Receiving and paying vendor invoices is a common and essential part of doing business. All companies, regardless of size, may incur short-term liabilities to suppliers for the goods and services they have received.
These incoming bills and invoices, so-called accounts payable (AP), must be stored, reviewed, verified, and processed for the business to pay for the goods and services on time and maintain its financial health.
If you’re in charge of managing accounts payable for your business, you know how time-consuming and stressful these tasks can be. From entering data and processing invoices to creating purchase orders and making payments, the responsibilities of managing AP can be overwhelming. However, there are ways that can lead you to significant cost and time savings and improved vendor relationships.
This is why in this blog we provide you with the top 10 best practices in accounts payable to help you optimize your AP process:
- Establish a system for tracking your AP process
- Set up a payment schedule
- Pay suppliers early (look around for discounts)
- Monitor and review data regularly
- Communicate with suppliers
- Eliminate AP fraud
- Check for errors and duplicates
- Keep track of disputes and resolutions
- Limit access and establish internal controls
- Use AP automation
Let’s get started!
#1. Establish a system for tracking your AP process
One of the key elements of managing your accounts payable is to put a system in place to track, review, prioritize and organize all the bills and invoices that the company owes.
You can do so by using a spreadsheet or an invoice processing and approval software program to keep track of due dates, amounts owed, and payment statuses. This way you can pay the most important bills first.
Having a clear and organized system for tracking your AP will help you ensure that bills are paid on time and your company has an accurate record of its financial obligations.
#2. Set up a payment schedule
Another essential practice to improve your AP process is establishing a payment schedule. This includes outlining when bills are due, and when payments will be made to suppliers.
In some cases, you can even set your payment terms. If that’s the case, aim to pay your suppliers on a weekly basis as it is likely to align with most account settlement periods, which are typically every 7, 14, 21, or 30 days.
By having a clear overview of due dates and payment schedules, you can prevent missed payments or late payment fees, which can damage your company’s reputation and relationships with suppliers.
A consistent payment schedule can also help build trust and establish good relationships with vendors, as they will know when to expect payment.
#3. Pay suppliers early (look around for discounts)
Paying suppliers early can be beneficial for the smooth functioning of the business. This means adhering to the agreed-upon payment terms and making timely payments.
By doing so, businesses can avoid late payment fees and penalties, maintain strong vendor relationships, and improve their reputation as reliable partners. Additionally, paying vendors early not only helps the company meet its financial obligations, but also helps suppliers increase liquidity by getting paid faster.
Bonus tip: Did you know that some suppliers offer early payment discounts? For instance, if the invoice is paid in full within 10 days, the supplier may grant a 2% discount. For timely and complete payments, some creditors may also lower interest rates.
By taking advantage of early payment discounts provided by suppliers and vendors, businesses can reduce their accounts payable costs and boost their cash flow. However, businesses must enquire about these discounts as they are not often promoted.
#4. Monitor and review data regularly
To ensure effective accounts payable management, it is vital to monitor and review the company’s payables regularly. This means making sure that:
- All bills are being accounted for;
- Payments are being made on time;
- Supplier agreements and payment terms are favorable and in line with the company’s needs;
- Any potential issues are identified and addressed before they become more serious.
Consistent monitoring of your accounts payable data will help you improve your cash flow planning, reduce the risk of fraud, and make better business decisions.
#5. Communicate with suppliers
Maintaining good communication with suppliers is a key factor in managing accounts payable. This could include notifying them when payment is expected and keeping them updated on the status of a payment.
Doing so helps to build trust and form positive relationships, as well as avoid disputes and misunderstandings.
For instance, if vendor bills don’t match approved purchase orders (POs), contact the vendor to investigate the difference and resolve it before the due date. Never pay for a bill you know or suspect is incorrect.
#6. Eliminate AP fraud
There are many steps you can take to prevent fraud in the accounts payable process. These can include implementing strict controls on access to financial systems, regular vendor payment and invoice reviews, and implementing document fraud detection software.
