The accounts payable (AP) is seen as a back-office function and is often behind accounts receivable (AR) in terms of a company’s management priorities. However, despite taking a back-seat to AR, accounts payable still has a significant role to play in ensuring your business’s financial stability and reputation.
What is accounts payable?
Accounts payable (AP) is a current liability account within your general ledger that details your company’s short-term debt to creditors or suppliers that must be paid off within the terms of repayment to avoid default. The amounts are usually due immediately or within 30 days or a shorter period, depending on the terms of repayment.
Accordingly, AP is a significant account in your company’s balance sheet as it helps enhance the accuracy of your cash flow forecasts. If AP increases over a particular period, it means that you are buying more goods or services on credit than paying these with cash. In contrast, if AP decreases, it indicates that you are paying off previous debts faster than purchasing new items on credit.
Aside from managing better cash flows, accounts payable systems that are efficient and organized can ensure that invoices are well-tracked and paid on a timely basis, reducing your risk of paying overdue charges, penalties, or late fees. When invoices are paid correctly and on time, you can have the assurance that vendors will provide an uninterrupted supply of goods or services, which, in turn, helps you improve your business’s systematic workflow.
Five strategies to improve your business’s AP processes
Like other business processes, there are also problems you can face when managing your organization’s accounts payable, particularly when you still use a manual AP processing system.
Human error, which is often associated with slow and inconsistent processing, lost or misplaced invoices, and poor data entry, among other problems, is seen as one of the most common concerns with conventional AP processes. This problem can lead to financial losses for your company and cause damage to your relationships with suppliers and other creditors.
Therefore, to prevent your AP process from hampering your company’s ability to process invoices and pay short-term debts efficiently and effectively, you must streamline your AP processing systems. Here are some ways to optimize your processes:
Create management workflows
To improve your accounts payable process, you need to establish management workflows for managing accounts and payments. To do so, you need to develop guidelines that detail what your AP department should do when it receives an invoice, how and where information on documents is input and shared, and what process the team needs to go through before approving an invoice. Moreover, you also need to establish guidelines that can help you identify the best ways to pay creditors or suppliers.
By creating management workflows, you can establish an efficient accounts payable process that allows you to handle each account appropriately and improve financial liquidity. Management workflows can also help you determine what your organization’s management, particularly the AP department, should do when invoicing issues and other AP problems arise.
Set up supplier portals
Setting up supplier portals can allow you and your suppliers to electronically track orders, review delivery schedules, check invoices and see when payments are made, as well as get updates on possible issues, such as potential product shortages. Making such data and information accessible in the supplier portals enables companies to submit invoices and track your payments.
Subsequently, through the supplier portals, your AP department will have proper oversight of operations. It will help them improve order accuracy and cut down on manual errors while expediting invoice approval processes.
Use OCR technology to digitize paperwork
Scanners have long been useful at creating digital copies of paperwork, which helps companies save essential documents electronically, limiting issues with loss of records. However, it does not solve the dilemma with the time-consuming process of manually entering the information detailed in the document into a specific database.
Utilizing object character recognition (OCR) smart scanning technology will help you retrieve data from scanned documents, mitigate transcription errors, and reduce the time consumed from manual data entry processes. Data from invoicing and other accounting documents can be efficiently scanned and added to a database or spreadsheet through the OCR process.
Streamline invoicing and payment processes
Leverage free invoice maker app software to replace conventional invoicing systems that are tedious, repetitive, and prone to error. By doing so, you can simplify your invoicing process and expedite payment to creditors or suppliers.
Digital invoicing solutions can make it easier for your AP team to create purchase orders (POs) and perform supplier invoice matching for the POs before issuing payments. Consequently, such modern software programs can help your AP department and bookkeeper keep track and stay up-to-date with your invoices and payments.
Utilize accounting automation tools
Streamlining your accounting and record-keeping processes using small business accounting software will help you manage your accounts payable activities.
Utilizing a cloud-based accounting solution can help you effectually store invoicing and payment records, decreasing the risk of losing track of invoices that have been processed and yet to be paid. Keeping track of invoices and other financial documents will allow your enterprise to produce accurate financial statements and view the business’s financial stability.
Optimizing the accounts payable process not only improves a business’s ability to manage its cash flow but also it also helps improve financial liquidity, mitigate potential funding gaps, and reap higher profits. Additionally, with effective AP processes, you can strengthen your negotiating power, extend payment terms, increase warranty periods, and even hold some inventory on consignment.
As industries become more digitally inclined, it is time to replace conventional AP processing systems by utilizing modern solutions that simplify tasks and ensure efficiency.
When choosing a digital invoice maker and accounting software, it is crucial to keep in mind which industry you belong to as well as your business needs. Various enterprises, such as KIPPIN, provide solutions to supplement your invoicing, accounting, and bookkeeping processes. By working with the right partner, you can leverage the ideal solutions for your business with features that can improve your accounts payable processes.
KIPPIN is a cloud-based accounting and bookkeeping service tailored to simplify the everyday tasks of businesses. We align our clients to top financial experts on our platform to take care of all your accounting and invoicing needs. We also provide software-only solutions to automate processes, making them quick, easy, and remotely accessible.