Companies need to take a more strategic approach to handle their business activities in this fierce business landscape. They are under constant pressure to do their best. One of the important tasks that organizations need to handle carefully is Cash Flow Management. To keep a clear track of cash flow, Accounts Payable processes and Accounts Receivable must be recorded accurately.
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The accounts payable process is all about freeing up the working capital to boost business growth. But, at the same time, organizations cannot afford to squander opportunities to free up their working capital. So, when it comes to optimizing working capital, most companies extend the payables as long as possible. This results in slow delivery time, strenuous payment terms, and even crumbles supplier relationships.
Nevertheless, for many businesses, accounts payable workflow doesn’t get much attention unless something goes wrong. But, they should remember that their ap process has an enormous effect on their business’ cash flow. Thus, it is essential to have a well-run accounts payable department to keep the most cash available to enable a business for other investments and expenses.
In this article, we’ll discuss the top 7 strategies that can help optimize your accounts payable process and strengthen the working capital.
Also, Read: Accounting Software For Mac Operating System
Strategies for Optimizing Accounts Payable Process
1. Devise a Core Accounts Payable Workflow
Creating managerial workflows offer you an in-depth view of what and how the accounts payable department is functioning. This helps you to determine the flaws and improve them.
The very first step to improving your accounts payable process is developing a plan. It refers to having a well-structured workflow for when and how often your company pays the bills. Next, you should provide explicit guidance for how and by whom purchases and payments are approved. You should link it to the rest of your cash flow in such a way that it optimizes your company’s liquidity.
Many organizations’ accounts payable department wait as long as possible to pay the bills whereas a compelling accounts payable workflow take into consideration things such as discounts for paying earlier and relationship with the vendor. Thus, a well-developed accounts payable strategy not only links payment decisions but also increases the visibility of overall management activities.
2. Make your AP process the responsibility of Management
Never delegate your company’s accounts payable process to someone without a significant stake in your organization. If the proper emphasis is not put on a company’s cash outflows, it can lead to:
- Late bill payments that may affect the company-vendor relationships
- Limit access to good credit terms and result in lost opportunities
Hence, the business owner or a trusted manager of your organization should be given the responsibility to oversee the accounts payable in accounting. He must see to it that the set strategies are firmly adhered to. Moreover, an overview of the accounts payable workflow must be made a part of key business activities to ensure that the company is always putting efforts into optimizing it.
3. Leverage the benefits of Accounts Payable Automation
AP automation gives businesses the power to make payments faster and enjoy the healthy cash flow. Companies that automate their accounts payable process gain significant functionality advantage and also save considerably through available discounts or rebates.
With an eProcurement system, companies can move towards a paperless processing environment. For example, you can communicate electronically with vendors and customers, generate purchase orders for every newly placed order, validate and accept invoices, approve requisitions, track received goods, and pay invoices on a timely basis.
Depending on the accounts payable automation you choose to deploy, you can even scan the invoices automatically, track delivery receipts, and also resolve disputes in the automated environment rather than taking the manual follow-up. Moreover, it also lowers the cost per invoice processed.
4. Empower your Vendors
If you are looking forward to making the most of technology and make the ap process more effective and efficient, you should connect seamlessly with your key vendors. Let’s say; you order bulk purchases from one or more suppliers regularly. Now, linking them to your accounts payable through a supplier or vendor portal can prove immensely beneficial.
A vendor portal acts as an intermediate between your company and the suppliers. Your company agrees on a given price for the supplies, and the supplier makes sure that the inventory stock level is maintained as you require. The vendor portal enables your suppliers to track inventory supplies, receive automated payments, and more. Thus, it helps simplify your company’s accounts payable process.
5. Conduct Invoice to PO Matching
The main task of the accounts payable department is to manage your company’s outgoing transactions and build strong relationships with suppliers. Keeping track of invoices received with associated Pos can be challenging when your organization works with multiple suppliers.
So, put into practice the below strategies to optimize your accounts payable in accounting:
- Issue a PO for each newly placed order so that you can validate the received invoices as well as track them against the raised PO.
- Find the latest offerings like discounts on early payment, trade initiatives, and volume rebates.
- Keep track of outstanding payables by vendors.
- Negotiate longer payment terms so that you can increase working capital and mitigate risk.
6. Safeguard your company from Accounts Payable Errors and Fraud
Every year, businesses tend to lose billions of dollars due to accounting errors and criminal activities. Luckily, there are numerous ways through which your company can stay away from these pitfalls. To achieve this, the above-listed strategies can be of great benefit.
ap automation can closely monitor your organization’s accounts payable process and encounter accounting errors. Next, you can secure your data network and prevent financial information from getting corrupted. Additionally, your company must run an audit of its ap process to ensure that the team is managing accounts payable effectively. This can also help in spotting any irregularities in the process.
7. Maintain the Invoicing and Reporting Process
To optimize the accounts payable process, it is crucial to maintain up-to-date financial reports as it reflects the current accounts payable balances. Thus, you can leverage accounts payable automation that improves real-time reporting capabilities and make sure that they remain updated.
You can easily maintain the invoicing and reporting process by:
- Keeping track of all the payments
- Selecting the mode of payment
- Validating supplier invoices against contract terms
- Ensuring the PO’s billing accuracy
Wrapping it Up
As accounts payable is a vital component of your organization’s cash flows, consider it more than just paying the bills. Optimize your accounts payable process and ensure that you have optimal cash on hand to sustain your business. You can try a few out of those mentioned above and see to it that your company boasts healthy cash flows.
Pratiiek Mavani is a seasoned professional in accountancy, taxation, audit, and finance, boasting over 16 years of industry expertise. He specializes in conducting audits for diverse entities including banks, optimizing their core processes through cost management and budgeting. With a focus on income tax and GST, he has represented various clients in cases and appeals concerning direct and indirect taxes across different levels.
