In today’s business landscape, companies in every industry are under constant pressure to take a strategic approach towards handling their activities effectively. Although the accounts payable process primary goal is all about freeing up the working capital to boost business growth, businesses cannot afford to squander opportunities to free up their working capital. So, most organizations tend to extend their payables as long as possible to optimize their working capital. This may result in strenuous payment terms, slow delivery times and even crumbles relationships with suppliers. As businesses cannot afford to miss opportunities to free up working capital, they need to develop a strategy that gives greater visibility to cash flow. This is where accounts payable management comes into the picture that frees up the working capital to boost business growth.
If managed effectively, it can help to develop the liquidity you need to streamline processes, improve fund growth, reduce costs, and seize new investment opportunities. But, various obstacles stop businesses from achieving these goals.
As per industry experts, paper processing was the major problem for any organization, and the time it takes to deal with the paper invoice being the biggest issue. Ensuring on-time payments, negotiating better payment terms with suppliers, streamlining the invoice approval process and more were the other major sources of concern. Many of these issues were made worse due to the delayed paper invoicing. The paper documentation makes it very difficult for enterprises to track and analyze the data to ensure the best payment agreements are being obtained. Plus, the lost paperwork that leads to late or missed payments is a frequent problem in many organizations. However, the accounts payable software enables businesses to digitize their paperwork and streamline the overall payable processes.
Here we’ve listed a few strategies that help you optimize your accounts payable processes effectively.
Create Managerial Workflows
Most businesses tend to hold payments as long as possible to optimize their cash flow. This may lead to delayed payments and impact supplier relationships. To improve AP processes, businesses should have a well-structured workflow that offers an in-depth view of how the accounts payable department is functioning, who approve the purchases and payments, and how often the payments are made and other crucial details. This data enables you to determine flaws in the system and helps you improve those. Compelling accounts payable workflow takes early payment discounts and vendor relationships into consideration while developing an accounts payable strategy to increase the visibility of management activities. Hence businesses must create workflows that may help them to prevent penalties incurred for late payments.
Delegate AP Management Processes to Trustworthy Employees
If you fail to put a proper emphasis on a company’s cash outflow, it can limit access to credit terms and may result in lost opportunities. Plus, late payments may affect supplier relationships. So, it is advisable to delegate your accounts payable process to someone with a significant stake in your organization. Either the business owner, trusted manager or trustworthy employees of your organization should be given the responsibility to oversee the payable processes and strategies. The AP managers should make accounts payable workflow as a part of their key business activities to ensure that the company is putting efforts into optimizing AP processes.
Leverage Accounts Payable Automation Benefits
With AP automation, businesses can make faster payments and enjoy improved cash flow across the organization. In the automated environment, all the documents and payments are exchanged and processed easily with no need for manual processes while lowering the cost to process the invoice. Be it an outstanding payment, purchase orders, invoice aging, taxes, and more, all the financial reports are available for analysis.
Businesses that automate their SutiAP processes gain significant functionality advantage while saving considerably through early payment discounts and rebates. With various advanced technologies such as eProcurement software and more, businesses can move towards a paperless environment. For instance, you can generate purchase orders, communicate electronically with vendors and customers, accept invoices, and validate against POs, approve requisitions, and clear invoices on a timely basis.
Based on the AP automation software you deploy, you can automate various accounts payable processes, while minimizing the cost for invoice processing. A few advanced accounts payable solutions enable you to scan the invoices automatically, track delivery receipts, and help you resolve disputes if any.
OCR Technology
Many organizations take advantage of scanners to scan and create electronic copies of paperwork on a computer. But, data still needs to be entered manually into the database, which is tedious and prone to data entry errors. A few advanced accounts payable solutions come with OCR technology that automatically extracts crucial business information from the scanned documents and securely stores for further use. The OCR technology reduces the issue of manual data entry errors and allows data to be entered as soon as the paperwork is scanned.
Empower Your Vendors
If you are seeking to make most of the technology to make the AP process more effective, you should connect with your key vendors. Set up a centralized portal for your suppliers to link them to your accounts payable process. The vendor portal acts as an intermediate platform where the company agrees on a given price, and the suppliers make sure that the inventory stock level is maintained properly. With the dedicated supplier portal, you can track orders, payments, and deliveries in real-time. It also allows your suppliers to monitor inventory stock, track supplies, and receive automated payment, and more. The streamlined AP process ensures that you gain proper business insights to make payments and helps you speed up the invoice approval process, helping you to simplify the overall accounts payable process.
To optimize your company’s working capital, you should
- Make sure that the key decision-makers are involved in the invoice approval process
- Negotiate with vendors for early payment discounts
- Include detailed vendor contract clauses to eliminate underperforming vendors
- Regularly review vendor contract terms against industry standards to ensure compliance
Automate Invoice to PO Matching
The main motto of the accounts payable departments is to manage the company’s outgoing transactions and forge strong relationships with suppliers. Keeping track of the invoices received from different suppliers and verifying them against the POs to process payment on-time can be a challenging task for every organization. However, a robust accounts payable solution automatically extracts crucial data from the invoices with OCR (optical character recognition) technology and verifies it against the POs to eliminate duplicate invoices and invoices with inaccurate data.
You can also optimize your AP processes by following these strategies
- Configure the automated workflow to issue new PO for each new order
- Automate invoice validation process to ensure faster payments to suppliers
- Track outstanding payables by vendors
- Explore the latest offerings of suppliers like early payment discounts, trade initiatives, and volume rebates
- Negotiate longer payment terms to increase working and mitigate risks
- Set clear accounts payable metrics
Safeguard Company from Accounts Payable Frauds
Most businesses are losing millions of dollars due to errors in accounts payable processes. Fortunately, there are numerous ways through which your organization can stay away from these accounting frauds. Accounts payable software solutions provide you with the information you need to closely monitor your company’s accounts payable processes and encounter accounting errors. The software also helps you to secure your data network and prevents your crucial financial information from getting corrupted. A few advanced solutions also provide you with a detailed audit report to help you spot any irregularities in the process and enable you to manage your accounts payable process effectively.
Maintain the Invoicing and Reporting Process
Businesses should maintain financial reports accurately to track and manage cash flow effectively. So, businesses must maintain up-to-date financial reports that reflect accurate accounts payable balances. AP automation improves real-time reporting capabilities and ensures that the financial reports remain updated.
You can easily maintain the invoicing and reporting process by:
- Keeping track of all the payments
- Validate supplier invoices against contract terms
- Ensuring the PO’s billing accuracy
The Bottom Line
Accounts payable management plays a vital role in your company’s cash flows. So, you should consider it more than just paying the bills. The above-mentioned are just a few basic strategies, yet effective steps to better manage your AP functions more efficiently. The AP processes impact the trusts between organizations and their suppliers. When approached effectively, the right stakeholders and vendors ensure maintaining operating margins and support bottom-line performance. Optimizing accounts payable processes can build up your corporate cost management, reduces proper complexity, minimizes risks, and enhances vendor contract compliance.
