In Summary
- Streamlining the payables process is crucial for financial strength, requiring centralization of invoices into a digital repository for easy tracking and accessibility across authorized users. Automating data capture and creating digital approval workflows with AP software or accounting tools like NetSuite further cuts down on manual effort and errors.
- Proactively capturing invoices early and optimizing payment terms, sometimes favoring cash flow over discounts, boosts timely payments and reduces late fees. Cultivating strong vendor relationships through clear communication, updated records, and setting clear internal policies on roles and spending limits minimizes payment delays and builds trust.
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Maintaining a strong financial position requires an organization to focus on many variables simultaneously. The business must not only give attention to proper budgeting and expense management but must also spend time properly managing cash flow. Without a stable and predictable revenue, it is extremely difficult to make strategic decisions about new hires, sales campaigns, equipment purchases and more. Concurrently, the timely payment of expenses is also important to maintaining vendor relationships, leveraging discounts, and other benefits. Companies looking to streamline the payables process to reap the benefits should consider centralizing invoices, automating processes, and capturing invoices early. To help clients, prospects, and others, Hanson & Co has provided a summary of the key considerations below.
- Centralize Invoices – The best way to get a handle on all invoices is to gather them in a centralized location for easy access and tracking. Assign a single repository for all incoming invoices, regardless of their format, which may include digital transformation of paper invoices and electronic storage. Having a centralized digital repository also improves accessibility from any device and location for authorized users.
- Automate and Leverage Technology – When invoices are saved digitally, software can also be used to automatically capture invoice data, which cuts down on manual errors and saves time that would be spent on data entry. Automation can also be used to streamline the approval process. Create digital workflows for routing and tracking of invoices to enable real-time tracking and allow for digital approval. Tools that businesses may want to implement include AP automation software for invoice processing, approvals, and payments. They may also want to consider virtual cards or ACH payments to cut down on processing time. Popular tools include Stampli, Tipalti, and Bill.com. These software programs have features such as supplier onboarding, expense management, or AI-powered invoice matching. Accounting software, including QuickBooks, Xero, and NetSuite, also come with basic to strong AP features.
- Capture Invoices Early – The more proactive businesses can be with invoice capture, the more likely they are to pay on time or at a regular cadence. Ask suppliers to submit their invoices as soon as possible for faster processing. Timely payments can increase cash flow, reduce the amount of late fees paid, and improve vendor relationships.
- Establish Strong Relationships with Vendors – Setting expectations for submissions and timely payments is only one part of building strong vendor relationships. Accounts payable departments should begin to establish vendor relationships by collecting important company details and ensuring banking information, contact information, and tax details remain updated. Communicate regularly and be available for vendors, addressing any payment issues or invoice discrepancies quickly to avoid delays and build trust.
- Optimize Payment Terms – After building rapport with a client, businesses can work to optimize their payment terms with vendors. Companies can ask about early payment discounts or more favorable terms for long-term contracts or bulk ordering. However, not all payment discounts are worth the benefit. Sometimes, the cash flow gained by waiting to pay is more valuable than the discount itself. Accurate cash flow forecasting can help organizations decide when to pay bills based on current and anticipated liquidity issues.
- Set Clear Internal Policies – If no one is sure of who is responsible for what in the AP process, organizations can experience payment delays or missed payments altogether. Define clear roles and responsibilities for each step in the payment process, as well as strong policies around payments. These can include limits for spending that doesn’t require approvals, plus procedures around invoice processing, payment, and approval.