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13 Account Payable Best Practices for 2023

13 Account Payable Best Practices for 2023

In today’s fast-paced business landscape, efficiency and agility are more critical than ever. Accounts payable (AP) departments are feeling the pressure to modernize, as legacy procurement systems and manual processes create bottlenecks that can hamstring an entire organization. From incomplete data capture to unsynchronized approval chains, these inefficiencies are not just a headache; they're a strategic liability.

AP is not merely an operational necessity but a cornerstone of smart business strategy. Streamlined AP processes can translate into improved supplier relationships, better cash management, and significant cost savings. But to unlock these benefits, we must start by rethinking the entire intake-to-procurement cycle. This transformation isn’t just about automating a single department or payment method but optimizing the larger ecosystem within which AP operates.

Key Takeaways:

 
  • Gain a comprehensive understanding of modern best practices in Accounts Payable, focusing on areas such as electronic payments, workflow automation, and data analytics for continual improvement.
  • Learn how to address challenges in AP like inconsistent vendor data and uncoordinated approval chains, and understand the importance of the intake process in resolving these issues.
  • Discover how tools and platforms like Zip can dramatically streamline and improve your AP operations, from the intake stage to payment reconciliation, allowing for more strategic and agile financial management.

To guide you through the complexities of optimizing your AP department, this article provides a roadmap of best practices designed for the demands of modern business. 

Best Practices for Accounts Payable Teams in 2023

1. Make Electronic Payments

In the digital era, sticking to manual processes like writing checks is not just outdated; it's time-consuming. A shift to electronic payments is vital for an agile AP department. Digital payments are faster, easier to track, and offer superior reconciliation capabilities, making it simpler to manage cash flows and maintain accurate financial records.

On the surface, a check might seem like a trivial cost. However, studies show that a manual process can cost more than $9 per invoice when you factor in materials, manpower, and processing time. Multiply that by the hundreds or thousands of invoices a typical business handles, and the numbers are staggering. Transitioning to digital payments to pay invoices can result in substantial cost savings and free up your staff for more value-added activities.

2. Try a Paperless Automation Solution

Moving towards a paperless automated system is not just good business practice; it's also an environmentally responsible choice. A paperless office reduces the consumption of paper, thereby contributing to sustainability goals—a key consideration for socially responsible enterprises. Using an automated solution, such as Zip, can help you reduce your paper invoices and consumption no matter where your vendors are located

Additionally, human error is a significant concern when dealing with manual invoice processing manual data entry. Mistakes can result in late fees, strained vendor relationships, late payments, and even legal issues. Paperless, automated AP solutions minimize these risks by reducing manual touchpoints. 

3. Organize and Prioritize Invoices

Invoice management can be a logistical nightmare if not handled strategically. It's crucial to prioritize invoices not just as they come in, but based on more critical factors like due dates, receipt of goods or services, and interest rates. This systematic approach ensures that you maximize your payment terms and improve cash flow.

Many vendors offer early payment discounts as an incentive for quicker payment. By organizing and prioritizing your invoices effectively, you can take advantage of these opportunities for savings. Even a 2% early payment discount can add up to significant annual savings, improving your company’s profitability and establishing good relationships with your vendors.

4. Streamline and Simplify Your Workflow

The procurement process often begins long before an invoice lands on an AP desk. By streamlining the intake process, you set the stage for a more efficient accounts payable workflow. Proper intake, and using an intake-to-procure process solution, like Zip, ensures that vendor data is standardized and accurate, approval chains are organized, and all pertinent documentation is in place. This proactive approach minimizes delays and exceptions down the line.

A decentralized, ad-hoc approach to invoice processing is a recipe for confusion and inefficiency. Centralizing your AP workflow ensures that every invoice goes through the same set of checks and balances. This consistency not only improves processing speed but also enhances accountability and control, making it easier to identify bottlenecks and areas for improvement.

