A Quick Guide on How to Improve Accounts Payable Processes

In any business, one critical area where efficiency makes a significant impact is accounts payable (AP). While many organisations struggle with outdated, manual processes prone to errors and inefficiencies, this blog aims to provide a quick yet easy-to-understand overview of the best practices on how to improve accounts payable processes.

Accounts payable is the money that the company owes to their suppliers, thus leading to cash outflow. On the other hand, accounts receivable is the money you get from selling services or goods, thus leading to revenue.

What Is the Accounts Payable Process?

The accounts payable process depends on the business, specifically on whether or not the business processes purchase order invoices. The typical accounts payable process for non-purchase order invoices is as follows:

1. 1. Receive the invoice.
   2. Review invoice details (due date, balance, etc.).
   3. Get necessary sign-offs and approvals.
   4. Assign the general ledger account code and record the invoice in the system.
   5. Schedule payment to the supplier/make the payment.
   6. Update the financial ledger to note completed payments.
   7. Keep a record of all invoices for future audits.

How to Streamline the Accounts Payable Process: Best Practices

The accounts payable process can be challenging, but these accounts payable best practices might just help ensure a smooth process for both the company and the supplier.

1. Track and document all accounts diligently

From the very start of any transaction, be sure to track and document. Neglecting to track the numbers, such as outstanding balances, can lead to issues such as late fees or damaged customer-supplier relationships. This also affects your reputation as a business. To properly track all accounts, be sure to have an established process for receiving, recording and tracking invoices.

You must also document the accounts payable process so your team members clearly understand their responsibilities. Having a well-documented, detailed process reduces process times and avoids duplicate payments.

2. Communicate with suppliers

In any department, communication is key—but it’s extra important when it comes to finances. Make sure that you maintain strong client relationships by communicating your preferences, such as payment terms during initial negotiations.

Both parties must also be transparent regarding timelines, payment methods and possible delays. That way, you can resolve issues quickly and maintain that healthy customer-supplier relationship.

3. Conduct regular audits for your accounts payable

Regular audits help identify any fictitious vendors or unauthorised payments. When you regularly cross-check against records, you can uncover and address fraud early before it causes a significant impact on your business.

Also, regular audits ensure that liabilities are accurately recorded, which is essential for producing reliable financial reports and for making informed business decisions.

4. Automate your accounts payable using AP software

Manual AP processes are prone to errors such as duplicate payments, incorrect data entry and misfiled documents. An accounts payable automation software ensures accurate data capture and processing so you can minimise human errors and reduce the risk of costly mistakes.

The software also centralises invoice data, making it easily accessible and manageable. The advanced reporting features of the software can also provide insights into spending patterns and supplier performance.

How an Accounts Payable Automation Software Can Optimise the AP Process

Accounts payable automation software optimises the AP process by streamlining workflows and reducing manual tasks. Below are some specific points on how it can optimise:

1. Automation can integrate the accounts processing system with the accounting software

Automation tools often allow seamless data transfer between the AP system and accounting software. This ensures that all financial data is consistently updated in real time without manual intervention. This integration creates a streamlined, end-to-end process that enhances efficiency.

2. Automation increases visibility

Automation ensures that all payment-related matters are updated in real time, thus giving immediate visibility into the status of each transaction. When the involved teams and individuals know where invoices are in the approval process, who has approved them and who still needs to approve them, it reduces bottlenecks and accelerates processing times.

3. Automation digitises the invoice process process

With automation, the invoice data is automatically entered into the AP system, reducing manual data entry tasks and minimising errors. With an automated process, you can also make sure that the invoice details match the PO, eliminating any worries or issues come audit season.

4. Automation prevents fraud and implements internal controls

One way automation prevents fraud is to verify vendor information before setting them up in the system. This includes validating tax identification numbers, addresses and bank details to ensure that vendors are legitimate.

Automated AP systems also implement secure payment processes, including multiple levels of authorisation for high-value payments to reduce the risk of unauthorised payments.

Automation: Best Practice for the Accounts Payable Process

Automation significantly accelerates the AP process by handling repetitive and time-consuming tasks such as data entry, invoice matching and the accounts payable approval process. It helps the company reduce the time required to process invoices, leading to faster payments as well as improved cash flow management.

Also, as your business grows, its AP volume typically increases. Accounts payable process automation can easily scale to handle more invoices without a proportional increase in workload or costs. This scalability ensures that the AP process remains efficient and effective even as the volume of transactions rises.