10 Ways To Improve the Accounts Payable Process

The accounts payable (AP) process is crucial for sustaining good cash flows and building strong vendor relationships. Unfortunately, AP teams often encounter issues in the process. For example, what happens if there is no matching purchase order for an invoice in the system? What if there is a notice for a late payment, but no one recalls reading the original payment request? 

Therefore, every business must implement certain best practices to improve their accounts payable process and avoid such issues from arising. Negotiating discounts, prioritising invoices, and automating workflows are some of the key practices to be followed in accounts payable, but that’s not all.

Read along to know the top ten ways to improve the accounts payable process.

Ways To Improve The Accounts Payable Process

Here are the top ten ways an enterprise can improve its accounts payable process:

1. Automate Workflows

Manually managing accounts payables can be time-consuming and prone to errors. Manual processes can cause mistakes such as data entry errors, double payments, and delays in making payments. However, automating accounts payable saves time on handling and validating invoices, ensures accuracy, and results in lower costs in the long run. 

Also, manual methods give limited data insights, whereas accounts payable automation lets an enterprise digitally track and analyse important performance metrics.

Here are some accounts payable processes you can automate with a comprehensive accounts payable solution:

• Invoice processing
• Vendor management
• Purchase order matching
• Data validation
• Vendor payments

2. Organise And Prioritise Invoices

Invoice processing is at the heart of every company's operations; therefore, streamlining this process can significantly impact efficiency. An enterprise shouldn’t look to pay their bills in the order they come in, as that can hurt their daily cash flows. Instead, they must pay their bills based on their due dates and payment terms. ​​

Routinely examining the accounts payable ageing data can also assist the enterprise in prioritising what should be paid and when.

3. Use KPIs To Measure Accounts Payable Efficiency

Benchmarking the performance of the enterprise’s accounts payable data is one way to determine the efficiency of the accounts payable process.

Start by analysing the business's cost per invoice, the payment accuracy rate, the number of invoices paid on time, the number of discounts captured, the number of days payable outstanding (DPO), and the rate of incorrect payments, amongst other data. Then, use an automated platform to enhance the performance of these metrics.

4. Automate Fraud Detection

A manual AP system exposes an enterprise to fraud risks such as falsified invoices, stolen checks, and identity theft. Automating accounts payable helps tackle this difficulty by providing a more stringent approval tracking system and a clear audit trail. 

It also shows the status of each invoice in real time, identifies and flags errors, and automates the matching process.

5. Use A Vendor Management Tool

Effective vendor management is one of the most important components of the accounts payable process. Non-compliant vendors are more prone to default in sending invoices on time or uploading their invoices to the GST portal so that the recipient business can claim input tax credit. 

By using vendor management software, enterprises can undertake compliance checks, both pre and post onboarding vendors, to ensure that the business only deals with compliant vendors.

6. Leverage Early Payment Discounts

Managing the accounts payable process is less stressful when you owe less money to suppliers. Hence, look for early payment discounts—they improve cash flows as well as boost one's suppliers' liquidity as they get their payments faster. 

Here are some ways to get discounts from suppliers:

• Find out about vendors that will reduce interest rates for early payments or payments made in full.
• Research vendors that charge high interest or fees for late payments.
• Buy goods in bulk to procure large volumes at discounted prices. 

7. Evaluate Relationships With Vendors

Examine your supplier relationships—consider whether you may negotiate better payment conditions. Make a list of any vendors with whom you may enhance your connection, such as those you have missed payments to or paid them late. 

Now, work on improving such relationships by paying on time and, if possible, changing your payment processes to meet their demands. For example, tweak the payment method as per their demands — if a vendor requires cheques to be sent in the mail, then follow that procedure.

8. Set Up Payment Reminders

Setting up calendar reminders of payment due dates is another simple method to optimise the accounts payable process. The accounts payable department routinely manages multiple payments on various dates, so while it may appear to be a simple step, reminders are crucial to on-time payments and maintaining goodwill with suppliers.

When an enterprise decides to opt for AP automation, it is likely that the software will have an inbuilt tool for payment reminders as each due date approaches.

9. Keep Track Of Your Budget

Not having enough money to pay one’s suppliers can really harm relationships. Managing an enterprise's internal budget can help strengthen these relationships with suppliers.

One such best practice involves evaluating vendor invoices to figure out your monthly dues and keeping a percentage of the budget allocated towards accounts payables to ensure that no payment needs to be delayed or missed. 

10. Regularly Reconcile Accounts 

A daily reconciliation routine ensures that all of the enterprise’s records match at the end of the day. It is helpful in only paying for the goods that the enterprise has received and in avoiding fraud. Most enterprises follow either the 2-way or 3-way matching process for accounts payable. However, a 4-way matching process is even more beneficial. This data is also especially useful at the time of an internal or external AP audit. 

Automating the accounts payable reconciliation process can help save time and money, as well as help enterprises identify and detect variances and fraud much more effectively. It also improves visibility over the accounts payable data, making reporting, analysis, and forecasting easier.

Conclusion

An optimised accounts payable process guarantees suppliers prompt payments for their goods and services while helping businesses maintain positive cash flows. 

Furthermore, automating AP processes is one of the best ways to improve the accounts payable process. It gives businesses greater insight and control over spending, helps them negotiate better with suppliers, and increases profitability.