Getting stuck in a rut is never a good idea for any part of a business, but have you ever thought that perhaps your accounts payable processes could be in need of an overhaul?
It might not have occurred to many finance leaders that this area needs a revamp, but it's actually a good idea for all forward-thinking organizations. Accounts payable (AP) doesn't need to become all-singing, all-dancing overnight, but a regular review could help to prevent late payments, disgruntled suppliers and even unhappy employees who are stuck doing menial jobs.
If you haven't assessed your AP lately and have a sneaking suspicion that your finance department is spending too long on invoices, then this may be a good time to take a fresh look at how efficient your system is - and to investigate new methods of making it more streamlined.
It might sound daunting, but boosting efficiency can be easily achieved simply by making some small changes. Here are five steps to streamline your accounts payable.
1. Assess what's wrong
Going back to basics and mapping out your entire AP process is essential if you are to spot potential gaps and work out what new tasks any new system will have to manage. Go back over your records for at least a month (but preferably three) so you can see any obvious trends - descriptive analytics could be a handy tool here in presenting the results visually.
This should help to clearly outline factors like invoice cycles, issues with fraud, cash flow bottlenecks and compliance risks that could otherwise be slipping through the net. Other problems like out-of-date vendor records clogging up the system should also be flagged up here.
You can then take your data and make accounts payable key performance indicators (KPIs) to find out how effective your company really is in achieving its objectives.
2. Standardize your AP processes
Ensuring everyone is singing from the same hymn sheet is next, as inefficiency is the only outcome if different people are carrying out tasks in different ways. For example, it's important to have a plan for what to do with supplier invoices once they come in, as this could prevent bills from sitting on desks in one area and being processed quickly in another.
According to a study of 250,000 invoices by Due, 63% were paid within 30 days. It also found that invoices that hadn’t been settled within 90 days only had an 18% chance of being paid at any point in the future.
This should be an opportunity to review all legacy and paper-based systems as you work towards simplification and find places where standardization can be brought in.
3. Have payment systems in place
It might sound obvious, but knowing in advance how your accounts will be paid is a big step towards simplifying the process of them actually being paid. For instance, are you using Automated Clearing House or credit cards? Do you have more fixed or variable expenses? Do you know who you spend the most with and when?
Knowing the answers to questions like these will help you to work out better methods of completing tasks, such as assigning all credit card payments to be done by the 15th of the month or direct debits to be cleared on the 1st and then checked up later.
4. Use accounts payable automation
A huge help in the process of simplifying accounts payable could be the adoption of dedicated AP automation software, which can significantly reduce the burden of menial jobs for your finance team.
It can be customized to complete tasks such as automatic invoice capture, data uploading and synchronization to your enterprise resource planning programs, which most companies will agree is a serious time-saver.
According to figures from MineralTree, 38% of companies were starting to automate their accounts payable in 2020, up from 24% in 2019. This is perhaps unsurprising given that it could take the average cost per invoice down to as little as $5, Levvel Research found, as well as freeing up employees to perform more useful tasks and improving relationships with vendors.
5. Archive effectively
A good accounts payable system will keep everything organized right up to the last stage in the process, which is record-keeping for future reference. Retaining data so it can be retrieved quickly whenever it is needed is essential, so having a standard procedure to make this happen shouldn’t be ignored.
Accurate record archiving will keep regulators happy should audits come calling, as well as making compliance management less of a headache for all concerned.
Again, AP automation software can assist here when it comes to laying down a paper trail without the need for tedious data-inputting that can leave employees bored and dissatisfied.
When done well, accounts payable processes can effectively serve the needs of businesses of all sizes. However, even if your system is looking bloated and sluggish, you can see from the steps above that it isn't too difficult to begin making changes that can positively affect both the finance team and the whole organization.