Revolutionize Your Business With Accounts Payable Best Practices

Is your accounts payable process efficient?

Do you know how efficient your process can be and what you can do with those saved hours?

In this blog, we’ll teach you exactly just that. Today, we will discuss the top 18 best practices to help you improve your accounts payable process.

We want to help you leverage your opportunities to save time, money, and have more meaningful results for your bottom line.

What Does It Mean For A Company To Have Good Accounts Payable Best Practices?

A good accounts payable process is efficient, accurate, and compliant. It should be designed to have minimal errors and delays while also ensuring all your payments are made on time.

A good accounts payable process is crucial to achieve a smooth financial operation for your organization.

Remember that your accounts payable encompass various activities involving receiving, recording, and processing your invoices.

In addition to that, it also involves managing your payments and ensuring accuracy, timeliness, and fraud prevention.

Here are some of the key elements of a good accounts payable process:

• Strong Internal Control System: First, a strong internal control system should be in place in your company to minimize errors and ensure accurate payment processing. This includes implementing segregation of duties, where multiple individuals are involved in different stages of the payable process, and establishing clear approval policies for invoices.
• Standardized procedures: Your process should be well-defined and documented so all employees know what to do and when. This will help you prevent errors and ensure your invoices are processed promptly.
• Automated workflows: Automation can help you streamline your accounts payable process and free your employees to focus on more strategic tasks. Several different automation solutions are available so your business can choose the one that best meets your needs.
• Efficient data entry: The accuracy of your accounts payable process depends on accurate data entry. Your business should use a system that makes it easy for employees to enter data quickly and easily.
• Strong controls: Strong controls should be in place to prevent fraud and errors. This includes things like requiring multiple approvals for payments and reconciling accounts regularly.
• Vendor management: An efficient accounts payable helps you ensure you pay your vendors on time. This results to better relationship and supplier management with the people you collaborate with.
• Timeliness: Timeliness is another key characteristic of an effective accounts payable process. Your process should be streamlined to efficiently receive invoices, data entry, and payment scheduling. You can achieve this by using electronic payment methods, digital workflows, and automation software, saving time and reducing the risk of late payments and associated fees.
• Fraud prevention systems in place: Fraud prevention is paramount to your accounts payable system. It is essential to have measures within your company to detect and prevent fraudulent activity, such as duplicate payments or invoices. You can facilitate this by implementing strong vendor relationships, conducting regular audits, and utilizing technology like optical character recognition (OCR) to identify duplicate invoices.

By following a strategic approach and implementing efficient workflows in your organization, you can ensure timely payments, minimize errors, and successfully maintain strong supplier relationships. Thus ultimately contributing to a healthy cash flow and well-managed balance sheet for your business.

Why Is It Important To Effectively Manage A Business’ Accounts Payable?

There are several reasons why effective accounts payable management is important for your business.

Let’s discuss some of the important reasons:

To Improve Cash Flow

By paying bills on time, your business can avoid late fees and penalties, saving you money. Aside from that, you understand what you’re paying for and to whom you’re paying.

To Prevent Fraud

By having a well-defined accounts payable process and strong controls in place, your business can help prevent fraud.

This includes things like requiring multiple approvals for payments and reconciling accounts regularly.

To Maintain Good Relationships

Your business can maintain good relationships with your vendors by paying your bills on time and resolving any issues promptly.

This can be important for getting discounts, extending payment terms, and getting priority service.

To Ensure Compliance

Your business has legal obligations to pay your bills on time. An effective accounts payable process can help your business comply with all applicable laws and regulations.

To Improve Financial Reporting

Accurate accounts payable records are essential for your business’s accurate financial reporting.

This is important for businesses of all sizes, but especially if your business seeks financing or investment.

Top 18 Accounts Payable Best Practices 

Let’s dive into the top 18 best practices for your accounts payable.

1. Create A Tracking System For Your AP Process

Creating a robust tracking system involves setting up a digital platform or software that monitors accounts payable.

This system should track invoices from the moment they are received, record each processing step, and finally, log the payment date.

