Nobody likes paying bills, but it’s possible—and in many ways simple—to make the whole process a lot less frustrating and time-consuming. In fact, with smart choices and the right technology in place, you can likely reduce the burden of your accounts payable (A/P) processing and oversight to nearly negligible levels—all without increasing the risk of error or fraud.
Wanting to introduce your organization to a better, smart A/P strategy, we here at Invoiced have assembled this list of accounts payable best practices. Below, you’ll find the techniques and technology that we believe can have the largest impact on the health of your business and your bottom line.
If you’d like to obtain a fully-rounded accounting plan that efficiently handles not only outgoing but incoming payments, check out our blog on accounts receivable (A/R) best practices.
1. Keep it simple
Overly complex A/P processes can lead to confusion, error, and delay. So ideally, you want to make your accounts payable operations as streamlined and centralized as possible. If everyone is following the same policies—particularly if you have multiple locations—then the performance of your A/P staff will be much more consistent. Similarly, your workers will be more likely to notice deviations and potential errors.
Constantly examine your existing workflows for redundancies or bottlenecks. Are too many signatures required to authorize payments? Do your A/P staff frequently step on each other’s toes, sending out double bills or overlooking outstanding debts because they think someone else has handled them? Is one of your locations paying abnormally frequent late fees? By asking and answering these questions, you can more readily eliminate unnecessary inefficiencies.
2. Go digital
“Work smarter, not harder” is a cliché for a reason. With each new technological step forward, the common tasks of life and business tend to get a little easier. And for accounts payable, shifting to a digital strategy can significantly improve efficiency and accuracy.
Consider migrating to a paper-free A/P process, capturing payment details from your incoming invoices, and routing them through digital workflows. Even better, replace the data entry steps traditionally associated with this data capture with optical character recognition (OCR) technology, which can quickly scan records and automatically input the relevant details directly into your payment systems. And by integrating your payment platform with your other back-office systems, you can simplify company-wide reporting and more easily create an audit trail for each purchase.
3. Prioritize fraud detection
Be mindful of external and internal fraud risks. Review every invoice, verifying that all relevant products or services were fully delivered before you cut a check. Do the incoming totals match what was previously negotiated? Does a vendor “accidentally” send duplicate invoices a little too often? Keep an eye out for any red flags.
Employ strict, role-based access controls that limit which staff can access critical payment systems. At the same time, separate authority among your accounting staff — in particular, never have the same worker be responsible for billing, payment processing, and check approval. With too much power centralized in individual hands, you increase the risk that various invoice fraud strategies — such as creating dummy vendor accounts, writing fake checks, or check tampering — will succeed.
According to the 2020 Global Study on Occupational Fraud and Abuse—conducted by the Association of Certified Fraud Examiners (ACFE)—regular employees were the most likely culprit in fraud cases, reflecting 41% of the incidents studied. And 24% of this examined fraud originated from the companies’ accounting, finance, and purchasing departments. Further, in smaller businesses (with fewer fraud controls in place), billing and payroll fraud were twice as likely to occur. In addition, check tampering is four times more likely to occur than in larger organizations.
4. Build a portal
Transparency is critical for effective, efficient accounts payable management. Consider setting up a supplier portal that allows the vendors you work with to submit their payment requests directly. Conversely, your staff can use this same platform to keep in touch with these creditors, notifying them of payment timelines or verifying details regarding recent shipments.
Ideally, you’ll also want to integrate this portal with your enterprise resource planning (ERP) systems, providing users visibility beyond just submitted invoices. Empower your vendors to update and validate their contact information or payment details directly without waiting for intervention from your staff. And provide them direct access to relevant business data, such as tax records or payment terms.
5. Organize invoices wisely
Paying your bills as soon as you receive them can help your business to avoid late fees; however, it might also unnecessarily restrict cash flows and limit your overall financial options. Organizations will commonly delay payments until shortly before the due date to keep more cash in hand at any given time.
Conversely, some vendors offer early payment discounts, so you’d likely want to prioritize paying these invoices immediately — particularly in times of low cash flow — and potentially delay covering other bills until your working capital has stabilized. By being deliberate in your payment choices, you can routinely net lower expenses while keeping more funds available to leverage during the contract and purchasing negotiations.
