Paying your dues is essential for any business, no matter the size, as not stacking up liabilities is an undeniable boost to an organisation's Business Confidence Index (BCI).
Additionally, being able to promptly manage invoices without sacrificing accuracy is a critical element in maintaining a healthy relationship with your suppliers, ensuring the stability of the business, and improving the chances of getting better deals along the way.
Needless to say, accounts payable is crucial, and you wouldn't want to get it wrong.
But don't stress just yet, as we are here to help!
Before discussing the best practices to manage accounts payable in the modern day, let's ensure we are on the same page and know exactly what this term means.
Definition of Accounts Payable (AP)
To keep it simple, accounts payable (AP) are the funds you owe to creditors, meaning your debts.
Those debts can come in all shapes and forms, from paying your freelance workforce to ordering a new set of water coolers for the office.
Here, it is essential to mention that accounts payable usually refer to short-term debts, meaning those planned to be covered within a year.
On the other hand, long-term debts are those set to be paid over a period longer than 12 months. Hence, they are not included in the definition of the term accounts payable.
Accounts Payable are not Accounts Receivable.
Now, knowing what accounts payable is, let's imagine an opposite scenario: another company owes you funds for the goods or services you have provided. Following a similar logic of opposites, those funds would be considered - accounts receivable.
Pretty straightforward, isn't it?
With the fundamentals established, we can better understand how you would optimise the accounts payable management.
Be Quick with It
To again emphasise the importance of the well-executed AP process, we have to understand practically what it means.
At some point, any company will find itself needing to rely on outsourced services, such as software, accounting, HR, etc.
In return, set freelancers and service providers depend on the prompt and accurate payment of the invoices they issue, which, as we know now, are considered accounts payable.
Therefore, it is crucial to have a reliable and efficient system in place to help you manage those payments.
Accuracy Above All
Besides timely execution, well-managed accounts payable rely heavily on the accuracy of the payments in question.
This may seem like common sense; however, we can not stress the importance of correctly structuring all invoices.
Before processing any invoice, you must ensure that it accurately indicates the obtained goods/services with the corresponding prices you negotiated with the vendor.
AP Process Flow
In the practical sense, the accounts payable process can be broken down into three significant steps, which include:
- Placing the order - meaning completing the purchase of the required goods/services at a negotiated price. During this stage, you shall negotiate additional terms and conditions for the transaction and delivery of goods/services.
- Receiving the invoice - after the successful placement of the order, the supplier shall provide a report that contains a detailed description of the order with earlier negotiated prices, delivery terms, and other conditions, if applicable. Those invoices have to be stored securely and assigned to be covered on the arranged date.
- Processing the invoice - once the invoice is received, you shall check the validity of the set report, matching it against the reality of the received goods/services. If everything is correct, the company can move forward with the invoice for payment.
Even though the process seems simple, accounts payable is one of the areas most susceptible to financial fraud. Therefore, to ensure transparency in this area, it is advised to appoint a dedicated specialist or a department to all the critical steps of the flow mentioned above.
This way, the possibility of fraudulent activity is significantly decreased as it would have to bypass all the departments involved, making it more challenging to mismanage the company's funds.
Importance of Centralisation
Another crucial factor to consider when dealing with AP process flow is to centralise the payments, as that would allow for easier management of the payouts and a more transparent overview of the company's spending.
Breaking down the payments to various accounts is counter-productive in relation to the flow mentioned above and once again puts the company at risk of financial fraud.
Track Your Due Payments
To establish an efficient AP process flow, your company also has to have a clear overview of all due payments coming up, which could be achieved through dedicated expense management software or old-school practices of manual bookkeeping.
Additionally, some of the payments would have to be covered on a monthly basis, such as any subscriptions to software products or delivery of drinking water for the coolers that we mentioned earlier.
Within a dedicated expense management software, such invoices can be set up as recurring payments, significantly reducing the hustle of going over the same invoice over and over.
Just don't forget to cancel your old water subscription when you move to a bigger office!
Delegate Authorizations
Many mistakes are destined to occur when you are unsure who authorised what payment. To avoid the risk, each invoice should be dedicated to a specific individual who would be in charge of the set authorisation.
This structure would allow for a more diligent approach to payments, as multiple dedicated individuals reduce the risk of any due invoices going unpaid.
In the case of faulty invoice payment approval, the underlined structure would efficiently identify the responsible individual, resolving the issue much quicker.
Conveniently enough, most modern expense management software would allow you to do that without any external oversight, as all invoices and related actions would be attributed to individuals logged into the control panel.
Why choose a dedicated AP management software
If we didn't make it obvious yet, we are not fans of manual management of the AP process. It is a highly time-consuming process considered an outdated practice in the world of modern business.
In the age of digitalisation, it is more secure and efficient to implement dedicated software into the workflow, allowing for more transparency, efficiency, and control.
The manual accounts payable management age is far gone, and it's time to consider a modern solution if you don't already have one.
When choosing a dedicated management tool to keep track of your accounts payable, consider Wallester Business.
Our digital solution was developed by the talented team here at Wallester, who made it their mission to help other businesses to optimise their financial management. We provide a complete solution to keep track of the AP process within our software, where you can process and store all your invoices in a digital format.
Accompanied by an unlimited amount of corporate cards issued for your company, Wallester Business provides a complete bundle to take your financial management to a new level. And the best part is that you can get it all with our free package!
Conclusion
To conclude, we have to emphasise that any mistakes within the AP process are too costly to allow. Therefore, no matter how much you trust your binder full of invoices, it's better to digitalise the process and minimise the chances of human error.
The associated risks of the poorly executed AP process will not only leave your service providers, suppliers, and freelance workers dissatisfied. Still, they will also increase the risk of fraudulent activity enabled on behalf of your company.
If you want to ensure that all of your AP processes are up to the highest standard, register to Wallester Business and digitalise your financial management today.
Don't hesitate to reach out to us through this contact form.
Our team is always happy to help you in any way we can.
