8 Easy Steps to Improve Your Accounts Payable Process
Looking for a better way to manage your accounts payable process? Every growing business looking to cut costs while scaling needs to take a look at their accounts payable processes. Without an optimized system for managing your accounts, you’ll end up stalling your success and damaging your bottom line.
Luckily, there are several simple solutions you can easily implement to improve your accounts payable processes. Follow these 8 tips and tricks to ensure your AP department follows best practices.
Managing Accounts Payable: The Basics
Any guide on improving your accounts payable process would be incomplete without covering budgeting and the importance of cashflow. While basic, it’s still important to emphasize the importance of having a cash reserve to cover your expenses.
Without one, you may end up taking a loan to cover costs. And that’ll end up costing you a lot more in the long run.
The best way to keep this from happening is to set up a business savings account. You’ll put money in it every month to create an emergency fund that’ll cover your expenses should you need it. This way, you won’t have to force your business into any corners with shady lending agencies.
You’ll also want to budget expenses. This will help you better understand how much money you’ll need to cover your bills. A basic step, but still worth mentioning.
This guide is less about what to do outside of your accounts payable department and more about what to do if you’re looking directly to improve the process.
And so, without further ado...
8 Easy Tips and Tricks to Drastically Improve Your Accounts Payable Process
What is the best practice for accounts payable processes? In short, you need a simple, clear way of tracking your accounts in the most efficient way possible. This is how you get there.
1. Map Out Your Accounts Payable Process
Before you can optimize any workflow, you need to map it out. This will help you quickly identify any bottlenecks or inefficiencies. The best way to do this is to simply whiteboard it out. You can even use sticky notes to map out processes.
It doesn’t need to be high-quality, it just needs to be accurate.
Most importantly, you’ll want to get your team to review your mapped-out accounts payable process. This will help ensure you don’t miss anything.
2. Breakdown Unnecessarily Complex Workflows
As an organization grows, its processes must grow with it. When you first start a company, you do a lot of things inefficiently. Many young businesses over-rely on spreadsheets to fill in the gaps, for example. As a result, they waste a lot of time and resources trying to juggle multiple disparate data sets across numerous systems.
If you want to optimize your accounts payable process, you need to fix that.
Start by looking at the redundancies, bottlenecks, and inefficiencies you identified when you mapped out your accounts payable process. Ask yourself and your team: what would a more streamlined system look like? Does your process look more like an assembly line or a spider web of complexity?
Your goal here is to identify areas that are needlessly complex. Optimizing these steps will be the priority for improving your accounts payable process.
3. Stop Using Paper Invoices
Paper invoices create a massive problem for business owners. There’s the cost of printing off invoices, the time it takes to manually transfer invoices to the correct department for verification and authorization, and the filing and retrieval of paper invoices.
These costs add up.
Companies that rely on paper invoices often perform at the bottom end of the spending average to process each invoice. And the difference is HUGE: bottom performers spend on average $12.44 per invoice while top performers only spend around $4.98.
How can you move away from paper invoices?
If you use paper invoices in your business, then you should switch to digital invoices. You should also speak to your vendors and see if it’s possible to move away from paper invoices. (Many vendors offer the option.)
Finally, scan any paper invoices you receive and store them in the same place as your other invoices. This will keep you from losing track of them.
And that brings us to our next tip...
4. Don't Lose Track of Your Invoices
This is crucial to cutting costs in your business. For example, we saved one of our clients over $800,000 in late fees on invoices through automation.
Losing an invoice can cost businesses huge savings. Rather than receiving an early pay discount, your company can end up paying late fees or interest on invoices.
Worse, you can damage relationships with vendors. This can interrupt service, damage your supply line, and leave you looking for new vendors.
Simply put: You don’t want to lose your invoices.
The best way to track invoices is to automate the process. Anytime someone on your staff manually processes an invoice, there is a potential for waste. That’s because there are numerous ways that waste can occur during invoice processing.
You can also set up alerts to automatically remind you to pay invoices. This way, you’ll never miss an invoice payment again.
Duplicate payments, erroneous entries, missed payments, manually processing invoices, and fraud is a few examples of how your company can lose money through inefficient invoice processing.
