What is Accounts Payable?
Accounts payable appears on company’s balance sheet as a current liability and represents company’s current obligations to suppliers and service providers for good and services received by the business. It is a short-term debt which needs to be paid within a specific period of time.
What is Accounts Payable Management?
Accounts payable management refers to the policies and procedures used by a company with respect to managing trade credit purchases. An organised accounts payable process ensures that all the invoices due are tracked and paid properly and there are no overdue charges or late fees to be paid for the dues.
Accounts Payable Management Tips
1. Standardise and simplify your accounts payable process
a. It is easy to simplify your accounts payable process by reducing your check runs and keeping all invoices ready before sending it for approval and signoff
b. Inform your accounts payable team of the cash disbursements limit (if any) so they can prioritize invoices if there is a cash crunch
c. Repetition and standardisation of invoice management is the key to effective accounts payable process.
2. Start paying your bills early
a. It is advisable to pay your bills on time, but it is even wiser to pay your bills early.
b. Timely bill payments not only helps you to establish good relationship with your vendors but also helps to maintain financial discipline in your cash flow and debt management
c. When you start your invoice processing early, you finish early which gives your team ample time to invest in other valuable tasks along with ensuring that you avoid late payment penalties.
3. Automate the Accounting Process
a. Manual handling of accounts payable consumes a lot of time and is prone to human errors.
b. Investing in a good accounts payable software will help you to automate your AP process, minimise the time and cost of invoice processing, eliminate most of the paperwork and improve the day to day performance of business.
c. It also enables your managers to monitor the AP activities and make financial decisions considering the current cash flow of the company
4. Healthy Relationship with Vendors
a. Effective accounts payable management highly depends on your vendor relationships
b. Cultivating a bond with your vendors reaps numerous benefits:
i. You may be able to secure discounted payment terms and discounted products/services
ii. They can help you if you need supplies immediately or need to get your due date delayed
iii. They can help you broaden your business network by advocating you to others
iv. They can help you get better deals on the things you need
5. Centralize your invoice payments
a. When processing your supplier payments, it is important to dedicate one central location and keep all the accounts payable information in one place
b. Centralising payments helps you avoid paying invoices on ad hoc basis, gives a clear view of money heading out the door, enables your accounts payable staff to eliminate piles of paper and finish tasks more quickly. In short, centralisation improves your department’s performance and speed, helping you cut operational costs
Conclusion
a. The efficiency and effectiveness of the accounts payable process will affect the company’s cash position, credit rating, and relationships with its suppliers. Hence it is one of the most important tasks to get right
b. Taking a few small steps today to keep your accounts payable in order will save you a lot of time and energy in the future.
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