9 Surefire Ways to Simplify & Improve Your Accounts Payable Process

11/30/2022

Is your accounts payable process outdated, inefficient and causing cash flow problems?

Knowing how to improve your accounts payable process is a key part of being a successful business owner. If you get this element wrong, then your company may end up in financial turmoil, giving you a bad reputation for not paying clients. 

Your Accounts Payable encompasses all payments that leave the business. This includes rent, utilities, payments to suppliers and even staff wages. The AP process is the method by which you pay these bills and manage your invoices.

As your business grows, you need to adapt your AP functions to clearly show your positive payment history. Being able to show a positive payment history is important as a key indicator when credit scoring your business. A higher company credit score will help your business secure better interest rates when applying for additional funding. It can also help you win larger contracts where a bidding/tendering process is required.

To help you out, we've created some useful tips to streamline and improve your AP process.

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1: Embrace technology

You might think you’re already embracing technology simply by going paperless, but you can go one step further. We're talking about automation. You can use automation technology to send out invoices, pay your clients and keep your business in good financial health. The added benefits are that your business will operate more efficiently and you'll be seen as more reliable. 

Automation means more than simply organizing. With a synchronized system, you can achieve the following:

  • Enhanced Data: Gather more insights into your spending habits or your client’s purchases.

  • Clear Debt Graphs: Create graphs to show patterns and trends.

  • Reduced Late Payment Fees: With everything automated, you don’t need to worry about fees, fines or disgruntled suppliers.

  • Go Seamless With Approvals: If you receive repeat orders, you can auto-accept them if no changes are made.

  • Automatic Matching And Verifying

  • Use Smart Cards To Deal With ACH

Now, it's important to remember that automated systems are heavily reliant on data. So, if your data is inaccurate, missing critical information or out of date, your AP system won't work properly. Integrating Creditsafe's Business Data Universe via the Business Data API can ensure that you have all the correct business details within your systems. This means no mistakes created by poor data. 

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2: Cut down on invoices

Invoices

As a business, spending money is inevitable. There will always be expenses, vendors and suppliers that you need to keep your business running smoothly and to keep your customers satisfied. 

But with all that spending comes a whole lot of invoices too. And that can sometimes make it tough to reduce the amount of invoices coming in.

The key to reducing the number of invoices is to alter your spending. For example, if you look through your invoices and find that you have invoices from a number of small purchases, you should consider if these purchases are truly necessary to the operation of your business or are simply nice-to-haves. If you confirm that you need these suppliers but only rarely, then lump them in a collective. A great way to do this is through a business credit card. 

When you use a corporate credit card, the number of accounts payable invoices will be greatly reduced - putting all your small purchases into one manageable location. 

You will also get benefits from your business credit card, making your money reach further. For example, you can find schemes that offer savings in terms of cashback.

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3: Set up reminders

This tip is actually so simple that it often goes overlooked. Make sure that you set reminders to tell you when invoices need to be paid. Since they’re usually paid manually, it’s easy to make errors or forget. If you forget to pay your invoices, it’s possible to get charged a late fee. That's not something you want to happen.

If you have the option, plan all of your invoices on the same day or week. Then set a reminder one week in advance of your payment day to ensure you can pay the bill. If you need to, employ a second reminder the day before your first bill is due. This additional nudge is to inform you that all records should be updated by now. 

If you can’t put all of your invoices through on the same day, you should have a dedicated AP process which runs two to three times a month. The automated system should ensure that all invoices are paid on these set days. As a result, you'll never miss a payment and overspending will be curbed.

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4: Get your cash flow in order

Money will always be leaving the business – that’s simply the nature of business. But if you want to maintain a healthy cash flow, you need to make sure there’s enough money coming into the business as well. To be successful, you need to sustain this balance. 

Before accepting contracts with any potential suppliers, it’s important to run a credit check on them. It’s important to always check your client’s business credit reports before you decide to work with them. The last thing you want is to be saddled with an unreliable customer who has a history of making late payments and has a poor business credit score. 

If you work with a company that pays you back late (repeatedly), then this will have a domino effect on your own cash flow and payments - creating late payment fees and a bad reputation for your own business. 

By running business credit checks on all potential customers, you can get a full sense of their financial health - how well they pay their bills, what their business credit score is, if they're a low or high credit risk, if they have derogatory marks and other important information. The more you know, the better protected your business will be. 

Learning how stable a company is can help you plan ahead and avoid making deals with slow businesses. If their DBT (Days Beyond Terms) is too long for your cash flow, then don’t work with them.

Credit scores help you look before you leap. You can avoid clients that might not pay you back in time. They can also warn you when a company's credit score is dipping or if there are multiple changes on their credit report. When these notifications comes through, you can make the right decision for your business - be that to adjust their payment terms or to cut off ties with them permanently. Let the data guide you.

Cash flow
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5: Automate invoice approvals and matching

Automation is important to keep your business running smoothly and reduce inefficiencies. It eliminates human errors and cuts back on time wasted on monotonous labor. By using automated accounts payable software, you'll be handing over a lot of manual work to machines, allowing staff to focus on more important and strategic projects. 

Instead of spending hours sifting through files, your employees just need to complete checks. These checks ensure that your invoices match up with all the requisition and purchase information. 

With most of the labor completed by machines, it will run quicker and with fewer errors.

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6: Ditch the physical checks

Paycheck

While checks are still used, they are gradually dying out. This is because they aren’t the most ideal method of payment, as checks can get damaged or lost - adding time and money to the payment process.

By using electronic payments, you can avoid these issues. Electronic payments are received within a few days or even instantly. You can see your payment leave or arrive quickly, reducing waiting times and showing proof of payment.

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7: Don't let budgeting fall by the wayside

Having an up-to-date business budget is crucial for success. Budgeting means forecasting how your business will run in the upcoming months and how that affects your cash flow.

If you know that large purchases will be needed for a new project, then you should have a plan to maintain your cash flow during this time. Budgeting can help you reduce outgoing payments, or allow you to continue your expenses but with a lower profit margin for a short term.

Planning ahead is key to maintaining your business's AP processes and showing your clients that you are secure during turbulent times.

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8: Look for better discounts or cheaper suppliers

There’s nothing wrong with looking for better deals, but cheaper rarely means better. Quality is always king. If you think the quality of your products or services would be negatively impacted by the switch – don’t do it. 

However, if you’ve noticed that a new supplier is offering the same product as your current one, try negotiating with them. One may offer you a better deal to secure your business in the long run. 

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9: Treat your suppliers the way you want customers to treat you

The relationship you have with your supplier is always important. You want to be their best customer.

Not sure how to do this?

It’s simple. To become your supplier’s best customer, you need to order from them frequently, pay on time, and use their discounts and offers. When communicating with them, it should always be done in a friendly and polite manner, keeping it professional at all times. 

There’s more to being a good customer than spending a lot of money. When you are a great customer, the supplier will feel more comfortable with you, and you may have access to further discounts and offers. This good relationship will give you something to fall back on if hard times come around, and your payments are late. Not only that, but it can lead to referrals in the future, which can give drive more business opportunities!

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