Among the many moving parts that make up a business's daily operations, accounts payable is far from the most glamorous. It isn't about building your brand with the public or attracting new leads. It doesn't focus on creative advertisements or product innovation. Yet despite its apparently mundane nature, the AP department is foundational to the success of every other effort.
Poorly structured AP procedures can diminish the reputation of your business with vendors and lead to supply shortages at critical times. Improper approaches to handling payments can choke off your company's cash flow right when it needs liquidity the most.
On the other side of the equation, when accounts payable best practices are in place, your team creates value for the business. Costly duplicate payments become less of an issue, vendors are always happy to receive prompt payment and even individual clerks may find their jobs more rewarding and add greater value to the organization.
Achieving these outcomes requires understanding what AP best practices are and how to implement them. In this guide, we'll examine the key areas that deserve your focus and how to follow through effectively. The topics we'll cover include:
- What Are the Most Important AP Best Practices?
- How Do You Manage Accounts Payable Effectively?
- What Makes a Good Accounts Payable Manager?
What Are the Most Important AP Best Practices?
Optimizing your team's work starts with understanding what "best practices" entail and what it means to use them in your business. While there are perhaps dozens of different strategies you could pursue to improve the output of the department, we'll focus on six specific areas that can yield the most noticeable improvements. From how you handle invoice intake to the way you organize data, let's look at better practices you can start to deploy as soon as possible.
Handling and Prioritizing Invoices the Right Way
There are many best practices to consider when you handle invoices, but "using automation" should be right near the top of the list. No large AP department today should have clerks typing information off invoices and into computer systems by hand. Why do that when software can intelligently capture the data with excellent accuracy every single time?
Processing invoices quickly means moving to the payment stage sooner, but you should actually avoid paying invoices as soon as they receive final approval. Jumping to quickly process invoices might seem efficient, but it also saps cash from your company's coffers. A more robust system lets you see exactly how long you can delay payment while still capturing discounts and avoiding a negative impact on your bottom line.
Filing Paperwork in the Right Systems
Lost paper invoices are a problem the periodically plagues any AP department, and even those that choose to digitize and go paperless can encounter these issues. Instead of relying on manual movement of files between computer folders and systems, automate invoice processing instead. Through automation, all invoices regardless of how they are received, can be seamlessly processed and passed to the ERP for payment and coding in the general ledger.
Building a Seamless and Repeatable Workflow
AP workflow best practices dictate that every sequence of steps should be as close to the same as possible for every single invoice. The personal working preferences of each clerk shouldn't come into account. Instead, they should have a clearly defined process to follow each time. Standardizing your workflow ensures you also simplify it at the same time.
While you'll still need human intervention to assist with edge cases, today's automation tools can immediately flag potential errors for reconciliation. That means no more tedious invoice matching by hand and fewer struggles to track down the source of exceptions.
Tracking Your Critical KPIs
"Implementing best practices" doesn't mean much in reality if you have no way to measure the effects of the changes you've made. With a multitude of KPIs to track in accounts payable, AP teams should never be in the dark about their performance. When you use automated systems, generating reports—such as invoice aging or outstanding balances—takes mere seconds. Use these reports to assess whether your process improvements have succeeded or whether you may need to go back to the drawing board.
Automation can dramatically simplify your life, but it must be correctly deployed and configured to assist your business. By watching your KPIs, you can see where there might be problems, such as employees who aren't individually following best practices. Use these reports to make changes and drive toward the most efficient state.
Reducing and Eliminating Fraud
At least some of your efforts should focus on creating practices designed to prevent fraud within your organization. These rules should focus on preventing the opportunity to commit fraud from arising in the first place. For example, clearly separating the duties of different clerks and implementing digital access control solutions can keep individuals from accessing trusted systems for which they aren't authorized.
Similarly, best practice applications should include periodic anti-fraud reviews and payment audits to ensure the correct fund amounts were disbursed to the appropriate vendors—and not into someone's pocket. Such was the case recently when the U.S. Department of Justice announced it had convicted a Lithuanian man who stole more than $120 million using fraudulent invoices.
Automated systems can help here as well, raising red flags immediately upon the detection of errors or possibly fraudulent activity. Combine it with good governance and rigorous audit practices, and you can keep funds flowing only to where they belong.