5. Reduce the Chance of Data Entry Errors
Data entry errors can ruin any hope of streamlining your accounts payable process. And manual entry is the most common reason for data entry errors.
As a matter of fact, it’s so common that 88% of Excel spreadsheets have errors in them. Small entries can add up, costing businesses time and money when trying to correct them or dealing with the fallout.
In short, people are the problem. The most human hands you have on a process, the greater risk you have of errors occurring.
6. Fix Purchase Issues
Overspending can send ripples through your organization. You’ll burn through your budget and put your cash flow at risk. To avoid that, you need to ensure all purchases are properly authorized.
Your accounts payable process needs to automatically valid orders to approve them. You also need to know that you’re getting what you paid for. That means you need a way of checking the quality and quality of the goods you receive. And if your order doesn’t mean your standards, you need an efficient way to deny approval.
Additionally, you need a way to authorize purchases to prevent fraud from occurring. Most companies try to avoid this by adding a human-touchpoint in the process. But, this slows things down. Especially for growing businesses.
Having a manager take the time to manually verify orders prevents them from focusing on other high-level tasks.
In short, you need an automatic way to verify invoices based on company rules and regulations. Approving those that meet standards. Rejecting those that don’t. And you need complete transparency into the purchasing process to avoid fraud.
7. Increase Transparency in Your Accounts Payable Processes
Manual processes and stacks paperwork ultimately leads to data siloes. These siloes break up transparency in your business, making it harder to fully analyze company spending.
Without one clear view of your purchasing process, you’re opening yourself up to risk and inefficiencies.
Retrieving records and order details becomes a time-consuming task. You’ll be unaware of at which stages your orders are. And you’ll struggle to see any true value of the data that you collect from your accounts payable department.
All in all, it creates a kind of black-box for your accounts payable department that you want to avoid.
8. Use Low Code to Streamline Accounts Payable
The key to improving your accounts payable department is to automate it. From start to finish. With fewer people involved in the processes, there will be fewer chances for errors and inefficiencies.
There are three ways to automate your accounts payable:
- Off-the-shelf software solutions: You buy a premade solution and fit it to your business as best as you can.
- Custom software solutions (traditional development): You pay for a tailored solution, built from scratch. It’s expensive, but it meets your exact business needs.
- Low code software solutions: You get the speed to market of an off-the-shelf solution and the customization of bespoke software but without the cost or time for development.
In a nutshell, low code is a software development platform that allows users to drag and drop the code necessary to build custom platforms. Rather than start from scratch, you choose prefabricated solutions. This gives you the power to build exactly what you need for your business.
With low code, you can design the custom integrations and automations you need to streamline your entire accounts payable process. Giving you more transparency and efficiency while freeing up your employees for higher-level tasks and reducing costs.
Best of all, low code scales with your business. Most are SaaS platforms. That means they charge based on usage. You only pay for what you need. And the costs only increase as the demand for services increases. As a result, they’re a very affordable solution.
The Benefits of Improving Your Accounts Payable Process
With a streamlined system in place for managing vendors and suppliers, you’ll have clear transparency into your supply line. And this opens you up to a lot of benefits.
Mainly, with an optimized accounts payable process, you can leverage existing vendor relationships for better discounts. You can also maintain your existing vendor relationships. That way, you’ll get consistent service you can rely on.
There are other awesome benefits of automating accounts payable. The time and money you’ll save from automation are astounding. And with no paper invoices, you’ll be doing your part to reduce the carbon footprint of your business.
How to Fastrack Your Accounts Payable Process Improvement
The truth is that no business starts off with inefficient processes on purpose. Instead, as a business grows, the old ways of doing things simply don’t (can’t scale.) As a result, many growing businesses struggle as their systems trip them up. Accounts payable included.
Whatever the size of your business, low code platforms provide a quick and easy way to set up workflows that allow you to streamline practices.
Seamlessly process invoices with precision using a low code platform. Experience transparency like never before as you watch invoice processing times drop from weeks to a handful of days. Reduce waste. Strengthen vendor relationships. Achieve results.
See how we've helped our clients improve their businesses and get insane ROIs by checking out our case studies below.