It’s not unusual for accounts payable (AP) to take a backseat to accounts receivable (AR), especially in smaller organizations. After all, it’s only natural as a business owner to want to prioritize income-generating tasks.
That said, there are several compelling reasons why you should give your accounts payable process the attention it calls for – and they involve more than just keeping the lights on.
For a start, your accounts payable turnover directly influences your business credit score, which can help or hinder your ability to secure a loan when you need one. Moreover, when you improve your accounts payable process, you make it easier to manage and forecast your cash flow.
An inefficient AP process can also lead to higher costs in the long run because it increases the likelihood of accumulating late payment fees, making duplicate payments, or neglecting to pay invoices altogether.
To keep your bookkeeping on track, here are 5 tips to help you redefine and improve your accounts payable process.
1. Move Toward a Paperless Environment
Although some business owners feel more comfortable with a physical copy of their records in hand, going digital is equally safe and secure and makes managing your finances much easier. Communicating with vendors digitally, for example, creates a digital “paper trail” that’s far more reliable than a physical one.
To begin moving toward a paperless AP system, consider requesting electronic invoices from all your suppliers going forward.
2. Process Invoices Using Receipt Bank
OCR (Object Character Recognition) smart scanning technology has allowed companies like Receipt Bank to do away with many of the headaches attached to invoice processing.
When you use Receipt Bank’s mobile app to scan and upload your paper or electronic supplier invoices, OCR technology reads and extracts the data they contain. You can then export that information directly to your online accounting software.
Managing invoices through Receipt Bank lets you:
- reduce manual data entry,
- mitigate transcription errors, and
- spend less time processing each AP document
Many small business owners use Receipt Bank as the centralized storage depot for their invoices and receipts.
3. Automate Payments Using Plooto
You can easily eliminate the need to deal with paper cheques by sending (and collecting) domestic or international bill payments digitally using apps like Plooto.
Not only does Plooto let you automate recurring payments, it also integrates all your payment data with Xero or QuickBooks Online. You’ll save time while maintaining full management control over your invoices, vendors, and clients.
Don’t Become Your Own Bottleneck
Companies that rely exclusively on one signing authority can end up bottlenecking their accounts payable process. With payment portals like Plooto, you can share signing authority with trusted team members, reducing the need to review every payment.
4. Use Online Accounting Software to Track Invoices and Payments
Switching to an online accounting software platform like Xero or QuickBooks Online will help you better manage your accounts payable activities.
Cloud-based bookkeeping programs make it easy to:
- create purchase orders (POs) for every product or service you buy on account, and
- perform supplier invoice matching against those POs before issuing payment
You can also track your outstanding AP through aging reports that can be reviewed by your bookkeeper or management team.
A Note About Paying on Time
Some business owners delay paying outstanding invoices as long as possible to maximize cash flow. While the logic is understandable, delaying vendor payments isn’t usually the best AP strategy.
Consistently paying late may erode the goodwill between you and your suppliers. And any interest or late fees you incur can increase your costs and impact your company credit score.
Not only is it to your advantage to pay invoices on time, paying them even sooner may allow you to benefit from early payment discounts.
Some suppliers offer payment terms - like 2/10 net 30, for example - that let you deduct a percentage off their invoice amount if you pay within a certain time frame. In this case, a 2% deduction would apply to payments made in full within 10 days instead of 30.
5. Create an Automated Accounts Payable Process
Working to improve your accounts payable process through automation has many benefits. With an automated AP system, for example, you won’t have to waste time on excessive data entry and you stand to reduce the costs associated with bookkeeping errors and document storage.
You’ll also find that a digital process is easier to review and control than most manual processes. And that means better business decisions and less risk of fraud.
So, what goes into establishing a robust AP process?
To improve your current workflow, start by laying out a plan detailing:
- How your supplier invoices are processed (including how and where data gets entered and verified, and your procedure for invoice approval).
- How your due dates are determined (including any guidelines for dealing with different types of suppliers or payment terms).
- How your payments are issued (are they paid by cheque or through digital payments?)
Then automate those steps using the cloud-based technologies described here to dramatically improve your accounts payable process.
Take a photo of your invoice and upload it to Receipt Bank and let their smart scanning technology read and extract the data from the invoice.
Review the information in Receipt Bank to ensure accuracy of the invoice data extracted.
Export the invoice data in Receipt Bank to your online accounting software and match the invoices to your purchase orders (if applicable).
Select the bills that you want to pay in Plooto and Plooto will make the payment electronically. Your invoice will then be marked as paid and reconciled on your accounting platform.
Why You Should Consider Outsourcing Your Accounts Payable
It can be challenging for busy business owners to set up an automated AP process and manage it in-house. And that’s where third-party accounting and business process providers can help.
Outsourcing your accounts payable to a bookkeeping specialist like Enkel may be the right move if:
- You do not have accurate visibility of your company's performance and financial position,
- You do not have the time or expertise to make improvements to your payables process.
- You are unable to hire and retain experienced, reliable accounting talent to help you stay on top of your payables process.
If you’re feeling overwhelmed by the need to assess and improve your accounts payable process, we have the technology and the expertise to fill any gap in your back office accounting functions. Contact us today.