Accounts payable (AP) plays an important role in keeping your company growing, profitable and competitive. The size of your business does not matter as you always have to pay bills. Accounts payable is the amount you owe to the vendors and suppliers from whom you have purchased the services and goods on credit.
The total sum owed to suppliers is shown as the accounts payable on the balance sheet of your company. So, you must pay attention to the accounts payable process. If any minute discrepancy occurs in the accounts payable process, then it will affect your entire business.
In this informative post, we will tell you the top 10 account payable practices to keep your business on track. You will avoid making errors and costly penalties.
Need of Account Payable Practices
Well, each and every company has to go through an auditing process. It reveals the company’s payment process’ part. After finishing the auditing process, the accounts team has to explain
the overpayments that are shown in the list. So, it is important to follow account payable practices to avoid such situations.
Accounts payable are due amounts to suppliers or vendors for services and products received that are unpaid yet. It means purchasing the items on credit.
Let’s understand it better with an example: Assume that the supplier delivers the products you have purchased. Now at the time of delivery, you come to know that the company is charging more than the mutually agreed amount. Now, you are looking for the purchase order to prove them wrong, but you can’t find it. This is because an employee of your company skipped issuing purchase orders’ process as it is a bit time consuming and they surely didn’t wish to leave the opportunity of an early discount being offered by the vendor.
Now, you think about whether you should pay the supplier or not as a one-minute mistake can damage your accounts payable system and relationship with the supplier. You can simply manage it by following the account payable practices that we have described in the further part.
Top 10 Account Payable Practices
1. Prioritize Invoices
Don’t immediately pay the invoices as soon as they come in. If your supplier gives you a net- two weeks agreement and the second one gives you a 30 days agreement then pay both on/before time only. When you pay them immediately it hurts your working cash flow.
Prioritize your bills by the due date as well as the type of bill. Also, sort the bills of the credit by date and the expense of the interest. It is recommended to pay the cards with the maximum interest first. Remember to prioritize the invoices by the due date as well as payment terms.
2. Reviewing The Data Regularly
It is important to review your financials such as accounts payable data, to monitor your cash flow. This strategy helps you to make better decisions for your business. For example, analytics and advanced reporting can help you:
- Reduce fraud as you consistently monitor your data.
- Improve cash flow.
- Keeping tab of invoices value.
- Improve analysis and planning.
- Reduce compliance risk.
- Identify trends/bottlenecks in the AP processes.
- Monitor the volume of invoices and payments.
3. Don’t Let One Person Managing Billing, Processing of Payments, and Check Approval
To reduce fraud in your business, you must separate duties. This is a strategy of establishing control internally.
If a single individual is generating invoices, checks, and payments then it is quite obvious that check tampering fake checks can take place in your business accounts.
A study claimed that 80% of all frauds in any business are done by individuals in a few departments in which the purchasing department was also listed. So, separation of duties is required for the smooth functioning of the AP process. If you have assigned only one person for all important tasks and he/she takes a vacation or is sick then your company will not be able to generate invoices timely impacting your cash flow.
4. Renegotiate Payment Terms
Payment terms of the vendors are not set in stone. Invoices arrive at 30, 60, 90 days. But you can still call to renegotiate. If your supplier says no to your words then it is recommended to call before regarding late payments. If you do so, then some vendors might understand and excuse the late fees.
5. Look for Discounts
If you don’t owe much money then the flow of the accounts payable process becomes efficient. To control finance, it is best to look for discounts on the inventory, supplies, and services. This is the best accounts payable best practice you must focus on. Many suppliers provide early payment discounts. Grab it as soon as possible.
It is similar to when you want your clients to make timely payments, the vendors want the same. All you have to do is look for those creditors who are willing to offer discounts. You can also ask those vendors who are not doing it just to confirm.
Also, some vendors reduce interest rates and give discounts when clients make payments on time and in full. Take note of who charges how much interest or what the late fees are. It will help you avoid paying late.
Finally, remember that when you buy items in large quantities then you receive heavy discounts. This tactic can help you save money.
You Can Also Read, How to Survive Cash Shortage Crisis?
6. Monitor Duplicate Payments Regularly
Even though Automating the AP process is the best way through which you can reduce the risk of making duplicate payments. But if you are using AP manually, then you must monitor for duplicate payments regularly to avoid any leaks in the cash flow.
In case you have a strong and healthy relationship with the supplier, there is a chance that he may offer to give you back the extra payment. But, you can’t let someone know the mistake in your accounts payable. So, checking for duplicates regularly keeps consistency in your cash flow and organizes your books neatly.
7. Organize Supplier Data with a Vendor portal
To make good interactions and relationships with the supplier you need to set up a vendor portal. It helps in increasing communication between you and the other party. Also, it keeps your data in an organized way and empowers the suppliers.
You can keep invoices, tax records, and details of the payment in one spot. Additionally, dealers can anytime update their details after which the system will also modify it automatically.
8. Keep Digital Records
You can switch to online software to keep digital records for the transactions. This tip will save your storage costs and enable you to store, find, and restore documents easily.
Not only this, but the digital records also provide additional security as well as regular backups which improves legal compliance. Many countries nowadays ask company owners to store all kinds of business records for many years.
9. At the day’s end, Reconcile Accounts
Don’t take it as a burden because reconciling accounts daily is a good habit to follow. What if you have to make some extra payment to a supplier and it does not get recorded? Well, if it happens then your company books will not exactly match the bank. It will hurt your company’s cash flow.
No matter you have a small or medium-sized company, adapting this accounts payable practice is important to save your time, money, business, and future workflows.
10. Automate Accounts Payable Process
Automating the AP enhances its accuracy, quality, and speed. You can perform it manually also, but it is risky. Automation doesn’t let you miss/lose any invoice, avoid making double, late payments, and negative cash flow.
Always select digital invoices to avoid manual errors and to import them easily to online software. If you have accounting software that has the scan-and-pay feature then you can take a picture of the supplier’s invoice and then upload it.
Many online accounting applications offer automatic reminders related to payment. This helps you make payments on time, tracking and paying the invoices.
These top 10 accounts payable practices enhance the work productivity of your business. These tips prevent you from making mistakes, prevent costly fees, handle payment discounts, and concentrate on value-added tasks.
We hope that you found this informative post relevant and worthy. If you want to raise a query or tips then you can always write in the comments section below. We are always listening to you.