5 Tips for Successfully Managing Accounts Payable
No what matter what size your business is, paying bills will always be part of it. Whether it’s the occasional order to pay for or a fully staffed accounts payable department managing thousands of invoices. By implementing best business practices you can streamline your accounts payable process and be prepared for future growth. Below are 5 tips to help you successfully manage your accounts payable:
1. Simplify Your Accounts Payable Process
- Reduce the number of check runs; two per month at most is plenty.
- When the accounting staff prepares check runs, they should have the invoice backup ready and invoices approved by the appropriate department heads before coming to you for signatures.
- Make Accounts Payable aware of any cash disbursement ceilings for each check run so they can then select the most important invoices to pay.
- Empower your staff with decisions that will make your life easier and are not dangerous for them to make. The decision to make partial payments on larger balances, or delaying payments to vendors who have a higher tolerance on due dates are a couple of examples.
2. Use Technology
- Analyze and reduce errors such as paying incorrect amounts, incorrectly entering check numbers used to pay vendors, and paying too early or too late.
- Make sure your accounts payable module is set up correctly so that transactions flow properly. You may need to use a consultant to make sure your accounting software and accounts payable module are correctly configured, or you could cause more problems than you solve.
- Have Accounts Payable staff enter terms for each vendor in which the system can default to, such as Net 30, Net 60, etc. Terms are often provided by the vendor, and are usually printed on the face of their invoice.
- Run aging reports so you know what is in the pipeline. You may have a small check run this period, but could have a large one coming up that you didn’t know about until looking at these reports.
- Use laser printed checks, which will update the system automatically, marking which invoices have been paid and with what check numbers.
3. Reduce Accounts Payable Fraud
- Anywhere cash/checks are handled (incoming or outgoing) can be a high-risk area for company fraud.
- In Accounts Payable, this is often accomplished by setting up a “dummy vendor”. Often times, this vendor is a company owned by a dishonest employee. Invoices for services never provided are created, and your business pays these invoices, essentially paying the employee.
- Implement policies & procedures to mitigate the risk. In the above example, have system parameters set so that the person cutting checks does not have the ability to set up new vendors. Each new vendor that is set up should require explanation to the owner prior to creating them.
- Separation of duties, proper approval by department heads, and spot checks will help reduce the risk of fraud.
4. Vendor Terms May Be Negotiable
- Usually invoices will come with Net 30, Net 60, 2%10 Net 30, etc.
- Regardless of the terms given, you can call your vendors and negotiate terms for your own company.
- Vendors will often give discounts or special terms to customers that purchase large volumes and on a regular basis.
- Even if the normal terms can’t be changed, if you run into an issue and must pay late, it’s best to call and discuss it with your vendor rather than avoiding them.
5. Reduce CFO Impact to Verification & Signature
- Typically the CFO signs checks but should not be assembling the check run.
- Accounts Payable should run the aging, choose which invoices to pay, assemble the invoices, print the checks, and verify that all invoices are approved before bringing them to the CFO.
- CFO simply checks the invoice amounts against the check before signing.
- If your company manages cash more actively, let Accounts Payable know up front what their “budget” is. They will know best what vendors can wait until the next check run.
Regardless of the size of your company, you can start managing your accounts payable process more effectively to save time, money and streamline your processes.
Chris Benjamin founded Rogue CFO Management Consulting in 2007 after spending 12 years in the corporate world as a CFO to both public and private companies. Leveraging his experience & education, Chris currently partners with growth stage companies who are in need of CFO management talent on a part time basis to help them grow and eventually become publicly traded. In his efforts to help the small business community, Chris has also created video courses, webinars and articles to help educate entrepreneurs & CEO’s, and guide them to success.