What is accounts payable management, its process and how to automate it?
The growth of your business means that you’ll also be faced with more expenses, more invoices, and a more complicated accounts payable process. Without proper payable management, your accounts payable could spiral and get out of hand before you know it.
This is why it’s so important to make sure that you know what are some key components of the accounts payable process and what you can do to improve its management.
Good accounts payable management will ultimately improve your overall finances and business operations.
As a business, you’ll have debts to pay in the form of vendor purchases and unsettled invoices. Payable management is the process that your company uses to handle these credit purchases, starting from creating a purchase order to filing successful transactions.
It involves tasks such as noting down purchases, scheduling payments, and negotiating with vendors for invoice terms that suit your business.
Every organization will need to establish an accounts payable management system to ensure that their business runs smoothly and capital is well-managed. The better a company is at payable management, the easier it will be to stay financially healthy.
When you have a lot of invoices to manage every month, it can be difficult to maintain optimal cash flow. This is why it’s important that you employ the best payable management practices, as it’ll give you better visibility and perspectives of what your accounts payable look like.
You can then sync up when invoices must be settled with your cash inflow.
Suggested read: How to increase cash flow in a business?
Considering that accounts payable management includes taking notes of all your vendors, purchases, and when payments are due, doing these accurately will help you ensure that you have good relationships with your suppliers.
You’ll have a centralized platform or system to easily fetch any necessary vendor information and you can guarantee that you’re making payments on time.
You may not even realize how much your invoices will cost your business until it’s time to pay them. With good accounts payable vendor management, however, you’ll have an easier time cutting unnecessary expenses and controlling your spending.
The clearer and more accessible your accounts payable data is, the easier it is to pinpoint unnecessary costs.
You want your accounts payable process and invoice settlements to not only comply with company guidelines but also government and tax regulations. Properly managing your accounts payable and having an effective system to help you will make compliance simpler.
Whether you’re implementing automatic tax calculations or approval workflows, managing regulatory compliance won’t be complicated with payable management.
The unfortunate truth is that fraud attempts may happen during the accounts payable process, whether that’s internal or external fraud.
However, it’s less likely for a business that has an efficient accounts payable management system implemented to fall prey to fraud. You can set up an approval workflow to ensure that every transaction will have to go through.
Having accounts payable management best practices in place will strengthen your decision-making and help you make more well-informed decisions.
When you have accurate accounts payable data and an organized process for managing your vendors, you’ll find that gaining financial insights and analysis will be easier, supporting you in the decision-making process.
When not done correctly, your accounts payable can take a lot of time and draw away attention from other tasks within the business. This is why payable management is crucial, as it ensures the accounts payable process is done in the most efficient way.
It also allows your business operations to run smoothly, especially when all invoices are managed accordingly.
It can be easy to miss deadlines when you have a lot of invoices. This can incur additional fees and harm your reputation with vendors.
One of the main objectives that you want to achieve by implementing a solid payable management process in your business is to be on top of your deadlines and make all your supplier payments on time.
Suggested read: B2B payments methods and the current market trends
When you don’t put an emphasis on your accounts payable management, you risk inaccurate data and transactions not complying with your policies.
Keep in mind the importance of accuracy and compliance within your organization and how that will impact the way you do business. With the right tools, you can maintain higher accuracy and ensure compliance.
Accounts payable management best practices need to support fraud prevention and help you reduce fraud attempts. This means that you want a system in place that can detect fraudulent invoices.
It will also help to have an approval workflow for settling your invoices, as this will ensure that every transaction made has been authorized.
There are undoubtedly a lot of tasks involved in traditional accounts payable management processes. You want to develop an effective process to give each component enough attention.
One of these components that require attention is financial reporting. Making sure that your payable management process supports you with better financial reporting should be a key objective.
You want to consider looking for a payable management tool that can assist you in making sure that you have control over your invoices and payments.
Payments that don’t comply with your company policies can result in huge losses, especially if many go undetected. Make it a priority to implement internal controls to achieve better compliance.
When you’re deciding how you want to do your accounts payable vendor management, keep in mind that your goal is to ultimately make stronger and more strategic business decisions.
You want your staff and upper management to have access to information and a system that can support them and help inform their decisions.
The first thing that you want to do when managing your accounts payable is to lay out all your vendor data.
The reason why accounts payable vendor management and having a master database is so crucial to the process is that it’ll make every step that comes after simpler.
From sorting through invoices to scheduling transactions, you’ll need a good database for your vendor information.
Accounts payable isn’t just about settling your vendor payments. In truth, the process starts with creating purchase orders according to your business needs.
Usually, different departments in your business will put in requests and your accounts payable team will create the purchase orders to send to your vendors. Vendors will then work to fulfill the orders.
This next step in the process is largely done by your vendors, as they’ll be preparing goods or services in order to fulfill your purchase order. They will then send their products accordingly.
Upon receiving the goods or services you have ordered, however, it will be the accounts payable department’s responsibility to check that the order is complete.
You will be sent an invoice once a purchase order has been completed. The invoice contains details regarding the products that you ordered along with how much you must pay your vendors.
One of the many accounts payable management best practices is making sure that everything in your invoice is correct. You should verify all details before payment.
Once your invoices have been verified, the accounts payable team can proceed to the next step and approve invoices for payment.
In the payable management process, this will involve scheduling a payment and running it through your company’s approval workflow before the payment is released. Make sure that you are settling your invoices according to their deadlines.
Related read: Benefits of online virtual payment for businesses
Though your invoices are settled already after payment, that’s not all there is to accounts payable management. You’ll need to record and post your transactions in your journal and ledger respectively.
It’s important that all your transactions are recorded accurately. Making a habit of it will make end-of-month accounting easier to do.
