We have all heard the saying… “It’s better to prevent a fire than to try and put it out.” When it comes to accounts payable (AP), it is always best to be proactive and organized to avoid being reactive. That said, nobody likes to pay bills. We all like to cash checks, but paying bills is not that much fun.
However, if you are running a small business, keeping a handle on your accounts payable is imperative to keep your cash flow healthy. 66% of businesses say accounts payable is key for maintaining good supplier relationships and ensuring timely deliveries. This highlights the importance of managing your AP process efficiently, as it directly affects business operations. Read on to learn the best practices that will help you stay on top of your accounts payable.
When it comes to keeping your finances running smoothly, it is not a good idea to pay your bills as they come in. Rather, pay your bills when they are due. This will help your cash flow. Also, make sure that not only do you pay your bills when they are due but prioritize them due to the type of bill they are. High-interest credits and loans should be paid first, and then you work your way down.
Most accounting software, such as QuickBooks will allow you to enter your invoices and will alert you when you need to pay them.
Do not put off until the end of the month to review your accounts payable. It is easy to just bury your head in the sand, and think to yourself, “I’ll deal with it later.” That is not a good practice. Review your financials regularly, preferably at least once a week. This will help you keep tabs on cash and be strategic in planning.
Again, good quality accounting software such as Quickbooks will help you keep a handle on your AP much easier by allowing you to access advanced reporting with a few keystrokes. This will help to alert you to issues before they become ISSUES including fraud, compliance risk, and or any other blockage that could jam up the AP process.
Unfortunately, no matter how honorable an employee’s intentions are, if the cookie jar is easy to dip into, the temptation might be too great. Make sure you have a good Separation of Duties policy in place for your AP department. Do not have one person handling billing, payments, and check approval. It takes approximately 18 months before fraud is detected, and the median loss is $150,000. Keep duties separate and temptation will be diminished.
And try to avoid setting up a situation where you have a single point of failure. Provide good customer service and make sure your employees are cross-trained and can pick up the slack whenever needed. Your vendors might not understand if your AP department is short-staffed from time to time due to employee turnover, absence, or sickness.
If you automate your AP process it will significantly reduce the unfortunate occurrence of making duplicate payments and avoiding disputes. Bill.com is one tool that can help you do this. Resolving a duplicate payment is a nightmare and it will play havoc with your cash flow. In a best-case scenario, the vendor will send the extra payment back, although that could take weeks. The worst-case scenario is that neither you nor the vendor catches the duplicate resulting in a financial loss for you.
Keeping track of disputes and resolutions is very important to maintain your cash flow. It is easy to just sign a check or send an online payment, but if you were overcharged, or if a discount was not applied, you are throwing money away if it is not caught.
Make sure you follow up on uncashed checks. Checks can get lost in the mail, vendors can forget they have the checks, or they can simply lose them. Set up a process where you can follow up on uncashed checks. This can easily be implemented when you do your monthly bank reconciliation.
That may seem extreme, but this goes back to keeping an eye on your financials. Reconciling your accounts daily will help you identify discrepancies before they become huge problems. It is much easier to fix an error when it happens as opposed to chasing it down three weeks later.
For more insights on optimizing your financial processes, check out our blog, 10 Accounting Best Practices for Manufacturing Business Success, where we cover essential strategies to drive efficiency and profitability.
Effectively managing accounts payable is a solid strategy that ensures that bills are paid on time without straining your business’s financial resources. Below are key strategies to help streamline your AP process:
Measuring AP performance is essential for maintaining financial efficiency and optimizing cash flow in manufacturing. By tracking key metrics, businesses can identify areas for improvement and ensure smooth operations. Here are the key metrics every manufacturing company should monitor:
Measures the average time it takes to pay suppliers, helping you assess how well your business is managing cash flow and vendor relationships.
Tracks the time it takes from receiving an invoice to making the payment, highlighting inefficiencies in the approval process.
Measures the percentage of early payment discounts taken advantage of, helping improve cost savings.
Monitors how often your business pays its invoices by their due date, ensuring compliance with payment terms and avoiding late fees.
Analyzes the cost involved in processing each invoice, helping to identify inefficiencies and opportunities for process automation.
Measures the percentage of supplier invoices with discrepancies, helping identify communication or process issues between departments.
For a deeper dive into organizing your financial data, check out our blog, Mastering Best Practices for Chart of Accounts in Manufacturing, where we explore strategies for structuring your accounts to improve accuracy and efficiency.
Managing accounts payable effectively is essential for maintaining cash flow and strong supplier relationships. At Accounovation, we specialize in helping businesses optimize their financial processes through tailored solutions that improve efficiency and reduce errors. Our team can help you implement best practices, automate workflows, and ensure timely payments to keep your operations running smoothly.
If you're ready to take control of your AP process, contact Accounovation today to learn how we can support your business's financial success.
Accurate record-keeping provides clear documentation of all financial transactions, making audits smoother and less time-consuming. It ensures that data is readily available for review and helps in identifying trends or discrepancies for better financial planning. With reliable records, businesses can forecast more accurately and create sound financial strategies.
In accounts payable, precise records prevent errors such as duplicate payments or missed invoices. It also ensures that payments are made on time, maintaining good supplier relationships and avoiding late fees. Accurate reporting provides a clear picture of outstanding obligations, improving cash flow management.
Regular audits help identify inefficiencies, reduce fraud risk, and ensure compliance with financial regulations. Auditing AP improves transparency, minimizes errors, and ensures that all processes align with internal policies. This leads to better financial control and more accurate cash flow management.