Understanding bookkeeping and accounting is an important part of running a business’s financial health. However, there are many activities involved in the process of bookkeeping and accounting. Accounts payable is one such task. Managing your accounts payable process can be a hassle, but it’s also vital to maintaining your business. There are many reasons why it’s so crucial – because it helps with cash flow, staying on budget and meeting deadlines. One critical reason is uninterrupted cash flow. Cash flow is what allows businesses to keep going. We will talk about how you can manage your accounts payable process for continuous cash flow – so that you have more time to focus on other aspects of your business! But before that, let us learn what accounts payable is.
What is Accounts Payable?
Accounts payable is the term given to the process of paying your bills to suppliers and service providers. Many factors will affect the amount you pay in this process, and it is vital that you make sure that you have an organized system in place to minimize the risk of not being able to pay your bills on time. Having an account payable process is essential for businesses to have. However, the process of managing accounts payable can be a headache for people who don’t have any experience with it. Managing your accounts payable process for uninterrupted cash flow is a challenging balance of efficiency and accuracy. Luckily, there’s a way to manage your accounts payable process that doesn’t involve trying to keep track of every invoice and payment in your system. A statements payable process involves the following steps
- Receiving the invoice: After placing an order with a supplier, you will receive their invoice. This will contain detail of the purchase and the due date for payment.
- Reviewing the invoice: At this point, you need to make sure your vendors are legitimate check their details like name, authorization, due date, bill amount on the internet.
- Approving the invoice: The purchase details need to be sent to relevant personnel for approval.
- Paying suppliers or vendors: Making timely payments to suppliers is crucial for success with invoice management.
How to Optimise Accounts Payable for Uninterrupted Cash Flow
- Start from the start process
Accounts payable is a necessary process, and so you must ensure everything is in place right from the start. One major factor will be the vendor selection process itself. You need to conduct due diligence of every vendor to understand whether they can deliver what they promise within the required timeline. If the vendor cannot deliver the service or product on time as was agreed, your operation might take a hit. So conduct proper research and conduct due deligence of their past and ongoing projects.
- Setting a Workflow
You must ensure that you have an airtight rule when it comes accounts payable process. You must have a workflow set for accounts payable. This is both for your accounts payable department and your vendors. The guideline for processing your accounts payable should be clear to both parties. This helps avoid any confusion at the later stage, resulting in delayed payment.
- Consistent Timeline
This means you must ensure that you have a set timeline for payment, and this must reflect in the vendors’ and suppliers’ contracts. While it is not possible to have the same payment timeline for every vendor, you must try to have a consistent payment schedule as much as possible. You can have a weekly, monthly or quarterly schedule.
- Make use of Automation
The accounts payable process involves a lot of paperwork and approvals. With the help of automation, you can save time, resources and money as the system processes most paperwork. You can even define the authority of different team members for approval of specific-sized purchases. Also, it helps reduce any error which could be the result of manual entry. Also, most software now has a built-in reminder system with direct payment without opening another software or website.
- Set An Efficient Invoicing Process
Invoicing is an integral part of accounts payable. It is better to have dedicated invoicing personnel who can ensure that every aspect of the invoice provided by the vendor is accurate and as per the terms agreed upon earlier. A simple mistake in the invoice that went unnoticed can make you lose money. You can also use invoicing-specific software if your incoming invoice is in high volume.
- Payment On Time
Paying accounts payable late can have two impacts. Firstly it maximizes your cash flow till the time payment is made. However, it might impact your vendor supplier relationship negatively. This is why we suggest paying your vendor on time. It will also allow you to get a potential early payment discount from the vendor, which is a plus. With properly planned expenses and income, you must pay your vendors earlier than the due date.
- Outsource your AP process if needed
While accounts payable is a critical accounting function, it is not your core business activity, so it might be hard to catch up on your AP process. In such a case, it is best to outsource your accounts payable process to experts who can efficiently take care of your accounts payable process. You can hire just accounting services or hire overall bookkeeping and accounting services. Avoid hiring multiple service providers as it will only increase your workload.
The primary function of accounts payable is to provide financial liquidity by ensuring timely payment for the vendors’ goods and services. Managing this process can be difficult due to its complexity. If the company does not maintain an effective accounts payable process, it may lose money or run into delays in either receiving payments or paying suppliers. You can manage your accounts payable process for uninterrupted cash flow by ensuring good relationships with the vendors.