Optimizing accounts payable processes has long been regarded as “grunt work” by most of the business world. However, as any company leader knows, optimizing business processes is critical to maintaining success in the long run. When it comes to accounts payable (AP), this is especially true since inefficiencies in this area can directly affect supplier relations and bleed over into other areas of the company.
Optimizing accounts payable can also reduce wasted financial resources. Most companies spend an average of $12.44 to process an invoice compared to $4.98 per invoice in companies with optimized AP workflows. Companies often rely on paper invoices and checks within their accounts payable processes, but there are more efficient ways to work and save time and money.
1. Centralize your invoice processing
There’s nothing more frustrating and time-consuming than paying the same invoices twice. The Accounts Payable Association reports that 63% of companies have received duplicate invoices, and 33% even paid them.
Centralizing invoice entry points is the most critical point of your accounts payable process because it tells you the amount owed to your suppliers. Ensuring that invoices only enter your company through a single point helps your company issue payments faster and also helps you reduce fraud.
Standardizing your invoice entry requires a firm resolve though, especially since your suppliers and staff may be used to the old workflows. Here are some tips for easing suppliers into your single-entry invoice process:
- Create a special invoice-only email address and inform suppliers that invoices sent to any other address will not be paid.
- Replace your AP team’s fax number with a virtual number that turns faxes into emails to your designated email address.
- Avoid paying invoices with multiple payment accounts or on an ad-hoc basis since this can make it harder to track your company’s spend each month.
2. Maintain your Master Vendor File (MVF)
Inactive vendor accounts present the opportunity for fraud or, at minimum, misconstrued company spend information. Make sure you remove any inactive suppliers from your Master Vendor File so you can keep track of stale suppliers.
To be clear, an inactive supplier is one that hasn’t issued a payment in three, six, or 12 months to your company. By keeping your list of vendors current and updated, you’ll reduce the possibility of fraud and avoid hampering supplier relations.
3. Use Paper Less (Or Not At All)
One of the main goals for any AP department should be to become as paperless as possible. A survey of AP professionals by the Accounts Payable Association showed that 49% of invoices were still received on paper rather than electronically. While this shows a remarkable advancement over past research, it highlights the reality that AP workflows have a ways to go before being paperless.
As with anything, adopting a paperless accounts payable workflow requires planning so you’re successful. One of the first steps is to map out your implementation process and determine what exactly needs to be done.
This is where accounts payable metrics come into play, providing you with a comprehensive view of the current state of your AP department. Once you’ve established where your AP department is currently, it’s relatively easy to identify opportunities to improve or refine your processes.
4. Set up reminders so you never miss an invoice
Amid the daily grind, it’s easy to lose track of invoices from your suppliers. The next thing you know, the supplier’s calling you to follow up on the missing payment. Setting automated payment reminders will ensure you pay your bills on time and keep your vendors happy.
There are several ways to introduce automation into your invoicing workflows:
- Set up email reminders for when an upcoming invoice is upcoming, due, and overdue.
- Automate recurring payments, so you avoid creating the same invoice repeatedly.
- Schedule invoices ahead of time so you aren’t scrambling at the last minute.
5. Treat vendors like people, not cash drains.
Being a people-first company applies to your vendor relationships as well. Building a personal relationship with your suppliers can provide you several advantages when you need expedited supply shipments or want to work out a payment plan.
Here are some suggestions to help you build strong relationships with vendors:
- Limit your vendors, so you get maximum value from each one
- Take time to know your vendors outside of work activities
- If you can refer customers or assist your vendors, do it! Success is a two-way street.
- If possible, be patient with vendor performance issues. Patience comes back around.
6. Build a cash reserve fund for emergencies
Part of good financial management is building an emergency fund to cover unexpected expenses and “rainy days”. After all, a budget is simply a projection of planned expenses, not the costs that pop up and surprise you.
Having a cash reserve fund will give you the flexibility to stretch repayment periods while paying the more demanding vendors on time. Of course, it’s best to stay in close communication with any vendor you’re delaying payments to and pay their outstanding invoices as soon as possible.
7. Automate tedious accounts payable tasks
The Accounts Payable Association stated that 36% of companies worried about late payments due to processing delays. A significant part of processing invoices is invoice approval. Typically, an invoice needs to pass through several layers of approval before being paid, which means any hiccups during this stage can severely impact payment speed and even incur late payment penalties. When you automate invoice routing, invoice approval can be done in a few clicks, which lets you avoid delays and late fees.
Here are some software options that help you automate your AP workflows:
- Bill.com: This is our preferred software option for helping clients to optimize their accounts payable and accounts receivable processes.
- Stampli: Stampli lets you automate payments for a seamless accounts payable flow
- Beanworks: This accounting software product lets you approve invoices and pay vendors and reduce accounts payable costs.
Improve your accounts payable today!
Hopefully, these tips help you improve your accounts payable workflows, so they’re optimized to save you time and reduce wasted resources. As an outsourced accounting firm, we’ve helped numerous clients in various industries streamline their accounts payable processes, from moving to the perfect AP software or improving invoice approval workflows. If you’re ready to partner with a proven accounts payable team, learn about our accounting services.