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4 Strategies for Improving Your Accounts Payable Process

6th May 2022
Brought to you by
Kefron logo
Kefron provides a range of information management solutions including Document Scanning, Accounts...
Share this content

Strategies for improving Accounts Payable

Without a doubt, accounts payable (AP) is one of the most critical functions in every modern enterprise. After all, each firm must pay its bills. Thus, improving your AP represents a core avenue for your business growth.  Although change is rarely easy, cultivating an approach optimised AP may result in significant advantages.

Moving forward, businesses must adopt a more strategic approach to managing their operations in today’s competitive business environment. They are constantly under pressure to perform at their best, and cash flow management is a critical responsibility that firms must adequately manage. Hence, AP operations must be correctly recorded to maintain a clear cash flow picture.

While each business’s strategy for achieving these goals must be unique, we will explore certain best practices that may serve as a guide. 

1. Construct a Fundamental AP Workflow

Creating management workflows enables you to comprehensively understand the AP department’s operations. Management workflows can assist you in identifying and resolving system bottlenecks and streamlining process handoffs to maximise the effectiveness of your liquidity management.

The first step in optimising your AP process is to create a strategy. It refers to having a well-structured process for determining when and how frequently your business pays payments. Following that, you should specify how and by whom purchases and payments are approved. You should connect it to the rest of your cash flow in such a manner that your company’s liquidity is optimised.

Several details that should be determined in this process include the following:

  • How data may be shared and entered
  • Terms of payment and discounts
  • How to proceed upon receipt of an invoice
  • The approval procedure for invoices
  • What to do when suppliers fail to adhere to contract conditions
  • The procedure for dealing with late supplier deliveries

2. Establish Supplier Portals

Establishing supplier portals to enable suppliers to monitor the progress of orders, delivery timelines, possible product shortages, and payments received online. Along with lowering time spent on these operations, these technologies also reduce manual mistakes, resulting in increased order accuracy.

If you want to maximise the benefits of technology and improve the effectiveness and efficiency of your accounting process, you need to link smoothly with your major providers. Assume you often place large orders with one or more providers. Now, by connecting them to your AP system via a supplier or vendor portal, you may reap enormous benefits.

A vendor portal functions as a go-between for your business and its suppliers. Your business agrees on a set price for the goods, and the supplier ensures that the inventory stock level is maintained in accordance with your specifications. Your suppliers may use the vendor portal to manage inventory supply, receive automatic payments, etc. As a result, it simplifies your company’s AP procedure.

The following activities should be established so that suppliers can monitor your business’s performance:

  • Product shortages that may occur
  • Order status Scheduled delivery
  • Received funds

Overall, top-tier AP automation systems come with supplier portals as basic functionality.  Indeed, suppliers may instantaneously transform (or “flip”) electronic purchase orders received through an online portal into an electronic invoice that goes directly to the buyer’s enterprise resource planning (ERP) system, without the need for operator participation. Besides, electronic submissions of shipping notifications and other regular activities are also possible through an online portal.

3. Centralise your Operations

Centralising AP operations and reporting throughout the company via a shared service environment ensures that all personnel adheres to similar procedures and standards and that performance is measured against specified business metrics. Additionally, this enables you to complete more activities in less time and with fewer staff members, thereby lowering corporate expenses.

Ascertain that financial reports are current and accurately reflect current AP balances. Enhance real-time reporting capabilities through automation and maintenance. To boost the procedure, adhere to the following actions.

  • Maintain accurate records of all payments
  • Choose a payment method
  • Validate supplier invoices against contract requirements and ensure that purchase orders are accurately billed

4. Automate your AP Process

The Institute of Finance and Management (IOFM) estimates that just 9% of AP leaders questioned by IOFM indicate their department is completely automated with few or no human operations. Besides, 33% of AP divisions have limited automation, and 14% of AP departments generate invoices and pay vendors in a purely manual setting.

AP automation enables organisations to benefit from speedier payments and a healthy cash flow. Due to the automated nature of the procedure, all paperwork and payments are exchanged in an automated environment, eliminating the need for human operations. All financial reports, including those about overdue payments, invoice ageing, estimations, purchase orders, and taxes, are available for study. It reduces the cost of processing invoices.

Depending on the amount of automation you choose, you may even be able to automatically scan invoices, track delivery receipts, and handle disputes electronically rather than by human follow-up.

Based on findings from IOMA, the average cost of processing an invoice in an environment with a low degree of automation may be up to 20 times higher than the average cost of processing an invoice in an environment with a high level of automation.

While expenses differ considerably, Goldman Sachs estimates that the overall cost of processing a single invoice manually by AP personnel is $16.00 for medium-sized enterprises and $22.26 for small businesses. These figures decreased to $5.89 and $6.89, respectively, representing a net savings of around 60-70%.

An enterprise may use an electronic payables system to execute a range of operations that save significant time, such as:

  • Executing purchase orders automatically
  • Maintaining an inventory of received products.
  • Accepting and validating invoices
  • Approving purchase orders
  • Paying bills on time

Setting up an automated AP process and managing it in-house can be challenging for busy business owners. Nonetheless, you can speak with a Kefron expert to learn more about AP Automation technology by clicking here.