Note that any place where money is handled can pose a significant risk to a business, so it’s essential to implement policies and procedures to minimize that risk.
A good starting point could be checking for dummy vendor accounts, which can be used by employees to commit fraud, and setting system parameters to prevent staff who issue checks from creating new vendors. Also, check for fake invoices as document fraud poses a significant threat to companies.
Lastly, cross-referencing vendor information with data from the Chamber of Commerce (CoC) can also aid in identifying and preventing fraudulent activity.
#7. Check for errors and duplicates
Whether you are using automated software for your AP process or doing it manually, it’s essential to regularly check for errors, duplicate invoices, and duplicate payments to vendors.
This can be done by periodically reviewing vendor invoices and purchase orders, as well as reconciling vendor statements to ensure that all payments have been correctly recorded and accounted for.
The accounts payable department plays an essential role in safeguarding the company’s financial health and should be diligent in identifying and preventing errors and duplicates.
#8. Keep track of disputes and resolutions
Vendor disputes can arise from various issues such as incorrect invoicing, delivering defective goods, or contract disagreements.
Keeping records of these disputes and their resolutions can prevent future problems with the same vendor, and serve as a reference for other team members.
This will help maintain consistency in handling disputes, establish a clear record of agreements, and maintain positive relationships with vendors or suppliers.
#9. Limit access and establish internal controls
To protect your organization from internal fraud, it’s crucial to establish internal controls and separation of duties within the AP process.
One way to achieve this is to limit access to the master vendor file or, in other words, the supplier portfolio to specific employees. As a result, companies can have better control over approved vendors and monitoring of payments.
Additionally, to further reduce the risk of fraud, you should assign different tasks such as invoicing, payment processing, and check approval, to different individuals, rotating these duties periodically. This ensures that the team is aware of all activities and is able to handle all duties smoothly.
#10. Use AP automation
As organizations shift towards digital processes in the current digital age, paper invoices and paper checks become less and less common.
By automating invoice processing and payment through software solutions, companies can improve efficiency, reduce manual labor, and simplify the management of accounts payable.
This includes using digital technologies such as OCR (Optical Character Recognition) and AI to eliminate manual processes, reducing the need for printing and mailing paper checks.
AP automation software can also help by automating invoice generation, sending reminders, and tracking payment status. Thus, it reduces errors and improves financial record accuracy.
According to a Goldman Sachs study, businesses that automate their accounts payable processes can save up to $16 per invoice and as much as 80% of their time. These cost and time savings can lead to faster invoice payments, improving relationships with suppliers.
As the numbers show, automation software can truly be a game changer for your AP management. Let’s look at what Klippa’s accounts payable automation solution, Klippa SpendControl, can do for you!
Automate your Accounts Payable with Klippa SpendControl
If you are looking for a way to automate your AP process, Klippa has the perfect solution for you, Klippa SpendControl.
Klippa SpendControl allows you to easily submit invoices through email, web, or mobile and uses AI-powered data extraction technology to extract all payment data.
The invoice can then be assigned to the right approver in your organization through a multi-level approval workflow, which can be done with just the touch of a button. Once approved, the document contains all required data and can be easily integrated into your accounting system or ERP program.
Klippa SpendControl offers features such as invoice processing, matching credit card statements with payments, fraud detection, expense reports, accounting system synchronization, and 2-way matching.
The benefits of using SpendControl include:
- Quick and easy AP approval process
- Invoices are paid on time
- No more manual data entry with AI-powered OCR
- Duplicate detection to avoid double payments
- Minimization of invoice fraud
- Accurate overview of Accounts Payable
With Klippa’s automation software, you can easily manage your AP to have a clear 24/7 overview of your payments, ensuring that all your bills are paid on time.
Are you interested in streamlining your AP process? Simply schedule a free demo to see how Klippa SpendControl can help, or contact one of our specialists for more information.