You also want to document your invoice and payment data to make it accessible to those who need it. This will help you access information that you may need for financial reporting and analysis, which could also improve your forecasts and make audits simpler.
You want to keep all your transaction records in a centralized location for easy access.
The key to having efficient and successful payable management is to make it as uncomplicated as possible.
You want to review your existing processes and consider streamlining them as best as you can. Employ accounts payable tools to help you achieve this. You’ll also want to centralize your accounts payable for your convenience.
A lot of the complicated or tedious components of the accounts payable management process can be made easier by automating various tasks.
For example, using a system that allows you to make transactions on the platform and automatically records them for you will cut data entry and recording time.
Internal controls can do wonders for any aspect of financial management. Accounts payable management is no different.
To avoid any unauthorized transactions, you want to use tools that allow you to automatically run your invoices through an approval workflow. Only invoices that have been approved are cleared for making and scheduling their corresponding payments.
It’s nearly impossible to successfully manage your accounts payable without managing your vendors first.
You’ll want to have a database with all your vendor information that is easily accessible and well-maintained. This allows you to find all vendors that you need to pay along with details such as the bank accounts that you need to send payments to.
You’ll be better prepared for future situations in your business if you have accurate forecasts.
Cash flow forecasts are especially handy, as they help you plan when you should pay your invoices. Take the time to look at historical data and draw up a forecast for your future cash inflows and outflows.
With all the data that you have at your fingertips, you want to make the most of them.
Instead of having them sit idly, make sure that you’re regularly processing your data into financial reports and analyses. This will give you a better understanding of your accounts payable and the best way to move forward.
It’s difficult to manage your accounts payable effectively if your data isn’t accurate. This encompasses everything from vendor information to the product quantity recorded in your invoices.
Every step of the way, you want to implement strategies to ensure that the data you get is accurate and will also be recorded as accurately.
While you could be confident that your accounts payable systems work perfectly for your business, you might have missed a thing or two in the process. This is where auditing plays an important part.
By performing audits regularly, you might find areas of improvement that you hadn’t previously spotted. It also ensures that you’ll have better accuracy.
Managing your accounts payable effectively will allow you to have more accurate data and better access to it. Make sure that you are using this to your advantage and creating cash flow forecasts by pulling on historical data.
This will improve your cash flow for your daily operations. As a bonus, it’ll also make payable management easier when you don’t have to worry about your cash flow.
Also, having a virtual business account can significantly aid in cash flow forecasting by providing real-time insights, streamlined transactions, and enhanced financial management. Read our article on our virtual account to learn more.
When you do business with your vendors, both parties will have to agree on the payment terms.
This includes terms about the amount that you’ll have to pay and the due date of the payment. Keep in mind your cash flow forecast and negotiate these terms with your vendor. Try to sync up payment deadlines with your cash inflow.
With your cash flow forecasts, you’ll be able to estimate when you’ll get a lot of cash inflow. Pair this with effective payable management, which will help you determine when each vendor needs to be paid.
If you know you can pay certain vendors earlier than the agreed-upon deadline, negotiate early payment discounts to push down costs.
Sometimes an unforeseen situation may come up and you have no choice but to make some payments late. However, you want to develop strategies for those scenarios.
If you have never made a late payment to a vendor before, for example, see if they will allow you to waive late payment fees. You also want to prioritize which vendors must be paid first.
As a general rule, regular reconciliation of all your financial statements is a necessary practice to ensure that your business runs smoothly. It helps you detect fraud attempts, increases your accuracy, and makes tax and audit seasons easier.
Your accounts payable management should be no different. It’s important that you’re doing regular reconciliations of your vendor statements to maintain accurate records.
Make sure that you evaluate your payable management process regularly. Get your team to provide feedback and see which pain points in the process need to be addressed.
It’s not only your business needs that will change over time—the technology and tools to help with managing your accounts payable will too. Broaden your horizons to find new ways to improve your processes.
Many steps in the accounts payable process require collaborative work. You want to encourage communication and collaboration within your team.
It’s also important that you support collaborative efforts by introducing tools such as an accounts payable management platform that all team members can use. It ensures that everyone knows what others in the team are doing.
It’s not a secret that accounts payable management can be complex. Even with the most modern technology and tools, your accounts payable staff will need to be given proper training regularly.
This ensures that everyone is on the same page with regard to your accounts payable processes and also helps staff members stay up to date with their tools.
Payable management is undoubtedly an important aspect of any business. For a business to be operating smoothly, you’ll need to be managing your accounts payable in an efficient way. This is where automation tools come in handy, working hand-in-hand with your accounts payable team to streamline and simplify the process. It’ll result in better expense tracking, a more positive cash flow, and even improved relationships with your suppliers.
As an all-in-one expense management platform, Volopay is your one-stop solution for managing your accounts payable. No more fragmented data management or chasing down invoices—everything you need to have an effective accounts payable process can be accessible in one place. Implementing your accounts payable management best practices is easy when you have the right tools.
Upload your invoices onto the Volopay platform as soon as you receive them. A bill can automatically be generated and sent into the approval workflow. If you have multi-level approvers for your accounts payable process, Volopay will notify each level of approvers when a payment request comes in. Reviewing and approving requests can be done with just a few clicks even on the go. It’s much easier than having to manually go desk to desk!
Say goodbye to inaccurate records and poor visibility. Instead, replace them with a centralized vendor and invoice database. All your payment records can also be automatically recorded in real-time and accessed easily from anywhere.
Get better analytics and forecasts with the data you have available to you. With accounting integrations, managing your ledgers and journals also doesn’t have to be difficult. Automatically sync your vendor payments made through Volopay with your accounting software.
No more manual reconciliation is needed, making the whole accounts payable management process simple!