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Streamline Accounts Payable Processes with These 5 Steps

business accounting

When you’re a small business owner, you don’t always have the funds or even the time to hire a bookkeeper or accountant to manage accounts payable (AP) full-time. Managing AP can be onerous and time-consuming, but it doesn’t have to be — and you don’t have to hire a CFO in order to make the AP process easier.

But it is important that you manage the AP cycle well because paying your vendors on time is essential to the health and longevity of your business. If you can hire a bookkeeper or other finance professional, so much the better. If you’re trying to get on top of the AP cycle on your own — or even if you’re not — these five steps can help you do it.

1) Establish an AP Workflow System

Accounts payable refers to all the money you owe to vendors and suppliers for materials, products, supplies, and inventory that you purchased on credit. Along with accounts receivable, it makes up a huge chunk of your company’s cash flow. In order to get a firm grasp on the AP cycle, you need to develop an AP workflow system. It should look something like this:

  1. Make a purchase order. Enter it into your accounting system and send it to the vendor.
  2. Receive the supplies or merchandise you ordered. Compare the packing list to your purchase order, making note of any discrepancies, whether in price, quantity, or size.
  3. Get the invoice.
  4. Compare the invoice with the packing slip and the purchase order to make sure there are no discrepancies.
  5. Some companies don’t use purchase orders. If yours is one of them, you would add an approval step at this part of the cycle, to ensure that only the orders you have approved are actually paid.
  6. Enter the approved invoice into your accounting system.
  7. Schedule the invoice for payment.
  8. Send the payment or cut the check.

Use an invoice numbering system to ensure you don’t end up paying duplicate invoices. Only you, the owner, should sign checks paying invoices. Review the business bank statements monthly and check the paid check images, to make sure no one is misappropriating or misusing company checks.

2) Go Paperless and Use Accounting Software

If you’re still keeping your books by hand, with pen and paper, it’s time to join the rest of us in the 21st century — don’t worry, you’ll like it here. It’s too easy to make accounting mistakes when you’re doing the work the old-fashioned way. Use business accounting software to reduce the risk of errors and improve efficiency. You can speed up your whole AP process, and you’ll even find accounting software tools that help you track and manage your physical inventory.

3) Pinpoint Your Trouble Spots

Over time, trends will begin to emerge in your AP cycle. You’ll see that you spend more at certain times of the month or year. Some payables categories might fluctuate more than others. Learn to recognize these patterns so you can better plan for upcoming expenses.

Vendor relationships can become troublesome, too. Managing vendor relationships isn’t always easy, especially when you’re trying to place a large order, negotiate a discount, or avoid a break in the supply chain. You should negotiate payment and contract terms before you ever place your first order with a vendor, and use a software solution with built-in supplier risk management tools so you can monitor changes in suppliers’ risk profiles and take action to stop those changes from impacting your company.

4) Establish Checks and Balances to Prevent Fraud

As soon as you start to hand off AP tasks to other employees, you need to implement checks and balances to protect your company from AP fraud. Obviously, you should always hire trustworthy people who can pass a background check, but you never know when someone is going to decide to commit their first crime — especially if they think they can get away with it.

Spread out AP tasks so that no one person has the opportunity to commit fraud. If one person is taking in invoices and verifying them, someone else should be responsible for approving them and scheduling them for payment. A third person should be responsible for cutting the checks. And there are some things that maybe only you, the owner, should do — those things can include signing the checks and approving the invoices.

5) Limit Check Runs

If you automate payments from your business accounts or pay online, you won’t have to cut that many checks, but you should limit the times you write checks — otherwise, this is a task that could easily spread out into the day-to-day. Keep an eye on your accounts aging report, and schedule specific times of the month when you’re going to cut checks to vendors — weekly, biweekly, or monthly. Just make sure everyone knows when to expect their next payment.

Accounts payable processes can easily get away from you, but they don’t have to. Stay on top of your AP workflow, and you’ll have that much more time to spend doing the work you love.

Find out more on our guest contributor by visiting the relevant blog post link in the article. To find out more about us - visit https://businessblogshub.com/about/

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