of the dodo, and it’s only a matter of time until they become obsolete. Whenever possible, use electronic payments instead of checks.
Why? Because you have no control over that check once you’ve sent it, and it makes your overall accounting much more complicated. An electronic payment is paid within just a few days (often instantaneously) and then you’ll see your revised balance – there’s no guessing or calling your accounts department to figure out if you actually do have the money for a purchase, you’ll know just by checking your account.
If you’re sending checks out in the mail you have no control over when they’re deposited and thus rarely know what your balance really is.
6. Set Up Reminders
Again, another simple method to improve your accounts payable efficiency is to set up reminders to pay invoices by a certain date. Paying your invoices is something someone has to do manually, which means errors can be made. If you’ve completed the first idea on this list (and thus have a complete process) you may have made notes about when certain things should happen.
If you have, or even if you still leave paying your bills for whenever it’s practical, you can set up reminders for your bill paying days or that it is a week or two until a large bill is due.
If you’re struggling to figure out when to pay your bills, choose two dates in every month, say the 1st and the 15th, and you pay any bills you need to and can on those dates.
These methods will help you prevent overspending and are particularly useful for small businesses don’t have a dedicated department managing their accounts payable.
7. Budgets Aren’t Boring – Use One
Is it boring to keep an up-to-date business budget? Sure, but it is the best way to not only improve your accounts payable process to avoid late payment fees, but it will also improve your overall profitability. Who doesn’t want that?
8. Emergency Funds Are Good for Business
We all know the benefits of an emergency fund (also known as a rainy-day fund or cash reserve) for personal finance, but not everyone realizes that a business needs one too.
Create a budget and stick to it and allow any excess revenue to overflow into the businesses emergency fund, and once that is healthy, the fund for the stockholders (or owner).
Do what you can to keep the balance of your emergency fund healthy so you can keep your accounts payable process moving smoothly and weather any difficult times.
9. Treat Your Suppliers the Way You Want Your Customers to Treat You
We’ve mentioned the relationship with your suppliers in other tips, but it’s worth mentioning on its own – you should do your best to be your supplier’s best customer. You don’t become the best customer simply by spending a lot of money, but by being the customer who pays on time, takes advantage of their offers and discounts, orders frequently, and communicates well in a friendly manner.
Being this ideal customer will provide you with extra benefits, from discounts and offers, recommending you over their other customers, to being more relaxed on a rare month where you can’t pay on time.
10. Negotiate Your Terms with Suppliers
If you’ve done a good job of being the perfect customer then it may be worth negotiating your terms with your major suppliers. For example, if your supplier only offers 3 days for a 10% discount, but you buy from them consistently and it’s difficult for you to process their invoice that quickly, talk to them about extending the discount for you to 7 or 14 days.
If you’ve been the perfect customer, they’ll have little reason to refuse, especially if you can sweeten the pot by telling them you’ll switch away from alternative supplier permanently.
You can also negotiate for more time to pay your bills, but you need a good reason to do so or you’ll only raise red flags about your ability to pay your invoices.
11. Shop Around for Cheaper Suppliers or Better Discounts
Cheaper doesn’t always mean better, but any money you save with your suppliers will make you more profitable as long as it doesn’t come at a cost of quality. If you have two suppliers who offer the same merchandise but you buy from them both because it’s cheaper than purchasing everything you need at the larger supplier, see if you can negotiate with the larger supplier to have a discount to give them your extra business.
Also, if you buy from a vendor that offers no discount at all, ask about one for paying within a certain time frame.
12. Finally, Embrace Technology
We already talked about the benefits of automation, but the benefits of embracing new technology and software in your accounts payable department and your accounts department as a whole cannot be understated.
Is it difficult to onboard everyone to new technology? Yes, sometimes it is, and there are sometimes teething problems as those who have done something a certain way for a long time put up resistance. But, it is worth your time switching to using new technology as it is key to improving your accounts payable efficiency.
If you’re ready to have your accounts payable process move so smoothly it improves every aspect of your business, implement these tips and consider getting a free demo of Hilniva https://hilniva.com/accounts-payable-software which will help you automate many of these processes.