The benefits are manifold: it allows real-time visibility into your financial obligations, ensures no invoice gets lost or forgotten, and provides a complete audit trail for each transaction.

This level of transparency enhances accountability across your organization, making it clear who is responsible for each stage of the AP process reducing the likelihood of missed payments or errors.

2. Review Your Data Regularly And Reconcile Daily

Regular data reviews and daily reconciliation mean systematically checking your financial records, invoices, and payments to identify discrepancies or inconsistencies.

By proactively examining your financial data regularly, you can catch errors or discrepancies early, allowing for timely correction.

This practice helps maintain the accuracy of your accounts payable records and builds confidence in your organization’s financial health.

3. Establish A Payment Schedule For Your Business

Creating a payment schedule involves setting clear guidelines for when and how often your business pays suppliers.

Adhering to a schedule ensures that suppliers receive their payments consistently and on time. This consistency fosters trust and strong supplier relationships, potentially leading to more favorable terms or discounts for early payments.

How Can ProcureDesk Help Achieve This?

ProcureDesk takes the hassle out of manual entry for vendor invoices into your AP system by introducing electronic invoicing.

With electronic invoicing, vendors directly submit their invoices to the AP system instead of emailing them.

If an invoice corresponds to a purchase order, it will automatically be matched, and the payment will be processed. This eliminates the need for your team to engage in manual invoice processing and safeguards your company from data errors.

Here are the precise steps to implement this process:

Identify Suitable Suppliers:

• Assess suppliers’ suitability for electronic invoicing, considering the effort required by both your organization and the suppliers.
• Give priority to larger, high-volume vendors as prime candidates for electronic invoicing.
• Analyze your invoicing history, categorizing vendors based on total invoice count to identify those contributing to 80% of the volume (within the top 20% of supplier count).
• Consider potential changes in payment methods, such as transitioning from credit card payments to a line of credit, if you lack a purchase order system.

Check Vendor Capabilities:

• Verify if the selected vendors can handle e-invoicing.
• Familiarize yourself with common e-invoicing formats like cXML and EDI, and engage your IT team to assess compatibility.
• If necessary, explore implementing an Accounts Payable system like ProcureDesk that supports e-invoicing.

Initiate Communication with Vendors:

• Reach out to selected vendors via email, expressing your interest in implementing e-invoicing.
  Request information about their ability to send digital invoices using cXML or EDI standards.
  Implement and Test the E-Invoicing Process:
• Upon receiving positive responses from vendors, collaborate with your IT team to proceed with the implementation.
• Establish the required infrastructure for both your organization and the vendor.
• Conduct comprehensive testing to ensure smooth connectivity and data exchange, ensuring a seamless e-invoicing process.

Remember that most e-invoicing vendors only transmit invoice data electronically, without physical copies. Therefore, consider generating a preview of the invoice for auditing purposes if necessary.

Here’s an example of an electronic invoice from ProcureDesk:

4. Double-Check Duplicate Payments

Implementing controls to prevent duplicate payments is crucial in avoiding financial losses and reconciliation challenges.

To achieve this, it’s essential to have rigorous invoice verification processes in place.

Double-checking invoices before processing payments ensures that no duplicate payments are made, which can strain your finances and disrupt your cash flow.

How Can ProcureDesk Help Achieve This?

Conducting a manual 3-way match, which involves aligning the invoice, purchase order, and receipt, can be a complex undertaking.

It often necessitates contacting various stakeholders to confirm receipt and resolve pricing discrepancies.

These discrepancies must then undergo scrutiny and approval from the relevant personnel within your organization.

However, ProcureDesk’s automated PO matching simplifies aligning invoices with purchase orders.

Indeed, automation is vital in efficiently executing your 3-way matching process, diminishing the need for extensive manual interventions.

Here’s an example of an automated PO matching done in ProcureDesk:

5. Consider Having Early Payments To Your Suppliers For Potential Discounts

Evaluating the benefits of early payments to suppliers involves assessing whether paying invoices ahead of their due date can result in cost savings for your business.

Early payments often lead to discounts or favorable terms, effectively reducing expenses. However, this should be balanced with your cash flow management to ensure your business’s financial stability.

