The Balancing Act: Effective Accounts Payable Management Tips
Accounts payable work is often the ultimate balancing act.
At companies large and small, AP clerks, controllers, and anyone else tasked with paying a vendor, must weigh the desire to simply pay a bill against a range of other factors. These include cashflow, whether early payment can net a discount, and the cost to process this bill and other invoices.
For this reason, developing and refining accounts payable management strategies can be invaluable to businesses. Join us as we explore the basics of accounts payable management, a few tips to improve your company’s practices around it, and how automation software can help to manage accounts payable even more effectively.
Accounts Payable Management 101
First, let’s get a basic idea of what accounts payable management is, why it’s something businesses should care about, and how it’s not too late for companies that may have been a little lax in their AP management practices to turn over a new leaf.
Defining AP Management
Entrepreneur refers to it as “the administration of a company’s outstanding debts, or liabilities, to vendors for purchases of goods and services made on credit.” Another website calls it “one of the important business processes that help in managing payable obligations.”
While you’ll probably find a few different definitions, accounts payable management generally revolves around a company optimizing its payment process so that it can make remittance at the best possible times. This is typically when a company gets the best combination of cashflow, early payment discounts from vendors, and goodwill with suppliers for paying a bill when they do.
Why to Care About AP Management
Investopedia notes that “accounts payable management is critical in managing a business’s cash flow.” But the importance runs beyond this. Simply put, a business that doesn’t care about AP management is setting itself up for trouble, in various ways.
The company might wind up paying bills late, sailing past the point it could possibly receive a 2% to 3% early payment discount from its vendor and ultimately getting hit with penalty fees. Conversely, the company might burn through its cash flow by paying bills far too early and racking up interest borrowing money just to keep up with all the invoices. There’s also the chance that a company with poor AP management might miss signs of unhappiness from its vendors or even signals of fraud.
Needless to say, there are optimal ways to do things in accounts payable and good AP management helps to discern these methods.
It’s never too late, so long as a company remains in business, for it to begin to better analyze its cashflow and payables, follow a few AP management best practices, and, as we’ll explore in a bit, perhaps look to automation to help seal the deal.
Three Tips to Improve Accounts Payable Management
The good news when it comes to finding how to manage accounts payable more effectively is that there are little tweaks a company can quickly start utilizing, simple common sense accounting tricks that will make an immediate difference. Here are three.
1. Get to Know Vendors From the Point of Onboarding
To be clear, payables teams often get to know vendors pretty well by the end of the B2B payments process, though it’s not always for the best reasons.
It’s often a nonstop parade of vendors asking AP staff where their money is and when they’ll get it. It’s no fun for anyone, particularly accounts payable clerks who are often little more than messengers tasked with delivering their company’s unfortunate news to a disgruntled supplier.
A smarter course of action is to begin the conversation with vendors much more proactively. This can be done by setting out clear payment terms between all parties and training AP staff in preemptive communication methods. It can also be done by using AP automation software that prioritizes communications, such as Stampli’s Collaboration Hub, as part of its broader invoice management solution, which connects “all stakeholders to with context-related, unified communication on top of the invoice.”
2. Capture Invoices Small, Pay Them in Large Batches
On one hand, it can be advantageous for companies to capture their invoices small – that is to frequently ensure that each and every invoice that arrives at a company makes it into its accounting software. This work can be somewhat tedious, specially when manual. But it is work that has to happen, lest an invoice slip through the cracks.
On the other hand, when those invoices are in a company’s accounting system, it doesn’t necessarily make sense for payables clerks to be scheduling just a few payments at a time. It gets costly to do a bunch of separate check or electronic payment runs, such as through ACH (automated clearing house). Large batch invoice payment processing makes a lot of sense (provided companies also be mindful of fraud concerns associated with batch payment.)
3. Empowering Vendors and Saving Company Leaders’ Time
With a well-designed self-service portal, such as Stampli’s Vendor Portal, suppliers become empowered, able to update payment information and know the status of their remittance. It helps make the invoice approval process be as seamless as possible so that company leaders can devote their time to higher level concerns.
Even for companies not quite ready to pull the trigger on AP automation, anything they can do to protect their executives and help vendors solve their own problems during the payment process is wise. That said, for companies that really want to know how to manage accounts payable in the most effective manner, it could be time to automate.
Supercharging Accounts Payable Management with Automation
For companies that really want to take their accounts payable management strategies next level, AP automation is a logical next step. With cloud-based subscriptions available for online payment tools, it’s more affordable than ever. There are other benefits as well.
Invoices Captured and Stored
How to manage accounts payable more effectively starts with having a system that can do a large part of the document management. Such it is with AP automation software.
Forget all that time having to dig through file cabinets to locate invoices. AP automation software can capture invoices as soon as they arrive digitally or are equipped with optical character recognition, or OCR tools to easily scan them in. From there, the invoices reside securely within the system, paired with the purchase order and receipt report documentation that will be required for three-way matching to prove the validity of purchases and clear an invoice for payment.
Time Saved, from AP Clerks to CFOs
Everyone can save in this arrangement, with AP clerks having to spend less time hunting approvals and monitoring delinquent invoices and company leadership knowing that the invoices they need to see will route to them automatically with the workflow capabilities of AP automation software.
Stronger Vendor Relationships
In tough economic times – and really, even in times where the economy’s humming along totally normally – vendors and suppliers like to get paid as quickly as possible. They also appreciate having access to bill payment tools that keep them in the loop and get them working collaboratively with the people who’ll be sending them payment.
It’s all about building stronger vendor relationships and, at the end of the day, more effective accounts payable management.
The Bottom Line
Accounts payable work is usually a balancing act, though rarely have times been as challenging as they have since early 2020. Money’s tight, companies are stressed, and business is changing. Often asked to do a lot with a little, AP staff is being pressed especially hard.
Still, with the help of the strategies outlined here and particularly with automation software, it’s possible to relieve some of the pressure on staff, quickly start to enjoy AP management, and realize a number of benefits.
Still stressed? Give Stampli a call.
We’ll help you manage. Boost your AP management with Stampli today.
