7 Ways to Slash Your Accounts Payable Costs

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Reading Time: 7 Minutes
Published: October 20, 2023
Last Updated: March 5, 2025

Are you tired of constantly feeling the pinch when it comes to your accounts payable function? Are those never-ending bills and invoices taking a toll on your business’s finances? Well, worry no more. We have compiled 7 ways to help you cut down on expenses and save big on your accounts payable (AP) function without compromising on the quality of service. From maximising discounts and implementing automation solutions to optimising payment terms and outsourcing accounts payable, these tips are surefire ways to keep more money in your pocket while maintaining a healthy cash flow for your business. But first, let us get to know some of the major cost drivers in the accounts payable process.

5 Major Cost Drivers in Accounts Payable

Invoice Processing Costs:

One of the major cost drivers associated with accounts payable is invoice processing costs. A significant portion of these costs stems from manually handling and processing invoices, which can be both time-consuming and prone to errors. These inefficiencies often result in extended payment cycles, negatively impacting supplier relationships and causing missed early payment discounts. Additionally, the labour-intensive nature of manual invoice processing inevitably leads to higher personnel expenses within the accounts payable department. In light of these challenges, many organisations are turning towards cloud-based accounting software that helps streamline their invoicing processes while reducing costs over time. Some of the popular software include Xero, FreshBooks, QuickBooks, Sage, etc.
Duplicate Payments or Overpayments:

Duplicate payments occur when bills are mistakenly paid twice for one transaction, whereas overpayments result from paying an incorrect amount higher than the actual invoice value. Both scenarios create unnecessary expenses that impact cash flow management and increase the workload on in-house accounts payable teams. As businesses continue to rely on multiple vendors for goods and services, keeping track of individual invoices becomes increasingly complex and prone to errors without proper oversight mechanisms in place. However, the involvement of experts can provide such oversight that can help reduce errors in the AP process. You can either hire an in-house team or opt for outsourcing accounts payable to an experienced service provider.
Lengthy Approval Process:

The approval process typically involves multiple layers of review and sign-off from various departments within an organisation, such as finance, purchasing, and operations. These reviews can cause unnecessary delays in payments that can result in additional expenses like late fees or interest charges. Moreover, this slow turnaround time may also impact vendor relations if repeated delayed payments become habitual. As a result, future payment terms become more stringent, with less favourable discounts available to take advantage of bulk purchases.

Lack of Automation Tools:

Lack of automation tools remains a major cost driver for the AP department. The manual processing of invoices and payment transactions often leads to errors, delays, and inefficiencies that can increase costs significantly. These challenges are compounded by the sheer volume of transactions that take place in large organisations, making it almost impossible to manage without an effective automation system in place. You can implement an effective automated solution by looking at some of the top cloud-based accounting software and selecting the one that suits your business needs.
Poor Communication Across Departments:

Effective communication is essential in any organisation, and the accounts payable function is no exception. Poor communication across departments can be a major cost driver for this crucial accounting function, causing delays and errors that lead to financial losses. Accounts payable professionals rely heavily on accurate information from other departments to process invoices and payments efficiently. When they do not receive timely or complete data, it hinders their ability to track expenses accurately and pay vendors on time. This makes it extremely crucial to develop and implement strong lines of communication among departments.

5 major cost drivers in AP

7 Ways to Save Money on Your Accounts Payable

Automate the Accounts Payable Process:

Automation can significantly reduce the costs associated with the accounts payable process by streamlining and simplifying labour-intensive tasks. AP automation systems eliminate paper-based invoices, manual data entry, and chequewriting, which all require extensive time and effort from the accounting team. With automation, every step of the accounts payable process becomes more efficient – from invoice capture to payment processing. As a business owner, maximum utilisation of automated solutions can be done through an expert team. In this matter, you can look for an experienced accounting and bookkeeping services provider. Their team of knowledgeable professionals will help automate the accounts payable process and eliminate the chances of manual errors.
Negotiate Better Payment Terms with Suppliers:

Optimising payment terms with suppliers is a valuable strategy for organisations hoping to reduce their accounts payable costs. By negotiating favourable payment terms, businesses can meticulously manage the pace at which they make payments while also creating cash flow benefits. For instance, stretching payment due dates or requesting discounted prices in exchange for early settlement enables businesses to organise their payable expenses more efficiently, prolonging the amount of time available before disbursement has to occur and ultimately increasing liquidity. This approach directly impacts an organisation’s working capital management and serves as a key element in achieving financial stability over an extended period of time.
Use Purchase Orders:

Using purchase orders (POs) to track spending and avoid overpayment is a great way for businesses to improve their accounts payable process and save money. POs provide essential information about the goods or services purchased, including their cost, quantity, vendor name, and payment terms. This information helps accounting teams accurately record transactions in their financial systems, reduce processing time, and minimise errors and fraud risk, freeing up resources.
Implement Vendor Management System:

Implementing a vendor management system can bring about various cost savings for businesses in their accounts payable process. One major way that it helps is by reducing the risk of fraud, overpayments, and errors from manual processes. This means that businesses can avoid costly mistakes and recover any lost funds with less effort and expense. Moreover, vendor management systems provide more visibility into spending patterns across the company, allowing for better decision-making when negotiating prices or renewing contracts with vendors. By leveraging this data to identify areas where costs can be optimised, companies can negotiate better deals or even switch to alternative suppliers altogether.
Monitor and Track Payment Discounts:

Monitoring and tracking payment discounts may seem like a small task, but it can have a significant impact on your accounts payable process. Payment discounts are offered by suppliers to incentivise early or on-time payments, typically in the form of a percentage reduction on the total amount owed. Effective monitoring systems help automate discount calculations according to vendor payment policies, highlight upcoming deadlines before they expire, etc. Businesses can save money and ensure a healthy cash balance by effectively managing these discounts.
Take Advantage of Payment Options:

Another way is to take advantage of payment options that can help alleviate some of the stress involved in paying bills on time while also saving money in the long term. One of the key advantages of using payment options is that they offer flexibility to pay suppliers at different times. It means that businesses can take advantage of early payment discounts and avoid late fees, which ultimately helps save money. Furthermore, it promotes trust between vendors and buyers as timely payments ensure ongoing business relationships.
Seek Professional Assistance:

Finally, outsourcing accounts payable is a proven strategy to help businesses save money in the accounts payable process. It involves hiring an external organisation to handle and manage all aspects of the accounts payable process on behalf of the company. By outsourcing, companies can avoid investing in costly technology and infrastructure to manage their payment systems internally. Outsourcing also offers cost savings through economies of scale since third-party service providers may be able to purchase supplies at lower bulk prices than individual companies can achieve alone. Moreover, specialised expertise and experienced professionals ensure optimal payment processing efficiency, reducing errors and delays while also improving accuracy rates. It ultimately saves time that would have otherwise been spent resolving issues caused by poor management practices or system failures.

Final Words

Streamlining your accounts payable function can help you save big on unnecessary expenditures. By looking into improving internal processes, minimising errors and eliminating duplicate payments, utilising automated systems, and taking help from outsourced accounting and bookkeeping services providers, you can make great strides in reducing the cost associated with the accounts payable process. Hopefully, this blog has given you an idea of where to start when it comes to saving money on your accounts payable function! If you are still unsure of where to begin when it comes to saving on accounts payable, Whiz Consulting is who you can count on. Our team of highly qualified experts specialise in providing quality accounts payable, accounts receivable, bookkeeping, and accounting services. Whether it is streamlining accounts payable or receivable or reshaping your overall accounting processes, our staff have the skills necessary! Get assistance today- get in touch with us now!