Consolidate Data and Avoid Silos
AP is such a fundamental element of doing business that it is critical for the data it produces to be accessible to others within the company. Instead of keeping your information spread across multiple systems and software solutions, today's circumstances dictate that you centralize this information as much as possible. Tear down the silo walls in your business and add visibility to the AP process, so others can see and use this data.
Implementing these best practices is easiest when you embrace opportunities for automation in AP processes. With advanced tools such as Kofax ReadSoft® and it's far easier to establish standardized workflows and achieve the results management hopes to see from your department. Find out more about why ReadSoft is the perfect fit for accounts payable and how it can transform your invoice processing efforts today.
Next, let's consider some information about how to do your job as well as possible.
How Do You Manage Accounts Payable Effectively?
Understanding how your teams will benefit from using best practices is a separate process from putting that understanding into practice. How can you ensure the right procedures actually lead to better outcomes every day? That's where effective management becomes an integral part of adapting to the demands placed upon contemporary AP teams. Consider a few ways that you can ensure you're managing your responsibilities well.
Although many may think of automation as a threat to the job they do, the current reality is different. Automation enables more, better and smarter work while eliminating most of the tedious and boring tasks that can make any AP clerk question their choices. When effective management is your goal, why leave any potential advantages on the table?
Modern automation software streamlines every aspect of AP, from initial processing to payment. Embracing these tools now and discovering how to integrate them into your workflows can take pressure off your team while motivating them to learn the new procedures.
Implement Stricter Controls and Emphasize Accuracy
Clearly define the roles played by each employee within the department and ensure they only have access to the portions of the system necessary for their job. At the same time, make it clear that accuracy is of paramount importance–human error is too costly for the business to remain a persistent problem. By offloading the most error-prone work to automated robots, such as line item data capture and three-way matching, accuracy rates improve and fraud risks decline.
Invest in Automation Employee Training
Dumping tons of new technologies into the business and expecting staff to adapt on their own as professionals is a recipe for disaster. Not only can it destroy morale, but it can lead to long-term problems as people struggle with a brand-new learning curve.
When you don't invest in good training, all the best practice planning in the world could go to waste as employees shun the changes and continue to follow their preferred methods. Contemplate automation carefully, "sell" it to your staff and ensure they have the training resources necessary to succeed.
What Makes a Good Accounts Payable Manager?
An accounts payable department led by a motivated manager who provides a framework for success can be a very valuable asset for any business. What does it take to achieve success as a manager in this complex, fast-paced and often stressful environment? Good people skills never hurt, but there is more to consider. Here are a few additional tips that can clear up your next steps.
Establish Clear Controls and Processes
Clarity is essential, especially during complex efforts such as automating AP. Keep your staff in the loop and make sure your expectations are always clear. By laying down guidelines and ensuring that each clerk can focus specifically on the tasks within their responsibility, you can keep information flowing freely within the team. Don't expect staff to "just get it" if you aren't also down in the trenches with them making sure your changes work.
Engage in Smart Employee Management
Remember the old saying "the squeaky wheel gets the grease"? It's applicable here, too. Some staffers will pick up on the new practices you implement right away and find their jobs much easier as a result. Others may struggle, especially if they have many years of experience in manual invoice processing. Be smart about the way you manage these teams.
Encourage technologically savvy employees to assist their colleagues in becoming proficient with new systems. Invest in professional training when necessary so that everyone begins work on a new ERM platform with the same level of understanding. In other words, don't leave your teams in the dark. Shine a light on what they need to know.
Automate, Automate, Automate
Take as much of the drudgery out of the AP job as possible, and your staff will ultimately thank you for the effort. Many financial leaders have already recognized the value of automation. Smart automation practices require a granular examination of every step of what you do because no two businesses are exactly alike. To be the best AP manager possible, ensure that you're doing everything you can to reduce cycle times, drop cost-per-invoice and showcase the real-world results of those efforts to upper management.
Accounts payable best practices aren't a series of rigid one-size-fits-all rules, but an intelligent approach to doing business that embraces the availability of advanced and modern tools. By focusing your efforts on leaving "the old way" behind and embracing the potential for automation, it's possible to solve problems and boost your business at the same time.
A well-managed department using the best-established means of handling payments saves the business money and keeps cash-flow as unrestricted as possible. With these improvements in place, explaining the value of AP won't cause executives to tune out—not when you have happy vendors that think of your business as a preferred client.
Find out more today about how to use automation software such as ReadSoft in the pursuit of better accounts payable processes and what you can do next.