6. Automate Various Aspects Of your Process

Embracing automation entails leveraging technology to streamline various components of your accounts payable process.

This includes automating data entry, approval workflows, and payment processing. Automation reduces manual errors, speeds up the AP process, and allows your team to focus on higher-value tasks such as strategic financial analysis.

7. Regularly Monitor And Review Your Data For Accuracy

Continuous monitoring and data review ensure that your accounts payable data remains accurate and up-to-date.

This ongoing scrutiny helps identify discrepancies or errors promptly, allowing for swift corrective action and maintaining the integrity of your financial records.

8. Embrace Your Paperless Processes

Transitioning to paperless accounts payable processes involves digitizing and centralizing your documentation.

This reduces administrative overhead, minimizes document handling, and enhances data security by protecting sensitive financial information from physical mishaps like misplacement or damage. Paperless processes are also environmentally friendly and promote sustainability.

9. Maintain Clear Communication With Your Suppliers

Establishing clear communication channels with suppliers is essential for addressing inquiries, resolving payment issues, and building strong, collaborative relationships.

Effective communication helps prevent misunderstandings, improves problem-solving, and creates a positive vendor experience.

10. Utilize A Supplier Portal For Organized Vendor Data

Implementing a supplier portal offers a centralized platform for managing vendor information and interactions.

This portal stores essential vendor data, such as contact information, contact details, and transaction history, making it easier to maintain organized records and facilitate smoother collaboration with suppliers.

11. Prevent AP Fraud

Organizations should implement robust internal controls to prevent accounts payable fraud, including segregation of duties, multi-step approval workflows, and thorough verification of invoices and payment requests.

These measures help safeguard against common fraud schemes like invoice fraud or unauthorized payments, protecting your financial assets.

12. Leverage Your Technology For Efficiency

Maximizing the capabilities of your accounting software and technology tools involves using these tools to their full potential.

This might include harnessing data analytics for better decision-making, optimizing software configurations, and staying up-to-date with software updates and enhancements to improve overall efficiency and accuracy in your accounts payable process.

13. Thoroughly Check For Errors And Duplicates

Conducting thorough invoices and payment records reviews means meticulously examining these documents to identify errors, discrepancies, or duplicate entries.

Regularly verifying the accuracy of your financial data reduces the risk of financial inaccuracies that can lead to costly mistakes or damage your organization’s reputation.

14. Prioritize Your Invoices

Implementing a prioritization system involves categorizing invoices based on their importance and urgency.

Critical invoices, such as those for essential supplies or services, should be given priority to ensure they are processed and paid promptly. This practice prevents delays in vital business operations and maintains good relationships with key suppliers.

How Can ProcureDesk Help Achieve This?

Achieve Effortless Invoice Management and Electronic Payments Centralization with ProcureDesk. Leverage its integrated dashboard to streamline your invoice capture process, following a standardized protocol.

Wondering how it functions?

Imagine this scenario: a supplier sends an invoice to a stakeholder. In such instances, your Accounts Payable (AP) team faces uncertainty about the invoice’s receipt and, consequently, cannot initiate processing. However, by adopting centralized invoice processing, your AP team can bypass the need to chase stakeholders to track the influx of invoices.

Establishing supplier invoicing policies and adherence standards is paramount in the centralization endeavor. This pivotal step lets you outline the procedure for capturing invoices according to your organization’s business rules.

Here are our recommended best practices:

• Email-Based Submissions: All suppliers must exclusively submit invoices via email, steering clear of traditional mail or paper submissions. Create a designated email address for this purpose, such as invoices@yourcompany.com.
• Segregate AP Communication: Maintain a clear demarcation of communication within your Accounts Payable processes.
• Purchase Order Inclusion: Include a purchase order (PO) reference on all invoices to ensure seamless tracking and validation.
• No PO, No Pay Policy: Implement a rigorous policy dictating that invoices without a corresponding purchase order will not be processed for payment.

15. Keep Your Records Of Dispute Resolutions

Maintaining detailed records of dispute resolutions involves documenting the steps taken to resolve any payment discrepancies or issues with suppliers.

