How to Keep Your Accounts Payable Running Like Clockwork

11/30/2022
  1. Resource Center
  2. Blog
  3. Payments
  4. How to Keep Your Accounts Payable Running Like Clockwork

Want to avoid confusion and delays in your accounts payable process? We've got some useful tips for you.

 

The AP (Accounts Payable) process has long been seen as an important, if not slightly tedious, process in business. But more and more businesses are appreciating how beneficial AP actually is, especially when it comes to improving cash flow. 

Not only that, but by paying your bills on time, you can improve your business credit score as you can show a positive payment history. Having a good business credit score will help you secure better interest rates when applying for additional funding and can make you look more reliable when bidding for new business opportunities.

Credit score

It also helps to maintain good relationships with suppliers, as you can be more confident that services and essential goods are delivered on time. It makes sense then that business owners want to develop best practices so their AP process is as streamlined and efficient as possible. 

So, how do you do this? Well, it may involve overhauling your current AP process. This seems like a daunting task at first. Don't worry; we'll share some useful tips on how you can keep your accounts payable running like clockwork.  

Chapter 1

Do your research to prevent unnecessary risks

Let’s start at the very beginning of the accounts payable process - the tendering process where you negotiate with a supplier to provide services or products for your business.

While they'll want to do business with an organization that pays their invoices in full and on time, you also want to make sure you’re working with suppliers that are financially stable and secure. Working with suppliers who are notorious for paying invoices late or have a poor business credit score can pose a threat to your supply chain if they declare bankruptcy. 

A delay in your supply chain could cause reputational damage with your customers due to missed orders. Therefore, establishing relationships with creditworthy suppliers is essential. 

It's important for you to run a business credit check on your suppliers. Make sure to go beyond looking at their credit score. There's a ton more information that you'll need to review to determine if they're high or low risk. For example, look at their credit limit. Is it too low, indicating that they are struggling to pay off their debts? 

You should also look at if they have any negative records like tax liens, lawsuits or bankruptcies on their credit report. All of these should be red flags for you - if you see them on a potential customer's credit report, you probably don' t want to do business with them. If you do, you could find yourself in serious financial trouble as their delayed payments will limit your own cash flow and make it tough to meet your financial responsibilities. 

And if you operate in any foreign markets, you'll want to make sure you're not doing business with any company that's listed on PEP or sanctions lists. Not only could that damage your company's reputation, but it could land you in violation of regulations and result in hefty fines too.

Credit report
Chapter 1

Don't be lax about keeping supplier and customer information up to date

The global business environment is a fast-moving and ever-evolving one. Companies relocate, suppliers may be bought out and even something as simple as email addresses and telephone numbers can change quickly. Any of these scenarios can easily lead to invoices being delayed due to a new system being implemented, for example. 

This is why it's important to make sure your financial data can integrate seamlessly with your entire tech stack. The more your tech platforms can work together and the data can integrate as one master data management, the more reliable the data will be. And that's what counts when you're deciding whether to work with a customer, right? The last thing you want is to be saddled with a late payer, or worse yet a customer who doesn't pay their invoices at all because they've gone into bankruptcy. 

Chapter 1

Ditch tedious manual tasks and opt for automated processes

Paper invoices

To keep your accounts payable function/systems running smoothly, you can't hold onto all those old, tedious, manual tasks you might have used in the past. They just aren't future-proof - they'll slow you down, lead to more errors and cause unnecessary delays in invoice approvals. 

To be future-proof, you need to embrace digital in every aspect of your accounts payable process. That means ditching paper invoices once and for all. I get it, you've been using them for so long and you're wondering how you'll cope with changing over to digital. Like anything, change is scary at first but it's usually very beneficial. On top of cutting down on errors and approval delays, automation will also give your team more of a sense of purpose as they can focus on more strategic projects and grow their own skillsets.  

Plus, if the volume of your invoices spikes during a certain time of year (i.e. holiday season) and you have to hire seasonal staff to meet the growing demand, an automated process can be tweaked to meet this demand and saves you the cost of hiring seasonal employees. How can you argue with that?

Chapter 1

Streamline your workflows

The more complex a system becomes, the more likely it is for payments to be made late or for errors to occur. It’s important to review your current workflows and pinpoint where bottlenecks happen in the approval process. 

Streamlining this process means making reporting and processing centralized and standardized throughout your organization. 

Manual processes can make things run a lot slower, while automation cuts invoice processing time by as much as 70%. This will certainly help you improve in full and on-time payments from your customers. 

Chapter 1

Know what invoices to prioritize

Prioritize invoices

Whether you’re a big business or a small business, it doesn't matter how many invoices you receive. Keeping on top of what needs to be paid and when payments are due can be a herculean task and one that can make or break your cash flow.

When we think of the consequences of late payments, the first thing that comes to mind is how it will impact our business credit score. While this is of course a very real thing to be concerned about, we also need to consider the reputational impact. After all, you don’t want to damage supplier relationships as this could have a very negative effect across the business.

Much like any project, everything can't be a top priority. You need to create a priority system for paying your invoices. The first step is to identify what's urgent, what can wait for a bit and what is the least urgent. Sort your invoices into most urgent, somewhat urgent and least urgent categories - and do this based on the payment terms that have been set and due dates. Of course, if you have thousands of invoices coming in weekly it can be a difficult task to get those payments made on time and in full. 

It’s also important to make sure every invoice matches its corresponding purchase order. After all, you don’t want to pay an invoice until you can confirm the product or service has been received and aligns with the amount listed on the invoice. 

You should also keep an eye out for early payment discount opportunities, as suppliers regularly offer these types of discounts. AP automation makes this easy and speeds up the approval process. On top of that, it also helps you identify and take advantage of early payment discounts. If there aren’t any opportunities within the current contract, then these discounts should be explored when it comes time for contract renewal.

Chapter 1

Standardize payment terms, whenever possible

Standardized payment terms not only allow you to optimize payment processing, but they give you more control of your cash flow too. This is crucial when you have a large volume of suppliers who would like to set their own payment terms with you. 

But standardizing payment terms also eliminates ad hoc negotiations which can have a negative effect on your DPO. 

This doesn’t mean that renegotiation should be discouraged between you and your suppliers. This should be taken on a case by case basis, and you should of course look into what your supplier is offering other similarly-sized businesses to see if you can get a better deal.

steve carpenter

About the Author

Lina Chindamo, Director, Enterprise Accounts, Creditsafe Canada

Lina Chindamo is a Certified Credit Professional with over 25 years of experience in credit risk management. She has held senior leadership positions at companies like Sony Electronics, Maple Leaf Foods, and Mondelez Canada. Her extensive experience and current role, where she collaborates with c-suite partners and credit teams across various industries, make her a respected figure in the credit industry.

Get your free trial of Creditsafe

See how Creditsafe can improve your cash flow with robust credit risk intelligence

View related articles...

Payments

9 Surefire Ways to Simplify and Improve Your AP Process

Read more

Payments

5 Reasons Investing in Accounts Payable Automation Is a No-Brainer

Read more

Credit

10 Reasons Credit Reports Will Keep Your Business Recession Proof

Read more