6. Push for constant improvement
Metrics and accounts payable KPIs are your friend. If you want to know what is or isn’t working, a robust reporting platform with real-time visibility is a must. After all, you can’t fix a problem if you don’t know about it. Further, keep historical records on hand so that when you make a process change or deploy a new technology, you can accurately track any improvements compared to existing benchmarks.
Some common metrics you should monitor include:
- Days payable outstanding (DPO)
- Capture rate for early payment discounts
- Number of late payments
- Time and money spent per invoice
- Frequency of supplier disputes
Above all, don’t assume that you’ve identified every improvement available to you. Include efficiency discussions in your regular review efforts — you never know what process innovation or technology might have recently become available that could save you time and money.
7. Track every payment
Before you send out a check, verify why it’s being sent and who it’s being sent to. Mistakes happen, but if you make a payment before you realize you’ve been overcharged or that a discount wasn’t applied, getting those funds back can often prove challenging if not impossible.
Hopefully, your payment platform will automatically note any billing irregularities—e.g., duplicate invoices—and flag these incidents for additional review. But if you rely on manually-driven workflows, you’ll need to factor in verification efforts in your authorization process.
And once a check has been sent out, confirm that it’s been cashed in a reasonable timeframe—usually within three weeks. If the transaction hasn’t been completed by that time, check with the vendor to verify that they’ve received the payment. And if they haven’t, make sure you cancel the missing check before issuing a new one. By tracking payments through completion, you can better avoid unnecessary late fees.
8. Never stop negotiating
There’s always a better deal, but you won’t find it if you don’t look for it. Never assume that the payment terms you currently have are the only available options. Have you been with a particular vendor for several years? Have you consistently increased the size and frequency of orders in the past 12 months? You can leverage these circumstances to net a lower interest rate or bulk discount.
Similarly, have discussions with your long-term suppliers about their cash flow needs. You might be able to shave off some costs by breaking up your orders into smaller, more regular shipments — or vice versa, depending on the business’s specific needs. Or ask if an early payment discount is available since most organizations don’t advertise these savings opportunities aggressively.
And if you’re likely to be late on a specific payment, reach out to the creditor early and see if you can negotiate better terms — such as waiving a late fee for a guaranteed pay-by date.
9. Reconcile accounts daily
Being proactive in your monitoring and verification processes can prevent small problems from becoming major, business-threatening failures. And accurate, daily bookkeeping is a critical tool for this effort.
For example, if you need to make an additional payment or correct a total but neglect to track that adjustment in your general ledger on the same day, the totals in your books will not match the bank’s records. And the more time that passes before these discrepancies are rectified, the more likely this knowledge gap can undermine cash flow. Similarly, these delays can interfere with auditing and reporting efforts, making it more difficult to locate inefficiencies or fraud.
10. Embrace automation
Eliminating time-consuming, manual processes is potentially the largest advantage you can provide to your accounts payable efforts. Commonly, any accounting functions performed by hand—particularly if physical paper is involved—create the opportunity for human error to creep into and disrupt your financial processes. To combat this built-in likelihood of mistakes, you’ll need to supplement your A/P procedures with additional verification steps, double and sometimes triple-checking work.
Not only do these verification protocols increase staffing overhead, they also create more opportunities for delay. An automated workflow can smoothly transition through each step of the A/P process without waiting for a human to send a file or push a button. And the staff that were previously dedicated to oversight can be shifted to more strategic or profit-driving efforts.
Finally, automation software can nearly eliminate the risk of late payments. With the technology making sure that checks — or preferably electronic payments — are sent out at a pre-scheduled time
Automate Your Accounts Payable Processes with Invoiced
No matter the size of your company, automation offers a powerful tool for driving new efficiencies and capturing more value from your accounts payable efforts. With technology handling the more monotonous tasks and making rules-driven decisions, you can expect much more consistent, reliable processes — all while removing the drudgework from your accounting staff and freeing them up to focus on process abnormalities and vendor relationships.
To centralize your efforts, accelerate your payment cycle, or just give your A/P staff less of a headache, consider the Invoiced Accounts Payable Automation Software solution.
Schedule a demo today and discover how your accounts payable processes can improve.
