Unlike accounts receivable, accounts payable often get less attention since businesses naturally prioritise revenue-generating tasks. However, you shouldn’t overlook accounts payable due to their importance to the overall business strategy and sustainable growth.
Optimising accounts payable performance can provide a base for accurate cash flow forecasting while allowing to reach higher profit margins.
This article will discuss how companies can improve their accounts payable processes to maximise value, so stay until the end to learn it all.
Key Strategies on How to Improve Accounts Payable Process
Create Effective Workflows
There’s nothing as crucial to a smoothly running business as well-defined workflows and processes throughout all their departments. This is especially important when it comes to accounts payable, as you want to avoid burning bridges with suppliers.
Without an effective accounts payable process, companies can risk falling behind on purchase orders, losing access to early payment discounts or failing to prevent late payments and duplications. From invoicing to supplier management and data sharing, all processes need to be clearly established to maximise efficiency.
Furthermore, ensure that you strictly stick to invoice payment terms from the get-go, including instructions and timelines. Missing payment could result in late fees and damage your long-term supplier relationship.
Workflow planning should also include crisis management plans and guidelines on handling late payments, penalties and breaches of supplier agreements to ensure that all relevant parties know how to handle different incidents.
Make Use of Automation
There is a wide range of accounts payable automation software available today. Although it can be challenging to navigate all these options, businesses must use automation to enable faster payments and more efficient invoice management.
Paperless solutions can help to initiate smoother communication between vendors and businesses, automatically generating payment details and invoices or tracking invoices to minimise delays and allow companies to make quicker and more manageable payments.
Current accounts payable software solutions can also help eliminate the piles of physical paperwork in offices, scanning and tracking invoices and receipts. This also lowers valuable time spent on finding out details of a dispute and reduces the cost per invoice.
Implementing accounts payable automation can reduce the labour cost of invoice processing by 78%, which can be a significant saving for any company.
If your organisation handles many vendors and suppliers, creating a vendor portal to link them into your system with ease might be a smart solution. This can help to manage pricing and stock level and even to automate payments or track inventory supplies.
Move To The Cloud
Numerous small businesses still stick with paper-based processes out of habit or lack of infrastructure, with 45% of companies still operating their supplier payments through paper invoices and checks. Others rely on local data storage to navigate their endless financial data.
Although both methods have positive attributes, there are much better and more effective options for organisations to streamline their operations.
Backing financial data into the cloud should be essential for all businesses to reduce the risk of data loss and lower manual data entry time across workflows and processes. Cloud migration also has the added benefit of flexible access, meaning that business leaders can track their cash flow and financial data online from anywhere at any time.
As we mentioned before, financial data is an increasingly popular target for data theft. A centralised database can help to speed up communications with remote stakeholders and even make funding and loan applications easier. Besides the ease of operation, storing your data in the cloud can significantly improve your cyber security.
Accounting fraud can have a high cost to companies, with a median loss of $200,000 per instance, with 32% of these cases originating in billing and payment departments. Cloud storage provides an easy way to monitor financial data for signs of potential fraud and avoid significant cash loss.
Track Efficiency through KPIs
It’s hard to improve accounts payable processes without a benchmark or goals. In order to maximise the effectiveness of your operations, you must establish KPIs. They must be set to measure the performance of your company and accounts payable department over time.
These performance metrics can also help you identify what changes work and don’t, allowing you to revise your system throughout the process.
There are several metrics that companies can track to assess their efficiency. The exact KPIs will heavily depend on the type of organisation and industry they operate in. Useful metrics can range from cost per invoice, payment accuracy rate, invoices paid on time, or time spent handling supplier disputes.
Contract an External Financial Provider
Setting up sophisticated and effective digital financial systems can be time-consuming and costly; nevertheless, companies with limited resources do not have to give up their hopes of looking for an efficient system.
While purchasing software licences, equipment and expertise might be costly, hiring external professionals might give access to these functionalities with ease at a much lower price.
As we have previously explored, external financial partners can provide companies with a wide range of help. They can manage your payroll and help with cash flow forecasting while enabling business leaders to gain practical insights and have more time to focus on the more critical needs of their organisation.
Constantly improving accounts payable processes is a key to streamlining organisational workflows and creating the most value across the business.
An efficient AP department will allow business leaders to remain confident in their ability to process invoices accurately and gain better insights.
At Sanay, we help business leaders bring out the best in their organisations through effective financial data management and outsourced finance functions, enabling them to maximise their business growth and simplify the company’s day-to-day running.
Leave your company’s financials, accounting, and payroll functions in the hands of experts! We offer three different financial control/management plans, so you can choose an option that fits your budget and needs.
Reach out to us today!