5 best practices to optimise accounts payable in 2022
by Jamie Radford
For any business that regularly receives and pays invoices, the Accounts Payable department is an indispensable component of its transaction cycle. A well-optimised AP department will ensure a business pays its invoices as soon as possible after receiving them and confirming that they are genuine and accurate. But a more efficient and reliable process for paying invoices is only one benefit of optimising an accounts payable department. When AP is operating at maximum efficiency, businesses refuse their costs, improve their relationships with suppliers, and can manage their cash flow more effectively.
Below are five best practices that any accounts payable team can implement to improve their operational efficiency.
1. Invest in automation software (and ensure it is configured properly)
This is usually the single most significant step that any business can take towards improving the efficiency of their accounts payable process. The vast majority of the tedious and time-consuming administrative work required to process and verify invoices can be done exponentially more efficiently by a computer than by a human.
Specialist accounts payable software can automate virtually any process involved in your AP workflow. By automating each process, businesses can reduce their costs and eliminate human error and automation also frees up your worker's time. Instead of manually processing every invoice you receive, staff only need to be involved when the software requires their input or encounters a problem.
That said, it is important to remember that just buying and installing the software alone isn't going to make much difference. To reap the full benefits of automation, you need to ensure you configure your software to do precisely what you want it to. For example, just because you can automatically process invoices digitally and pay them immediately doesn't necessarily mean you should. Instead, configure your accounts payable software to implement the same criteria you would use for prioritising and paying invoices if you were processing them manually.
2. Go paperless and embrace a digital-first approach
Accounts payable software solutions can significantly improve your operational efficiency, but their value is limited in that most of the invoices you receive are on paper and need to be digitised. Asking suppliers and other creditors to send their invoices digitally should be an easy sell as it benefits them as much as it will benefit you. Digital invoices can be sent and received virtually instantaneously and processed immediately.
Digitising your internal processes also facilitates data collection and subsequent analysis, enabling you to evaluate your operational efficiency much more easily. Using digital workflows will improve your visibility over specific processes, including those within your accounts payable department and your business operations as a whole.
The bigger your business is, the bigger the potential benefits of a digital-first approach. Reducing or eliminating the amount of paper that departments like accounts payable have to deal with can significantly reduce your operating costs while bolstering your green credentials.
Technologies like optical character recognition software can enable you to digitise any paper invoices you receive quickly and easily. This enables you to continue accepting paper-based invoices and process them like digital invoices.
3. Simplify your workflows
With the right software and a digital-first approach, you can significantly improve the operational efficiency of accounts payable. However, just because those things are in place doesn't mean that all inefficiencies magically disappear. Any software you use in your business is a tool. Therefore, to get the most out of it, you will need to think about how you use it.
After introducing automation software to your accounts payable processes, you will need to adjust your workflows to take account of the new landscape. Whether you use automation or not, any superfluous or redundant step in your workflow represents an inefficiency. Similarly, convoluted, or confusing processes and policies will increase your error rate and make it more difficult to train new staff and bring them up to speed. On the other hand, a simplified accounts payable workflow will eliminate unnecessary steps and create a standardised framework that's easy for workers to follow.
4. Review your payment terms regularly
Optimising your accounts payable isn't just a matter of overhauling your internal processes. The payment terms that you agree to when you first establish your relationship with another business do not have to remain the same forever, especially if other aspects of your working relationship have changed. Reviewing your terms with all suppliers automatically every six to twelve months will enable you to identify cases where obtaining more favourable terms is a realistic possibility.
Reviewing your terms with suppliers doesn't have to be as involved as it might sound. If the current terms are working well for you, you shouldn't seek a renegotiation just for the sake of it. However, if you sustain a relationship with a vendor for several years, they may well be amenable to giving you better terms than they offer to new customers.
5. Deal with late payments upfront
If your accounts payable team is doing their jobs properly, you should always know what payments are becoming due. If you miss a payment deadline, or you know you won't be able to pay a creditor on the date your next payment is due, it's essential you have a clear process in place.
The worst thing you can do is try to ignore the problem. If you contact the account holder at the earliest opportunity, explain the situation to them, and offer them a timeline for when you expect to be in a position to make the payment, they are far more likely to be understanding. On the other hand, if they have to chase you for the payment and you try to avoid them, they will often be less sympathetic.
Obviously, this list is not exhaustive. However, following these five best practices can go a long way to improving the effectiveness of any accounts payable department, saving time, reducing error rates, and making it easier to identify cases of fraud.
Any accounts payable teams who are serious about reaching and maintaining the highest possible standards in their work should consider enrolling in the Accounts Payable Association Quality Programme:
As well as enabling AP teams to reach their full potential, those who complete the APA Q Programme can gain public accreditation from the APA.