The amount that is due or to be paid to the creditors or suppliers of goods and services to the business is called accounts payable. Accounts payable also refers to a department within a company responsible for making payments that a company owes to its suppliers and creditors.

The effective management of accounts payable contributes towards a company’s ongoing growth, profitability, and its overall strength. In today’s changing business world and with the arrival of advanced digital transformation technologies, companies are adopting the latest and up-to-date set of best practices and strategies to get more value from the accounts payable.

The process of accounts payable and accounts payable management focuses on assuring that all the company dues or short-term liabilities are paid in time, without smothering cash flow. Adopting such practices, companies can have sufficient cash to fund their investment opportunities, product transformation, and process optimization, reducing costs.

Small businesses rely heavily on working capital as compared to large businesses, therefore, effective management of accounts payable yields significant benefits.

• Efficient and accurate workflows in accounts payable system provide transparency and accuracy in the cash flow tracking and planning.
• More accurate budgeting with better cash flow management.
• Effective management of accounts payable provides actionable insights leveraging strategic sourcing and enabling access to better payment terms and discounts by strengthening supplier relationships.

Apart from the benefits, there are some risks associated with poor accounts payable management. If the accounts payable department is not performing effectively according to the strategic policies and procedures, the business will not be able to capture early payment discounts, may incur penalties, fines, and poor payment terms, and a bad reputation.

Ensuring that a company manages its accounts payable effectively, it needs to begin with adopting and enforcing a set of best practices for consistent and reliable performance. Other than the company’s own particular approach to implementation, it can have a part of its working capital spent on a few accounts payable optimization measures.

1. Automation

Automating the workflows and going paperless enhances the chances of success. More specifically, if we are able to remove the human element from high volume, low-value tasks like invoice processing, data entry, three-way matching, and basic vendor onboarding, we will be able to make things error-free, swift, and efficient. Accounts payable automation applications not only integrates with the existing accounting system but also all workflows are streamlined through automation and machine learning.

Some benefits of going paperless are mentioned below:

• Positive impact on the environment through the elimination of paper waste, storage, and management.
• All accounts payable information can be collected, analyzed, stored, and managed through a cloud-based system that can be accessed by vendors and suppliers too, as and when required.
• Full data transparency makes real-time analysis and decision-making possible.
• Automation enables swift, complete and accurate collection of relevant information on purchase orders, with a lower risk of rogue spending and invoice fraud
• Support for electronic payments and invoicing.
• With automatic payments you can build strong and good relations with vendors, saving you from embarrassing duplicate or missed payments.
• Staff skills can be utilized more on strategic tasks rather than on time-consuming repetitive work.

2. Streamline Vendor Onboarding and Management

Vendor evaluation, selection, and onboarding along with the supplier information can be easily managed with the help of automation and artificial intelligence. This can optimize accounts payable functions if a business has:

• Supplier performance standards, tracked by KPIs.
• Centralized data management with complete and precise vendor details that are available on-demand and in real-time.
• Up-to-date supplier master data including SLAs, quality standards, delivery timelines, legal compliance requirements, responsibilities, and expectations for suppliers and buyers.

3. Save Time With Contract Management

An AP department that is paperless and working with centralized data management is ahead of the one struggling with paper-based, manual contract management. The focus should be on:

• Cloud-based, digital storage for all supplier contracts.
• Continuing vendor performance analysis and compliance to strengthen contract negotiation and secure better payment terms while preserving working capital.
• Achieving approved legal templates for effective contract creation and updates.
• Identifying opportunities for renegotiation, strategic partnerships, and special programs by continuously reviewing all vendor contracts.
• Automatic population of contract data, including pricing, terms, and conditions, due dates, quality standards, etc. in relevant documents (e.g., purchase orders).

4. Invoice Processing Optimization

Perhaps the most critical of the AP processes, invoice processing presents a powerful opportunity to preserve liquidity through optimization.

• All invoices are monitored through the three-way match and those with inaccurate or incomplete data are returned to the vendor for revision before payment.
• For vendors to be able to bill you electronically, you need to ensure that the accounting system supports electronic data interchange (EDI). All Supplier invoices can be tracked against related documents in the system.
• Automate all workflows, including approvals, where possible. Consider automatic payment for verified invoices that meet parameters set by the business for price and invoice type.
• Internal process KPIs should be tracked to ensure early payments only when it provides substantial benefits (e.g. early payment discounts).

By optimizing your accounts payable management, you can ensure that the accounts payable function is focused on generating value as well as protecting cash flow for your business. Businesses are investing in automation as well as in employees working in the AP department and constantly upgrading them with the best practices. The Accounts Payable Manager Certification and Accounts Payable Management Certification are among the certifications that are in demand by the companies while hiring professionals for their AP departments to have accuracy, efficiency, clarity, and transparency in their accounting function.