5. Use KPIs to Measure Efficiency

Understanding your accounts payable department's efficiency requires more than a gut feeling; it demands data. Key Performance Indicators (KPIs) to focus on include:

  • Cost per invoice
  • Payment accuracy rate
  • Days Payable Outstanding (DPO)
  • Number of invoices paid on time
  • Early payment discount capture rate
  • Amount of time spent handling supplier disputes

Regular data review isn't just about accountability; it's about continuous improvement. By keeping a pulse on these KPIs, you can identify trends, make data-driven decisions, and course-correct as needed. This ongoing analysis reduces risk, improves planning, and can directly affect your bottom line.

6. Establish Reliable Fraud Detection

Fraud is an unfortunate reality that every AP department must guard against. The first line of defense is visibility: knowing who is doing what, when, and why. Implementing internal controls such as segregation of duties, multi-factor authentication, and automated red flags for suspicious activities can provide a robust safety net.

Visibility coupled with control mechanisms not only acts as a deterrent but also enables quick action if fraudulent activity is detected. In an age where cyber threats are evolving rapidly, a comprehensive fraud detection strategy is not just recommended; it's imperative.

7. Create Safeguards for Duplicate Payments

Duplicate payments can be a significant drain on your organization's resources, not to mention an indicator of inefficiencies in your accounts payable process. Automating the AP process allows for intelligent systems to flag duplicate invoices before they're processed for payment. This prevents your team from chasing refunds or reconciliations and enables you to focus on more strategic tasks.

8. Improve Access Controls

Unrestricted access to your AP system is a security risk. Controls should be implemented at both an internal and system level to ensure data integrity and safety and create an audit trail. Internally, consider implementing a policy where staff who handle payments are not the same individuals who have the authority to add new vendors. This separation of duties reduces the likelihood of fraud.

On the system level, technologies such as multi-factor authentication and role-based access controls can significantly enhance your AP security posture. Automated solutions can also restrict access based on the principle of 'least privilege,' ensuring that team members have only the permissions they need to perform their jobs.

9. Standardize Payment Terms

As your organization scales, the number of suppliers you deal with is likely to increase exponentially. Inconsistencies in payment terms can lead to a quagmire of ad-hoc negotiations, billing disputes, and inefficiencies that can ultimately impact your bottom line. Standardizing payment terms across all suppliers simplifies your AP process, reduces administrative burden, and offers greater predictability in cash flow planning.

Automation can play a significant role here by digitizing contracts and storing key terms for easy retrieval and analysis. With standard payment terms in place, you are also better positioned to renegotiate supplier contracts from a place of strength and data-driven insight.

10. Streamline Dispute Tracking and Resolution

Disputes are inevitable in any accounts payable operation. However, how quickly and effectively you resolve these disputes can make a significant difference in your supplier relationships and the efficiency of your payment processes. Automated dispute tracking and resolution platforms can categorize issues and expedite them to the right individuals within your organization, reducing the time needed to resolve each dispute.

Streamlining this process has a two-fold benefit: first, it increases the likelihood of on-time payments, which can improve your organization's creditworthiness and potentially qualify you for early payment discounts. Second, it enhances supplier relationships by demonstrating your commitment to fair and expedient resolution processes.

11. Keep Supplier Information Up to Date with a Portal

In a digital age, maintaining accurate and up-to-date supplier information is essential for a streamlined AP process. One effective way to achieve this is through a dedicated supplier portal that serves as a centralized repository for all supplier-related information.

Make the interface user-friendly to encourage suppliers to keep their information updated. A self-service portal empowers suppliers to maintain their own details, freeing up your AP staff for other tasks. Incorporate real-time validation features to ensure that tax identification numbers (TINs), payment details, and address information are accurate. This minimizes errors at the point of data entry, reducing the risk of payment issues down the line.

12. Don’t Rely on a Single Point of Failure

The AP process is a complex workflow that involves multiple stages, from procurement and invoice processing to payment execution. A single point of failure at any stage can disrupt this chain and lead to significant operational setbacks.

Avoid the pitfalls of relying on key personnel for specific tasks. Cross-training ensures that multiple team members are capable of handling different aspects of the AP process, providing a safety net during staff absences or unforeseen events.

13. Reconcile All Accounts Daily

It's crucial to align your ledger and books with your bank accounts daily to ensure that all transactions are accurately reflected. This is especially vital in an automated AP environment, where high volumes of transactions are processed regularly.

