Implementing accounts payable best practices can help your team avoid late fees, improve vendor relationships, and protect your company from fraud. We have put together 16 best practices that we consider vital to healthy AP practices.
Accounts payable processes are a core part of your company’s financial health and cash flow. The AP department handles everything from invoice processing for supplier purchases to managing and nurturing vendor relationships. From avoiding late payments to processing purchase orders, the accounts payable department is crucial to an accounting team. However, overlooking AP as a business grows can lead to pain points down the line.
If you neglect your AP practices, it can very quickly put your company into a risky situation with debt, auditors, and vendors. Creating best practices for your accounts payable can help avoid late fees, reduce manual data entry mistakes, and provide a strategic approach to AP management workflows. From considering AP automation software to implementing new practices to improve the efficiency of your accounts, there are many things you can implement now to prepare for future scaling.
16 accounts payable best practices
1. Simplify workflows & streamline AP processes
A lot of errors within accounts payable comes from the accuracy of human data entry. While you can have some of the most skilled workers in the world, everyone makes the occasional mistake. To help improve your employees’ workflows and streamline their processes, first talk to your team about their pain points. Consider where things seem to go awry, and find ways to help improve these problems now that you have identified them. Most likely, manual entry is a large time-sink for your team, something that AP software can help you automate.
2. Organize AP & digitize data
Electronic communication is already common, but unfortunately, electronic payments often lag behind. Consider encouraging the use of electronic data interchange (EDI) with vendors through ACH or other virtual payment methods. Using digital payments in combination with integrated AP software can also help you with audit compliance and keeping accurate audit trails, helping you stay organized while protecting your company.
3. Improve invoice and file management
With unorganized paper invoices, POs, and piles of physical delivery receipts, the accounting office can get overwhelming, and it can be easy to lose vendor files and documents. The first step to cut down on these management issues is to use integrated software to track online payments and push for EDI (electronic data interchange). When virtual transactions are not possible, find software that allows you to easily upload physical invoices so you can keep things safe and organized, not lost in the paper pile of the back office.
4. Maintain supplier & vendor communication
Clear and consistent communication with your suppliers and vendors helps upkeep your relationships and attain stronger ties within your supply chain. By having open communications with your vendors about payments and invoices, they are more likely to be open with you about any delays they may have or deals they can offer you. While delays are often unavoidable on both ends, being open and honest about it can avoid issues and frustrations in your vendor relationships.
5. Go after early payment discounts
The faster and more consistently you pay your suppliers and vendors, the more likely you will be able to cash in on early payment discounts. Being on top of your payments can improve your relationships with vendors and save you money – for example, taking advantage of 2/10 net 30 payment terms. Software that implements AP automation can help expedite your payment processes to hit that usual 10-day early payment timeframe, saving you money while also keeping you from ever worrying about late fees.
6. Limit access and establish controls
Creating detailed procurement controls helps reduce the risk of fraudulent behavior and guarantee compliance. Keeping limited access and requiring separation of duties makes fraud less likely, and protects your company from financial risk. Good controls such as cash controls also help make sure your data is accurate for better business, improved analytics, and audit preparedness.
7. Prioritize invoices
Invoices can get left to the side in place of other tasks. It is crucial to consider invoices high-priority to get early payment discounts, upkeep vendor relationships, and prevent debt and late fees. The longer you put off invoices, the bigger of a project they will be sorting through in the future.
8. Eliminate AP fraud
Accounts payable fraud is unfortunately common. Even unintentionally, vendors may make a manual entry mistake that costs your company considerable amounts of money. Double-checking your invoices and payments, whether through automation or manually, is vital to prevent fraudulent charges. It only takes one dummy vendor to pull extreme amounts of money from your company.
9. Reduce verification and signature responsibility
Create workflows that prevent work for C-suite and executives as much as possible. While someone always has to sign the checks, that doesn’t mean that they also have to take time out of their day to be involved in all parts of the process. Cut down on verification and signature responsibility through streamlined workflows and automated approval processes.
10. Look around for discounts
As you create relationships with vendors, take time to ask them about discount opportunities. Often to get early payment discounts and other offers, you have to dig and build relationships. Always be on the lookout for alternate vendors who may be in a better position to serve your company and its needs.
11. Automate the AP process
By implementing automated solutions where manual, tedious work starts slowing down your employees, you can simplify their workflow while preventing errors. When your team uses AP automation solutions to take over pain points in the accounting workflow, your team gets more time to focus on things like vendor relationships and balance sheet analytics. AP software can also assist in other areas, such as invoice management and simplifying approval workflows.
12. Check for duplicate payments
Duplicate payments can happen due to poor workflow management and even just by honest mistake. Taking the time to check for accidental payments can help your company save money, especially when it is easy to accidentally pay that second copy of the invoice you accidentally were sent! Use cross-checking and 3-way matching to ensure that payments are accurate and never made more than once.
13. Follow-up on uncashed checks
When you have to use checks, make sure to follow up on them if the vendor doesn’t cash them for an extraordinary amount of time. Unfortunately, it is easy for these paper payment methods to get lost in the mail, or worse, stolen. Vendors will appreciate your follow-up, and it will prevent any issues with late payments on your end if the check never arrived.
14. Reconcile all accounts daily
Daily may seem like a lot, but this is extremely vital to notice any issues or discrepancies as early as possible. If you catch something early on, it is much easier to reach out and handle the problem. Delaying can mean that the issue never is entirely resolved and can look very unprofessional.
15. Delegate work to more than one touchpoint
It is always better to have a backup plan in the case of unexpected absences or critical issues. Ensuring that you have secondary touchpoints in case of sudden employee illness or less predictable situations such as larger-scale disruptions can help prevent your company from suddenly being unable to complete vital AP work. While balancing this with your controls and separation of duties, especially with small teams, consider how you would approach an employee being suddenly unavailable.
16. Review contracts regularly
Often once a contract is signed, it never is looked at unless an issue arises. By reviewing your supplier contracts more regularly, you can ensure that there are no overpayments or discrepancies between agreed-upon rates and what vendors are charging.
Conclusion
One of the easiest ways to help improve your best practices is by implementing AP automation software. Automation allows for risk reduction, improved invoice management, and faster payments, resulting in early payment discounts. Routable can help empower your team, eliminate tedious manual entry, decrease your fraud risk, and ensure invoice and payment accuracy.