Parting with money is not anyone’s favourite activity – particularly not of business owners or accounts payable teams. However, it would do well to be reminded every now and again that payment delayed is never payment annulled; in fact delaying a payment can rob your business of goodwill and valuable early bird discounts or other benefits that a supplier may offer you. Apart from payments, putting in place stringent accounts payable best practices to review accounts payable (AP) often will help monitor cash flow and irregularities in invoicing/payouts.

So, what is accounts payable (AP)?

Accounts payable is the amount that a business entity owes to its creditors, service providers and suppliers. This amount, based on the invoice or bill, is recorded as a liability on the company’s balance sheet. Until recently, AP was an unglamorous, back-end function which was not a priority with most business owners or CEOs. But now, companies are realising the importance of accounts payable invoice processing best practices in improving cash flow, working capital and relationships with suppliers/vendors.

Ensure on-time payments, consistent cash flow and avoid internal or vendor fraud. Here are 10 accounts payable tips & tricks that will optimise your balance sheet:

1. Keep Track of Your Accounts Payable Process

The top best practice in the accounts payable process is to review, organise and prioritise invoices and bills according to their due dates. It would be a good strategy for your accounts payable team to work closely with your procurement team to streamline and keep track of purchases, pay orders, 3-way matches and invoices. This not only enhances efficiency but also helps check duplication, omission or delay in processing invoices, and any fraudulent activity. Besides, when it comes to items like credit card bills it is smarter to first pay the cards that charge the larger interest. Regular monitoring and evaluation of the accounts payable process can practically enable the growth and viability of your business.

2. Time IS Money

In business timing is everything; and when it comes to cash flow, timing is critical. Hence, it is an accounts payable best practice to pay invoices on time – never early, never late. Early payments do not really make sense and may unnecessarily block your cash; whereas late payments can make you unpopular with suppliers and even cost you in terms of interest or late charges. On-time payment earns you the trust and respect of suppliers and associates. If your vendors offer incentives for early payment, you might as well utilise them. In short, while timing your payments ensures smooth cash flow for your business, it also enhances your negotiating power with vendors/suppliers for extended payment terms, longer warranty periods and more.

3. Maintain an Up-to-date Supplier List

It would also be in your company’s best interest to involve key personnel in the selection of suppliers, as part of an accounts payable and invoicing processing best practice. Negotiate prices, discounts, terms of service and payment. Set up a master Supplier Data, which contains details of products or services, volume discounts, credits, delivery timelines, quality standards, service level agreements (SLAs) and other terms of contract. Establish strict procurement standards. Such a list also prevents employees from engaging in random or fraudulent purchases.

4. Standardise Payment Terms

Establishing Standard Payment Terms for all suppliers is an accounts payable best practice that can help optimise their payment processing. It also gives you better control over cash flow. Standard Payment Terms are important, especially when dealing with a large number of suppliers. While it prevents ad hoc negotiations with individual suppliers, standard payment terms should not preclude renegotiations.

5. Centralise for Transparency & Efficiency

Centralising the accounts payable and reporting functions establishes common practices and standards to be followed across the board. It becomes a single point of reference where all data is available, rather than necessitating multiple inquiry points. Centralising the functions also increases efficiency by removing redundancies and enabling performance measurement. The involvement of senior management in the accounts payable process will also help motivate the AP team. In addition, having robust systems in place and following accounts payable and invoicing best practices gives you an accurate audit trail, and enables you to monitor the volume of invoices and payouts.

6. Separation & Rotation of Duties

Implementing internal controls is necessary to reduce risk of business fraud. The purchasing and accounts payable departments are high fraud-prone areas. Besides, if the same person is preparing invoices, writing cheques and processing payments, there is a likelihood of fake invoices or cheques and/ or tampering of cheques. It is advisable to separate and rotate the duties of invoicing, payment processing and cheque approval. Following this best practice in accounts payable ensures that the team is aware of the activities and all of them are equipped to handle all duties, so that the department runs smoothly.

7. Check for Errors & Duplication of Payments

As the people who handle the cash in your business, your accounts payable team has to be supremely alert. They are not just people who write cheques, but by adhering to AP invoicing best practices they become the guardians of the company’s cash flow and bottom line. Your accounts payable team cannot pass any invoice with an error. They also have to check regularly if any duplicate payment has been made, because such errors eat into the business.

8. Tracking and Resolving Disputes

When it comes to invoices, exceptions are a sore factor for accounts payable. It would be ideal for your company to have dedicated channels or a streamlined process for reporting and sorting exceptions in invoices. Disputes can cause serious payment & time delays, sorting the issue with the supplier. Repeated disputes with a supplier would also mean having to look for a new one. If your company follows defined accounts payable invoicing best practices, you can track invoice statuses in real-time and ensure timely resolution of issues.

9. Tie Up Loose Ends: Uncashed Cheques & Incomplete Ledgers

Alertness, when it comes to payouts and proper recording of the same, are accounts payable best practices that cannot be overlooked. Your AP team has to keep track of all cheques issued to suppliers. If a cheque given three weeks ago does not reflect on your bank statement, your team better follow up and take action to ensure that cash flow does not get disrupted or that you do not incur a late payment fee.

Equally important is the daily book keeping best practice in the accounts payable process. If a situation arose wherein an additional amount was paid to a supplier by cheque and it was not mentioned in your ledger, you could be looking at an unexplained discrepancy in cash flow.

10. Automation for Accuracy and Growth

Automating your purchase and accounts payable processes will help streamline the approval, invoicing and payment processes of your company. This will result in freeing up working capital and reflect a healthier balance sheet and putting the business on the fast track for growth. With all details captured in a centralised database, there will be very little or no scope for errors, disputes or fraud. Such processes leverage AI-based AP automation software like Nanonets to save time and money while providing a clear audit trail.