Use automated reconciliation tools that compare your ledger and books against your bank statements. Daily checks ensure discrepancies are spotted and addressed promptly, reducing the risk of financial inconsistencies and ensuring compliance with accounting standards.

Major Challenges Accounts Payable Teams Face in 2023

In today’s age, AP teams face several pressing challenges, some of which have a direct impact on the intake process. Here are a few of those critical challenges:

Inconsistent Vendor Data at the Intake Stage

One of the most prominent issues that start at the intake process is the inconsistency in vendor data. AP departments often struggle with missing or incorrect information when new vendors are onboarded. This inconsistent data can lead to payment delays, compliance issues, and even fraud, affecting the overall efficiency and effectiveness of the AP process.

Modern businesses are increasingly adopting automated intake platforms that can validate vendor data in real-time, thereby reducing inconsistencies. However, AP teams that have yet to modernize their intake systems continue to wrestle with this issue.

Uncoordinated Approval Chains

Approval chains are another area where challenges often originate at the intake level. In organizations that have department-specific procurement processes, AP teams find it difficult to synchronize approval processes across different departments. This leads to delays, lack of visibility, and higher chances for errors.

Automating the intake process can ensure that every purchase order or request is routed through a uniform, centralized workflow. Yet, for AP teams working with outdated systems, the disparate approval chains remain a significant bottleneck.

How These Challenges Affect the AP Process

Both these challenges have a cascading effect on the AP process. Inconsistent vendor data can lead to a range of issues, from payment delays to regulatory fines. Disconnected approval chains add layers of complexity, slowing down payments, and reducing the ability to capture early payment discounts. Together, these challenges contribute to inefficient operations, higher costs, and a diminished capacity to adapt to changing business needs.

Addressing these challenges requires a comprehensive approach that doesn't just focus on automating the AP process, but also on streamlining and improving the intake stage. Doing so can unlock valuable efficiencies, reduce operational risks, and set the stage for a more agile and responsive AP operation in 2023 and beyond.

Why Accounts Payable Automation and Optimization Starts With Better Intake

A robust Accounts Payable process isn't just a financial requirement—it's a strategic imperative. The effectiveness of your AP operations largely depends on the quality of the intake stage, which serves as the foundation for everything that follows. Here’s why focusing on better intake can revolutionize your AP processes:

Importance of Standardizing Vendor Data

Imagine a scenario where invoices come in multiple formats and from various channels. This inconsistency makes it difficult to quickly and accurately process payments. Standardizing vendor data at the intake stage is critical for streamlining the workflow that follows. It eliminates errors and bottlenecks, thereby reducing manual labor and cutting costs. Uniform data simplifies automated processing, thus enabling your AP team to function with more precision and agility.

Role of Intake in Optimizing the Entire AP Process

The intake phase isn't an isolated step but a crucial part of a well-oiled machine. When intake is optimized, it acts like a catalyst, enhancing the efficiency of every subsequent stage in the AP process, from invoice matching and invoice approval routing to payment execution. Good intake practices can even assist in improving compliance and reducing fraud, as standardized data and processes make it easier to spot anomalies and execute internal controls.

How Zip Can Help Companies Improve the AP Processes

For companies seeking to turbocharge their AP operations, platforms like Zip offer a comprehensive solution. Zip provides an integrated suite of tools that focus on optimizing the intake process. From enabling real-time validation of vendor information to automating the data extraction from invoices, Zip ensures that the information entering your AP system is accurate, consistent, and ready for seamless processing. Moreover, the platform's analytics features offer valuable insights into your AP performance, allowing for continual improvement.

Check out a demo of Zip here.

How to Improve Capital Efficiency by Increasing Adoption of Procurement Processes

How to Improve Capital Efficiency by Increasing Adoption of Procurement Processes

Watch this on-demand session to hear Kate Denissova (Director of Procurement Advisory at The Hackett Group) and Ed Sawma (VP of Marketing at Zip), discuss the ways to work towards 100% employee adoption of financial policies.

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