This documentation demonstrates your commitment to resolving problems and helps in future negotiations and audits.

16. Simplify Your AP Workflow

Streamlining your accounts payable workflow requires critically evaluating your existing processes to eliminate unnecessary steps and optimize efficiency.

Simplifying the workflow ensures that tasks are completed more quickly and with fewer opportunities for errors.

How Can ProcureDesk Help Achieve This?

Leveraging OCR technology, ProcureDesk optimizes the invoice processing workflow by automatically scanning and extracting vital data from invoice documents.

This forward-thinking approach eliminates the necessity for manual data entry by the accounts payable (AP) team, thus mitigating the risk of errors.

The extracted data comprises critical information found in the invoice, neatly categorized into two primary sections:

1. Invoice Header Details:
The OCR engine adeptly captures and extracts crucial elements from the invoice header. This encompasses key data such as the unique invoice number, total invoice amount, invoice date, applicable taxes, and other relevant particulars.

2. Invoice Line Items:
ProcureDesk’s OCR engine goes the extra mile by accurately extracting detailed line-item information from the invoice. This comprehensive data encompasses item descriptions, corresponding unit quantities, individual prices, and other pertinent particulars associated with each line item.

The system can execute the essential three-way matching process with this readily available extracted invoice data.

The primary responsibility of the AP team lies in verifying the accuracy of the extracted information to ensure seamless alignment between the purchase order, goods receipt, and invoice data.

This innovative utilization of OCR technology expedites the invoice-matching process, enhances accuracy, and facilitates smoother financial operations.

Organizations can efficiently manage their invoices, optimize payment processes, and bolster overall financial control by minimizing manual data entry and the potential for errors.

Here is an example of an expedited invoice-matching process done in ProcureDesk:

17. Create Limits To Your Access & Internal Controls

Implementing access controls and internal procedures is crucial to safeguard sensitive financial data and prevent potential fraud.

Access limits should be set to restrict unauthorized personnel from accessing critical financial information, reducing the risk of data breaches or financial misconduct.

18. Integrate AP Automation

Integrating advanced accounts payable automation solutions takes automation further by incorporating intelligent technologies like machine learning and artificial intelligence.

These solutions can automatically categorize invoices, flag exceptions, and route invoices for approval, significantly streamlining the AP process and reducing the need for manual intervention.

What Makes A Good Accounts Payable Manager?

A good accounts payable manager can effectively manage your accounts payable process. A good accounts payable manager can ensure all your invoices are paid on time and in full.

In addition, a good accounts payable manager should be able to prevent fraud and errors while maintaining good relationships with your vendors.

Here are some of the qualities that make a good accounts payable manager:

• Organizational skills: A good accounts payable manager should be able to keep track of a lot of information and manage multiple tasks simultaneously. They should also be able to prioritize tasks and deadlines.
• Attention to detail: A good accounts payable manager should be able to review invoices and payments to ensure accuracy. They should also be able to identify and correct errors.
• Problem-solving skills: A good accounts payable manager should be able to identify and resolve problems quickly and efficiently. They should also be able to think critically and develop creative solutions.
• Communication skills: A good accounts payable manager should communicate effectively with vendors, employees, and other stakeholders. They should be able to explain complex financial concepts and resolve disputes professionally and clearly.
• Technical skills: A good accounts payable manager should use accounting software and other technology tools proficiently. They should also be able to stay up-to-date on the latest trends in accounts payable.
• Leadership skills: A good accounts payable manager should be able to lead and motivate their team. They should also be able to delegate tasks effectively and create a positive work environment.

The Bottomline: Understanding Your Accounts Payable Process

Your accounts payable is a vital function in your organization. It ensures your suppliers and vendors are paid accurately and on time.

Your business can maintain accuracy, minimize errors, and ensure compliance by following your best practices.

Implementing automation software or AP Automation Solutions in your business can significantly streamline your accounts payable process and reduce manual processes and fraud risks. Automation software can offer real-time visibility into your invoices and payments and help you improve your company’s efficiency.

With a strategic approach and technology, your business can effectively manage your accounts payable process and ensure improved cash flow and smooth financial operations!