How to manage the accounts payable process in 2020
By: Vaibhav Kalra
Tags: Account Payable, Manufacturing, Producer, Bookkeeping, Accounting Software

For businesses of the new age, managing accounts payable is one of the most high stakes task there is.

No matter what business you have,

paying bills will always be part of it.

Managing invoices promptly and accurately is the key to maintaining a good relationship with suppliers. Accounts payable system also ensures you don’t have liabilities on your books for too long, avoiding the risk to business goodwill.

Don’t feel stressed looking at the pile of work, we have a great way to simplify your work load.

Below we take a look at a few basics about accounts payable app, we might as well explore how the other products stack against each other in terms of the techniques they follow.

Talking about a few fundamentals , what is accounts payable, why do I keep stressing on it ?

What is accounts payable?

Let’s put it in the most simple words, accounts payable consists of everything your business owes to creditors/suppliers. This can be a full range of things such as raw materials you ordered from a supplier on credit for your manufacturing process.

Or it could be a request from your marketing team for a new projector.

Usually, accounts payable refers to short term debts, things you plan to pay off within that financial year.

Long term debts such as mortgages and other big loans are not considered or included as accounts payable.

Accounts payable is a liability for your business, this is the reason why you should be managing it effectively and responsibly, as doing so helps maintain confidence in your business , that your business has the ability to pay off debts. Doing so can help you increase your credit limits as they will trust you more with goods on credit.

Alright, now lets move on to “What is Accounts Receivable ?

Accounts Payable vs Accounts Receivable

In simpler terms, accounts payable and receivable are the two sides of the same coin.

Since account payable refers to payments owed to creditors by your business, accounts receivable is the exact opposite — its the money owed to you by your debtors aka your buyers in this case, the ones you sell goods on credit. And you expect to get paid by them on time, as that helps you maintain cashflow in your business.

Now that we have covered what is what , let’s get to how to manage it like a pro with systems available in the market.

Lets see how to — Manage the accounts payable process

Paying bills and invoices are an inevitable part of any business.

This includes software providers, professional services such as accountants or HR advisors, bills of material, and any freelancers you might have on the books.

The number of people relying on the prompt and accurate payment of invoices makes accounts payable a high-stakes task. If you don’t have a system in place to help you manage these payments, you’re asking for trouble.

The most important thing — accuracy

When it comes to accounts payable, the most important thing is to pay only company invoices that are legitimate and accurate.

It might sound obvious, but it’s crucial. Before processing payment for any vendor invoice, remember to check the following:

Does the invoice reflect exactly what the company ordered?

Has the company actually received the goods or services billed?

Are the unit costs and calculations correct? What about tax?

Getting these details right will help ensure the accuracy and integrity of your accounts payable process.

Let’s break this down into a few key steps.

Key steps in the accounts payable process

For most businesses, the accounts payable process boils down to three key steps:

Make/List a purchase order: This involves listing out the items or services to be purchased, as well as the price. A purchase order also includes any terms and conditions for the transaction, and the timelines for delivery. Processing a receiving report: Here, the supplier records the goods or services provided and lists the payment owed to the supplier. Receiving report lists a lot of crucial details, so it’s important to take the time to comb through them. Receiving and processing the supplier invoice: Once an invoice is received, the business then processes it for payment. As mentioned above, this involves checking through each of the details to ensure it matches the goods or services actually received.

Simple, right? Well, not necessarily.

Unfortunately, accounts payable is one of the areas most prone to business fraud. The sheer amount of money exiting a business through accounts payable makes it an attractive process for fraudsters to target.

And then there’s always the risk of simple mistakes along the way. Even if everyone involved means well, small errors can creep in and be costly down the line.

Beware of leakages. A small leak will sink a great ship. — Benjamin Franklin

Because of this, it’s crucial to break up responsibility for the separate steps. The chance of errors thus reduce by a great fold when you have multiple people sign off on invoices.

Another important step with accounts payable? Using a centralized payment system.

Centralize your invoice payments

When processing supplier invoices, it’s crucial to centralize payments. If all company payments come from a single account, it’s a lot easier to get a clear overview of the money heading out the door.

One thing you really want to avoid is paying invoices on an ad hoc basis, or with multiple accounts or credit cards.

Splitting your invoice payments among different accounts not only makes it harder to get a handle on how much your company is paying each month, but also opens you to the risk of fraud.

In fact, the best situation is to handle all company spend from one place. That means office expenses, travel spending, and a host of other payments businesses make on a daily business.

With Tulsi’s payables app, you can easily reconcile between multiple bank accounts and keep track of due and upcoming payments.

Track every due payment clearly

For the purposes of cash flow management, budgeting and correct decision making, it’s important to know exactly what you owe, who it’s owed to, and when payment is due.

To achieve this, you need to make sure every due payment is clearly tracked in your accounting or expense management software.

