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Five Strategies for Enhancing Your Accounts Payable Process

In smaller organizations, it's common for accounts payable (AP) to be overshadowed by accounts receivable (AR). As a business owner, it's natural to focus on tasks that generate income.

 

However, there are several important reasons to pay attention to your accounts payable process, beyond just maintaining basic operations.


Accounts Payable Process

 

To begin with, your accounts payable turnover directly affects your business credit score, impacting your ability to secure loans when needed. Additionally, improving your accounts payable process simplifies cash flow management and forecasting.

 

An inefficient accounts payable process can lead to higher long-term costs due to an increased risk of late payment fees, duplicate payments, and overlooked invoices.

 

To maintain accurate bookkeeping, here are five tips to help you redefine and enhance your accounts payable process.

 

1. Transition to a Paperless System

 

While some business owners prefer having physical copies of their records, going digital is just as safe and secure, and it simplifies financial management. For instance, digital communication with vendors creates a more reliable digital 'paper trail' compared to physical records.

 

To start transitioning to a paperless accounts payable system, consider requesting electronic invoices from all your suppliers moving forward.

 

2. Process Invoices with Dext

 

OCR (Optical Character Recognition) smart scanning technology has enabled companies like Dext to eliminate many of the challenges associated with invoice processing.

 

By using Dext’s mobile app to scan and upload your paper or electronic supplier invoices, OCR technology reads and extracts the data. This information can then be directly exported to your online accounting software.

 

Using Dext to manage invoices allows you to:

  • reduce manual data entry,

  • minimize transcription errors, and

  • spend less time processing each accounts payable document

 

Many small business owners utilize Receipt Bank as the central storage hub for their invoices and receipts.

 

3. Automate Payments with Plooto

 

You can easily eliminate the hassle of dealing with paper checks by using apps like Plooto to send and collect domestic or international bill payments digitally.

 

Plooto allows you to automate recurring payments and integrates all your payment data with Xero or QuickBooks Online. This saves time while giving you complete control over your invoices, vendors, and clients.

 

Avoid Becoming Your Own Bottleneck

 

Companies that rely solely on one signing authority can create bottlenecks in their accounts payable process. Payment portals like Plooto allow you to share signing authority with trusted team members, reducing the need to review every payment.

 

4. Track Invoices and Payments with Online Accounting Software

 

Cloud-based bookkeeping software makes it simple to:

 

  • generate purchase orders (POs) for every product or service bought on account, and

  • match supplier invoices to those POs before making payments

 

You can also monitor your outstanding accounts payable using aging reports, which can be reviewed by your bookkeeper or management team.

 

A Reminder About Timely Payments

 

Some business owners delay paying outstanding invoices to maximize cash flow. While this approach is understandable, it is usually not the best strategy for managing accounts payable.

 

Consistently paying late can damage the goodwill between you and your suppliers. Additionally, any interest or late fees incurred can increase your costs and negatively impact your company credit score.

 

Paying invoices on time is beneficial, and paying them even earlier may allow you to take advantage of early payment discounts.

 

Some suppliers offer payment terms, such as 2/10 net 30, which allow you to deduct a percentage off the invoice amount if you pay within a specific timeframe. For example, a 2% discount would apply to payments made in full within 10 days instead of 30.

 

5. Establish an Automated Accounts Payable Process

 

Improving your accounts payable process through automation offers numerous benefits. An automated AP system eliminates excessive data entry, reduces the costs associated with bookkeeping errors, and streamlines document storage.

 

A digital process is also easier to review and control than most manual processes, leading to better business decisions and reduced risk of fraud.

 

So, what steps are involved in creating a robust accounts payable process?

 

To enhance your current workflow, begin by outlining a plan that includes:

 

  • How your supplier invoices are processed, including the methods and locations for data entry and verification, as well as your procedure for invoice approval.

  • How your due dates are established, including guidelines for handling various types of suppliers and payment terms.

  • How your payments are issued (whether by check or through digital payments).

 

Next, automate these steps using the cloud-based technologies mentioned here to significantly enhance your accounts payable process.

 

Step 1

Capture a photo of your invoice and upload it to Dext, where their smart scanning technology will read and extract the data from the invoice.

 

Step 2

Review the information in Dext to verify the accuracy of the extracted invoice data.

 

Step 3

Export the invoice data from Dext to your online accounting software, and, if applicable, match the invoices to your purchase orders.

 

Step 4

Choose the bills you want to pay in Plooto, and it will process the payments electronically. The invoices will then be marked as paid and reconciled in your accounting software.

 

Reasons to Consider Outsourcing Your Accounts Payable

 

Setting up and managing an automated accounts payable process in-house can be challenging for busy business owners. This is where third-party accounting and business process providers can be of assistance.

 

Outsourcing your accounts payable to a bookkeeping specialist like Bluemount Backoffice Solutions could be a smart decision if:

 

  • You lack accurate visibility into your company's performance and financial position

  • You don't have the time or expertise to improve your payables process

  • You struggle to hire and retain experienced, reliable accounting talent to manage your payables process

 

If you're overwhelmed by the need to evaluate and improve your accounts payable process, we have the technology and expertise to fill any gaps in your back-office accounting functions. Contact us today.

 

Our Criteria for Selecting and Evaluating Software Recommendations

 

We thoroughly research and test the apps we incorporate into our regular workflow for client bookkeeping services. We start by establishing criteria for evaluating the software, then research the app itself. After testing the app and noting its strengths and weaknesses, we use it for at least a few weeks before deciding whether to recommend it to our readers. We utilize the software as intended for its designed tasks. For a detailed walk-through of our selection and evaluation process, please see the details of our methodology.

 

Bluemount Backoffice Solutions does not receive any compensation or consideration from software publishers for featuring their software in our blog articles.

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