How to Handle Accounts Payable on time
Actionable advice on creating more efficient accounts payable, paying vendors on time, and fostering better vendor relations.
It’s an easy-to-understand concept with a complicated execution. All businesses suffer when invoices build up, approval chains clog up or crucial due dates are missed. The good news is that an effective accounts payable strategy limits missed payments, helps conserve cash flow and fosters trust with vendors. In this article, you will find a straightforward and realistic way to handle accounts payable without struggling with late payments.
Develop an open, easy-to-use intake and documentation process
It is at lost or misplaced invoices that missed payments usually start. Create one point of entry for all invoices—such as an email address or a scan queue or even a physical central inbox—and determine how invoices will be entered into your system. As soon you receive the invoice, capture the date of invoice, due date, name of vendor, amount on invoice and person who will be approving. The truth is, tracking is extremely easy when the documentation are in place and it can help you find out invoices that might need urgent attention!
Standardize the approval workflow
One of the biggest reasons payment is delayed is a broken process of approval. Create a Standard workflow that includes roles, and escalation routes. Specify the expenses values that warrant further approval, and determine the maximum duration of each approval step. Tell everyone about the process and make it part of people’s daily habits. Once everyone knows who approves what and when, bottlenecks ease and payments flow.
Establish your invoice calendar and reminders Generally, the earlier you get in, the better results.
A calendar that everyone can see what is due and when with little effort to load for each person is a low burden high reward control. Set up due dates on invoices, payment terms with vendors, and recurring payments. Automatically send or receive reminder email notifications to and from approvers and payment processors a given number of days before due dates, and an escalation reminder if an invoice has not been approved by specific time. This easy rhythm helps teams stay on point about upcoming obligations and ends mad last minute rushes.
Rank invoices by risk and high value
Not all payables are created equal. Rank payments by a combination of late payment fees exposure, likelihood of service disruption and strategic vendor relationships. Critical suppliers and bills that would result in fines for late payment should get priority. For low risk, long term good credit vendors you can strategically use extended payment terms to balance short-term cash flow. Prioritization ensures limited processing capacity is allocated where it's most needed.
Maintain strong vendor communication
Vendor communication should be proactive to avoid any misunderstandings that may result in missed payments. Maintain current contact details, clarify how invoices should be submitted and check preferred remittance addresses. If something does happen—invoice detail is missing, the amount on an invoice is disputed or approvals are taking longer than expected—you must tell the supplier right away and suggest when it will be resolved. Dealers appreciate honesty and will frequently bless short delays once they have a context for the delay.
Reconcile regularly and track exceptions
Monthly reconciliation of payable ledgers to supplier statements will help detect insufficiencies early. Reconcile at least monthly, more often for high-volume vendors. Keep a list of “exceptions” such as disputed charges, repeated invoices or incomplete approvals. Address and document issues on time in order to avoid future exceptions.
Leverage automation thoughtfully
Automation can also remove human error and time-consuming, repetitive tasks. Automate invoice capture, data entry and matching wherever you can Source to pay 32. Implement automatic three-way matching for invoices, purchase orders, and receipts to identify mismatches. Automate payment of predictable, low-risk bills that are billed each month to eliminate manual processing. Note that automation ought to supplement your documented processes and not supplant well-considered controls or approvals.
Handle cash flow and payment timing
A missed payment can be a sign of weak cash planning. Keep a rolling cash forecast that also lists weekly and monthly payable commitments. Leverage that forecast to optimize when you’re paying — pay on the due date when cash is low, or avail yourself of early payment discounts when the forecast allows. Bulk payments to speed bank processing times and still keep account-specific due dates.
Train and empower staff
Delays are often due to human error and lack of knowledge about processes. Train periodically staff involved in the accounts payable process on intake procedures, approval timelines, exception handling and how to use any automated tools available. Drive ownership by establishing clear accountabilities and rewarding staff who successfully achieve processing objectives. An engaged team is more likely to adhere to processes and raise their hands before it becomes a problem.
Develop SOPs and lists to follow.
Record end to end AP process in business-friendly SOPs. Checklist in for invoice intake, approval processes, payment run and reconciliation/exception management etc. SOPs minimize variation among staff members and serve as a guide for new staff or when demand is high.
Track essential data and constantly iterate
Monitor your metrics including DPO, on-time payment rate, average time to approve a document and number of exceptions. Leverage these metrics to pinpoint bottlenecks and assess the effects of process modifications. Review workflow with stakeholders on a periodic basis and make optimization changes incrementally to minimize processing time and the possibility for payment misses.
Plan for contingencies
Even the most efficient systems experience hiccups. Where possible, have contingency plans in place for standard scenarios such as a systems failure, an out-of-the-blue cash crunch or a flood of invoices. Contingency plans could involve temporary manual processing, prioritisation of payment runs or short-term arrangements with suppliers. Share contingency plans so the team can act with purpose when pressured.
Conclusion
Late payments can be prevented through a mix of disciplined process, open communication, smart prioritization and some creative automation. By centralizing invoice processing, standardizing approvals, ensuring the a payment calendar and tracking performance organizations can avoid late fees that damage relationships with suppliers and keep cash flowing. Frequent training, strong SOPs and business continuity planning to ensure the accounts payable operation remains robust as volume and complexity continue to increase.