For a lot of regular, recurring payments (for example, fruit deliveries for the office kitchen or website hosting fees), setting up a recurring payment might be more convenient.

Recurring payments can remove the stress and distraction of managing repeating payments. However, you should balance this with the need to have visibility across your payments — you don’t want to risk paying for things you no longer need.

Payables application lets you manage cash while effectively paying out for vendor invoices, expense reimbursements and other short term debts.

Know exactly who authorizes payments

A lot of mistakes occur because people aren’t sure of a critical detail — who signs off on the payment of supplier invoices, exactly?

For every client invoice that arrives, you need to know who is in charge of authorizing payment.

Is it the relevant manager? Is it the CFO? Heck, is it the CEO?

The answer to this question will depend on company structure and the level of autonomy in managing payments.

In the event of spending irregularities, knowing exactly who signed off on a particular payment is crucial to getting to the bottom of things.

Not only that, but having clear responsibility also reduces the risk of invoices falling between the cracks and going unpaid.

Accounts payable tips from around the web

There’s lots of excellent advice out there to help improve your AP process.

Here are a few of our favorite strategies:

MineralTree — Capture invoices in small doses

MineralTree are AP and payment automation experts. And for invoices especially, they recommend keeping manageable batch sizes.

“The more time you spend performing manual data entry, the more prone to mistakes you become over time. As vendor invoices trickle in, it’s tempting to put off the process of capturing them to a future point in time that you can knock them all out in fell swoop.

“Capturing your invoices in smaller doses, or even individually, will limit errors and the amount of time you spend correcting mistakes.”

This is why we advocate empowering individual team members to input invoice data as soon as they receive it. So no one person has to wade through a mountain of invoices.

This can be easily managed on Tulsi’s Accounts Payable app where you can collaborate with different members of your company and designate editing and uploading rights centrally.

Dooap — Pay invoices in larger batches

This may sound counter to the advice above, but we’re actually talking about two different parts of the process. Log invoices in your AP or spend management system in small doses, yes. But that doesn’t mean you need to pay each one immediately.

“If you are currently paying purchase invoices five times a week, you use work time — five times a week — logging into the software, forming the payment batches, checking, approving and sending payments. If you were to send payments only twice a week, the workload is immediately reduced by 60%, but your vendors will still get paid on time and never notice the difference.

“Why not reduce the payment times right away?”

Once invoices have been input and checked, there’s not much data entry and therefore few errors to make. So it makes sense that you can tackle payments in larger batches.

Invoicera — Set up task reminders

You can’t fight human nature and expect to win. It may feel like you can stay on top of all invoices and payments without help, but eventually something’s got to give.

Plus, you have a whole team to think about.

“Forgetting information and tasks is a very common human tendency. By setting up reminders one can easily take care of bills and take steps towards accounts payable process improvement.”

Something as simple as an email or Slack reminder helps you and your team stay ahead. We have these in Tulsi, and whatever spend management tool you use should too.

Due — Maintain good vendor relationships

If you use the same suppliers over and over again, you need to be able to rely on them to have your best interests at heart. Thus, you need to prioritize their best interests yourself:

“Cultivating relationships with your vendors may pay off over time as well for your accounts payable. For example, if you are on good terms with a vendor as a regular customer, you may be able to get discounted services or products.

“Additionally, if your company prides itself on timely payments, you may be able to secure discounted payment terms (like 2% at ten days after invoice).”

It’s pretty simple — you scratch their back, and they’ll scratch yours.

Track and process invoices with a good spend management tool

Getting accounts payable right can be time-consuming. After all, there’s a head-spinning amount of detail to stay on top of.

Unfortunately, a lot of businesses aren’t helping themselves. Even in the software age, many businesses still use ad hoc processes. Some Luddites out there are even still using physical, hard-copy invoice approval systems.

Not only is this time consuming and expensive, but it also creates the risk of user error. With the amount of money at risk in accounts payable, it’s important to get this right from the first step.

The right tools can make all the difference here, helping you track and process invoices clearly and accurately, and all with minimal stress.

With an integrated spend management platform, you can automate each step in the accounts payable process, from invoice collection through to processing payment.

For example, Payables app helps you keep track of the dozens of invoices that come your way on a daily basis. Payables automatically sorts invoices into categories for approval, and sends reminders when due dates are approaching.

Relying on dedicated software to help manage your accounts payable will keep your business partners happy, and will stop you from becoming “that client” with suppliers.

Conclusion: Accounts payable is too important to get wrong

Trust us: accounts payable is one of the most important tasks to get right.

The risks are simply too great to leave to chance. A poor accounts payable process can not only damage your relationships with suppliers, but can open you to the risk of fraud.

To give yourself the best shot at a seamless and responsive accounts payable process, think about the tips in this post, and reflect on how you could improve your systems.

While you’re at it, take a look at Tulsi’s handy accounts payable software. They’ll save you and your team a lot of time and stress.