Accounts Payable Best Practices: Setting Your Business Up for Financial Success

Whether you are a seasoned business owner or just starting out, managing your accounts payable effectively is crucial for your business’s success. Accounts payable is a crucial business function, and with so many moving parts and potential pitfalls, it can be quite easy to feel overwhelmed when handling invoices, payments, and reconciliations. You can manage the process by hiring in-house experts or using accounts payable services. However, irrespective of what method you use, there are some simple practices that you must follow to ensure your books are up-to-date and show your accurate financial status. So, to help you set your business up for financial success, we have prepared a list of best practices to streamline the accounts payable process. But first, let us understand the importance of accounts payable.

What is Accounts Payable? 

The accounts payable process is all about managing and paying invoices from suppliers for the credit purchases made by the business. It involves creating a system for tracking invoices, setting up a payment schedule, and paying invoices on time. There are many benefits to having a well-managed accounts payable (AP) system, including improved cash flow, better supplier relations, and reduced accounting and administrative costs. 

Why is Accounts Payable Important?  

Accounts payable is important because it can greatly impact the financial success of a business, as it can help them stay updated on their obligations and avoid defaulting on payments or drowning in debt. 

In addition, accounts payable can help businesses manage their cash flow more effectively. By staying on top of what is owed and when payments are due, businesses can better plan their expenditures and ensure they always have the funds available to meet their obligations. It can be particularly helpful during periods of tight cash flow, such as when experiencing seasonal fluctuations or unexpected expenses. Proper and timely invoice processing ensures the success of the AP process and helps avoid any missed or inaccurate payments. In such situations, invoice processing services can prove to be of great help. 

Finally, good accounts payable management can improve a business’s relationships with its creditors. By making timely payments and maintaining open communication, businesses can build trust and foster goodwill that may lead to more favorable terms in the future.

Top Accounts Payable Challenges Faced By Businesses  

There are numerous challenges that businesses face when it comes to accounts payable. Perhaps one of the most common accounts payable challenges is simply keeping up with the volume of invoices that need to be processed. It can be a daunting task for even the most organized business, leading to invoices being paid late or not at all. Hiring outsourced invoice processing services can make this daunting task easier.  

Another common challenge is ensuring that all invoices are accurate. It can be especially difficult if you have many vendors, your business is growing quickly, and you do not have well-established processes. Furthermore, invoice mistakes can lead to late payments or vendor disputes. 

Finally, businesses need to be careful about managing their cash flow. The accounts payable process can significantly impact cash flow, and if not managed properly, it can lead to financial difficulties down the road.

Best Practices For Seamless Accounts Payable Management  

There are some key things to keep in mind when it comes to accounts payable best practices. Doing these things can help you avoid some of the most common AP challenges, like late payments, incorrect invoices, etc. Some of the best practices for accounts payable include:

1. Keep accurate records: This means knowing what invoices have been paid and when, as well as having all the relevant documentation on hand. It will help ensure that nothing falls through the cracks and that you can catch any errors quickly. 
2. Set up purchase and AP workflow: One of the biggest AP challenges is unapproved purchases, also known as Maverick spending. The best thing to do is to set up an efficient purchase process and AP workflow to keep this issue in check. It ensures that all purchases go through proper approval cycles and the entire AP process is followed step by step to maintain the accuracy of the process.
3. Set up a system for coding and approval: It will help ensure that all invoices are properly coded and approved before they are processed for payment. Having a set process in place will make catching errors easier and prevent payment delays. 
4. Streamline your payment process: The more efficient your payment process is, the less likely you will run into problems like late payments or incorrect invoices. Automating as much of the process as possible can help streamline things and make it easier to keep track of everything. 
5. Stay on top of vendor communications: Make sure you regularly communicate with your vendors so that you are aware of any changes or updates that could affect your accounts payable process. It includes keeping an eye out for invoice updates, new payment terms, etc. 
6. Review and reconcile your accounts regularly: Take some time periodically to review and reconcile your account and make sure everything is running smoothly. Look for any discrepancies that could signal a problem and address them quickly. 
7. Use relevant KPIs to measure efficiency: If you want to improve your AP process, it is crucial to measure it. Therefore, you must set up business goals you want to achieve and use relevant KPIs (Key Performance Indicators) to measure the efficiency of the process. It allows you to figure out the issues that might be affecting the performance of your AP process and fix them before it becomes a major problem in fulfilling your goals efficiently. 
8. Establish internal controls and limit access: When it comes to the accounts payable process, setting up proper internal controls is crucial as it helps identify inefficiencies and avoid fraud and possible security breaches. It is also important not to give too much access to too many people when it comes to AP. Limit the access of department personnel by creating separate duties for different employees. Make sure that any one person should not have control over the entire accounts payable process. You should also implement regular review processes to detect discrepancies and find solutions to resolve them.

How Can Outsourcing Be a Good Solution?

While some businesses are hesitant to outsource any part of their operations, there can be real benefits to outsourcing certain functions – particularly when it comes to accounts payable (AP). Here are some advantages of outsourcing your AP: 

1. Save time and money- When you outsource your AP, you free up your internal staff to focus on other tasks. And because you are working with a team of experts, you can be confident that your invoices will be processed efficiently and correctly. It can save you both time and money in the long run. 
2. Reduce risk- By using outsourced accounts payable services, you can also reduce the risk of financial errors and fraud. With a qualified team managing your invoices, you can be sure that all payments are made on time and that there are fewer opportunities for someone to commit fraud. 
3. Improve cash flow- One of the biggest benefits of outsourcing your AP is that it can help improve your business’s cash flow. When invoices are processed quickly and accurately, you will have a better idea of when payments are coming in, giving you more control over your cash flow. 
4. Gain insights into spending patterns- Working with an outsourced AP team can also give you valuable insights into your business’s spending patterns. By having access to detailed reports on where money is being spent, you can make more informed decisions about where to allocate resources in the future.

Conclusion  

You can set your business up for financial success with the right accounts payable practices. Having a good system in place that makes it easy to keep track of invoices and payments will help ensure that all bills are paid on time and that any discrepancies or missed deadlines are identified. Creating automated processes where possible will further streamline your accounts payable process, freeing up time for other important tasks. Ensuring that you have the proper systems and processes, you will be well-positioned to achieve greater financial success. 

Outsourcing can help you capitalize on the benefits of following the best practices for your accounts payable process. Based on your needs, you can outsource just invoice processing to manage invoices or even hire accounts payable outsourcing services to manage the overall AP process. No matter what you choose, you must have a good outsourcing partner to help you. And if you are looking for someone to manage your accounts payable process, you can contact us. At Whiz Consulting, we enable businesses to efficiently manage their finances by helping them manage their complex processes, including the accounts payable process. So, follow the best practices, make the right decisions, and choose the right outsourcing partner today to enjoy the benefits in the future.