Although many startup ventures, entrepreneurs, and small businesses focus majorly on marketing and sales, accounts payable management function is also an essential part of the business that requires equal attention. Streamlined management of the accounts payable workflow is crucial for the smooth functioning of a business. It allows for you to have a good track record, as a business, as well as offers you the stability and flexibility a healthy cash flow offers - the ability to make quick decisions regarding urgent payouts or any processes that require unexpected expenditure.
Just as how good accounts payable management can strengthen business, a poor management system can cause a world of damage. It can severely limit a company's liquidity, hamper relationships with essential vendors, and can lead to a bad credit rating in the eyes of credit and financial institutions. But fret not, here are 16 tips for efficient accounts payable management -
Having a well-founded strategy in place for your accounts payable management is a key to good management. A plan will help all members involved in the process to understand clearly what processes must be followed, how long each process takes, and where there could be possible hiccups or delays.
Ideally, a good strategy would help smoothen overall management processes by facilitating better visibility and readability of the payment process.
Getting a hand on the payment process early on will help tackle all issues and enables payment to go out on schedule, or perhaps, even before schedule. Accounts payable workflow can be streamlined if the payment process starts as soon as an invoice comes in, it is more likely that if any issues with the invoice crop up, they can be resolved well in time for the payment date.
The task of ensuring all payments go out on time is not a small or inconsequential one. Hence, it should not be treated so. Final accountability should rely with upper management who are directly affected by how the business performs, either through a stake in the company or through direct performance evaluations depending on the health of the business.
It is imperative to know the skill set of your workforce so that every task can be assigned to the perfect person for the job. To get the maximum productivity, employees should be assigned tasks based on what they are most skilled in.
The best step forward to create a well-linked chain is to follow the RACI model for the process chain. RACI stands for Responsible, Accountable, Consult, Inform. The first bracket - Responsible - consists of the team members who will be working on the actual activity.
The people involved in any process are the most key component. All individuals must be well-suited for the task they are assigned and must seamlessly coordinate with each other to minimize miscommunication.
Setup an efficient and effective communication channel wherein all members of the company are free to express their viewpoints, and perhaps offer suggestions. These channels are especially important between the accounts receivable and accounts payable teams so that both teams are on the same wavelength.
The people on the ground doing the work always have the most to say about processes, and rightly so. They can see the positive as well as the ill-advised effects of any step implemented at a higher level. Stay in touch with your people. Have team brainstorming sessions as you never know where the next best idea for your business could come from.
This analytical strategy encourages you to ask six essential questions to build a formidable core strategy to help with accounts payable workflow management. This strategy can be used effectively in two ways - externally and internally. The questions should answer - who, what, when, why, where, and how.
This takes up the aspect of using the protocol for external purposes. It allows any individual joining the company afresh or a member from a different team to understand the core reasons behind working with a vendor and how the process plays out. When applying the same strategy internally, the method of asking the question changes slightly - who is doing what, when will the task be completed, why are they doing the job, why they are the right persons, where they are undertaking their task, and how they are going to go about completing it? This gives all concerned parties visibility into the accounts payable workflow and allows to monitor progress and optimize performance.
Help your vendors help you. When vendors have access to their own portal, they can keep tabs on when you might be running out of a certain product, when they need to invoice, the stage at which their payment has reached etc. Instead of last minute orders to the vendor, the vendor might proactively provide you with an order so that you do not have a last-minute rush.
Alternatively, if payments to the vendor are delayed but they may be able to see that the process is stuck in a department, they are less likely to hound you for a payment. Perhaps, they may even offer a helping hand, if they could be of service.
Most vendors have standard terms, such as 30-day or 60-day payment terms. However, depending on your relationship with the vendor, you can work out a payment structure that suits your company's schedule. Also, its advantageous to keep a track on payment concessions vendors might hand out. If a vendor offers a heavy discount for paying early, payments can be processed earlier for that vendor to avail the best offer.
The key to any effective solution is the simplicity of it. Create a plan that focuses on how to simplify your accounts payable process. There are a number of simple ways to achieve this, such as reducing the number of check runs, making the department aware of any cash disbursement ceilings so that they can prioritize payments accordingly.
Accounts payable automation is the one trend to catch on exceptionally quickly in the industry. Accounts payable automation solutions are easily available and quite often, cost-effective. Automating the process can also aid in making the entire process paperless (which is a bonus in terms of being environment-friendly).
In a day and age where technology is part of even a poor man's life, it's essential to use technology to its optimum in complex processes. A lot of the tasks tormenting your accounts payable department can be aided with technology such as analyzing and reducing errors, creating a pipeline and a host of other labor-intensive tasks.
Every industry is prone to the risk of fraud and accounts payable fraud is the biggest fear. Establish and implement an approach termed as "separation of powers", which allows for no single individual to set up a new vendor and make payments to it. This small step goes a long way in guarding against fraud.
A To-Do list is an excellent way to get work done. In addition, it makes for a great mood booster when an item is ticked off the list. Status sheets allow for effective management of workflow as well as in-depth visibility. Status can be tracked as ready, assigned, closed, expired, forwarded, failed and completed.
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