How to get your accounts payable management under control

There are a lot of moving parts when it comes to managing a business. But there’s one thing that’s crucial to absolutely every company out there, and that’s your accounts payable management. 

First things first: What exactly is accounts payable management?

Put simply, it’s money owed by a company to its creditors. We’re talking about bills. And we’re talking about invoices. They all add up, and you can’t afford to get it wrong. 

To make sure you’re efficiently managing your AP process, it’s important to understand the end-to-end process. Every account payable has the same four-step process: invoice capture, invoice approval, payment authorisation and payment execution. 

And what are accounts receivable? Well, this is the exact opposite of accounts payable. It’s the money owed to your business by debtors.

Common examples of accounts payable

Whether you’re a tech start-up or a construction company, you’ll both be paying for a lot of the same goods or services. Just a few examples include: 

Raw materials procurement

If you’re a company that provides a physical product to your customers, ‘raw material’ is what you’re buying from your suppliers to make these products. A very common example of this accounts payable purchase is lumber or steel. These purchases are categorised as ‘inventory assets’.

Transportation and logistics

Once you’ve made your raw materials purchases, chances are you need to now pay for them to be transported to your manufacturer or warehouse. This mode of transportation could be anything from land, sea or air (or maybe all. Plus, who knows, maybe space travel will be included in the future…). 

Assembling and subcontracting works

Many companies have their own manufacturing unit that they’ve been using since the dawn of time. But every so often, a certain project may need to be outsourced to another company because of the suppliers’ expertise or maybe even just timing. 

Travel expenses

Now this one is a little more self-explanatory. This is any travel expenses that you’re employees claim, whether that’s a flight to HQ, an Uber for a client lunch or hotel expenses while on a trip for work. To make things easier, companies should create their own expense policy — and make sure your team is never waiting for the money they’re owed. 

Equipment

This includes anything from rented equipment, such as construction tools or vehicles, to office essentials, such as stationery and laptops. Equipment can differ massively from company to company and industry to industry. Regardless, this spending category is usually the one most companies find themselves spending the most on. 

Leasing

So, there’s buying equipment, but you can also just lease equipment. This is usually a more cost-effective way of doing business. For example, you might choose to rent out office space instead of buying a workspace. These usually fall under the ‘lease accounting category’. 

Licensing

A company or person who has rights over a product can grant licenses to companies for a price, known as a license fee. This is most commonly seen in software products such as programs/applications designed to help teams with productivity or antivirus programs. These licenses are usually covered for a year and then need to be renewed as part of a new contract. 

The importance of accounts payable management

Maintaining good management of accounts payable is critical to your company’s health. It could mean the difference between having total business confidence and losing track of all your company’s cash flow and flatlining. 

Making sure you’ve paid what you owe to service providers or freelancers or agencies (or whoever) on time provides you with accurate cash outflow predictions, so you’re always on top of what you’re spending and how much.

But knowing what’s leaving your company bank account (and when) isn’t the only benefit of keeping a beady eye on your accounts payable bookkeeping. It also builds better working relationships with your suppliers. 

Strong working relationships are a win-win situation for everyone — both you and your supplier will benefit from reductions in costs and risk and make life a lot easier. But above all, paying on time is about showing respect. Plus, paying on time means they’re far more likely to work with you in the future. 

With all this in mind, it’s clear why accounts payable process improvement should be at the top of your to-do list. Unsure where to start? Let’s dig into some examples of APs that could use some TLC. 

The best practices in the accounts payable process

Every company will have a different process for their accounts payable, but every company should have a process in place. There are various strategies to help you get to grips with the accounts payable process flow. Here are just a few to get you started:

Centralise your accounts payable process and reporting. Getting organised is everything when it comes to solidifying your process. Slipping up on just one invoice could make all the difference… But having a shared service environment ensures that everyone in your team can work with the same practices and everyone is working from the same page.

Move towards a paperless office. You’ve probably already welcomed the digital age into some areas at work. So why not your accounts payable process? Automating your workflow helps get more visibility across your teams and means everything is stored safely and easy to retrieve whenever needed. 

Create a workflow. Just like you have a system for just about every other process in your business, creating an account payable procedure can help you identify and resolve system bottlenecks. 

What can go wrong if you don’t adopt an effective AP process?

Without a secure AP process, there’s the risk that invoices won’t get paid on time, causing a whole array of other issues. We’re talking debt, loss of trust from suppliers and incorrect cash flow predictions. 

You also run the risk of missing out on cheaper deals with your supplies. If you pay an invoice earlier, there’s a chance you could be paying a better rate or have the option to split the cost over several payments. It’s never a bad idea to save money where you can. 

It’s also important to assign the right people to certain steps in your accounts payable process flow. With simple tasks, like scheduling an invoice payment, there’s always the risk of small human errors that could cost you down the line. 

But arguably, the most important reason to have a secure AP process is that this area of business is the one most prone to fraudulent activities. This is mainly because of the large amounts of money exiting your business at any given time, it’s easy to lose track of how much is going where. 

What are the key steps in the AP process flow?

There are roughly six steps to keep in mind when creating your AP process, all of which will save you heaps of time and money.

Vendor selection management

One of the first things to consider when setting up your accounts payable process includes selecting your vendors. This is to make sure you’re always getting the most favourable buying terms that work for you and your cash flow. 

Supplier master document management

The key to almost all of these steps is making sure everything is centralised and stored safely. Once you’ve negotiated terms with your suppliers that work for your business, it’s crucial that you maintain this data. It takes one mistake on one spreadsheet cell to potentially mess up your cash flow forecast. 

Procurement process

Depending on your company and your industry, you could be working with hundreds or maybe even thousands of vendors. It’s tricky business keeping track of those invoices hitting your desk every month. A procurement process in place means there’s less risk of you overpaying for goods or services or even working with an unauthorised vendor. No bueno.

Contractual review process

Making sure you implement a contractual review process is one of the best ways to prevent inaccurate or even fraudulent vendor billing activities. This could result in duplicate payments or overpayments.

Regularly reviewing and updating your supplier contracts means you’ve got a clearer idea of what’s expected and when. 

Invoicing process

Now, this seems like an obvious one. But invoices can quickly get out of hand, especially when multiple people from your team are handing you left, right and centre throughout the month. Having a centralised place for all your invoices prevents you from putting your business on a cash flow tightrope. 

Accounting and reporting process

Before you can fully get on top of all your account payables, it’s important to make sure your accounting reports are accurate. Not doing so would result in a serious lack of visibility of when money is leaving your company account and how much.

How invoice automation saves time, money and headaches

There are some jobs at work that could do with a little (or a lot) automation. We’re talking about the tedious and repetitive admin tasks — accounts payable invoice processing being the main culprit. 

The manual process of data entry gobbles up hours that your accountants or bookkeepers could instead spend on more strategic work.

Automated invoice processing simplifies your entire AP process by populating and managing your invoice data so your payment processing can be done and dusted with just a few clicks. 

Here’s what automated invoice processing means to you and your business: 

Reduces the risk of manual processing errors. Just one error can wreak havoc on your entire invoicing process. 

It only takes one piece of incorrect data entry to cause a month-long headache and potentially pay too little or too much for a recent bill. Automating data entry is a no-brainer. It saves you time usually spent on correcting these errors and could save you a whole lot of cash. 

Increase control and transparency. Having your invoices centralised and automated means you have a whole new level of visibility and control. You can wave goodbye to the days of not knowing how much money is leaving your company account and when. 

Increase productivity. It’s all about time-saving. By automating your AP process, your employee productivity will skyrocket. Is there anything more motivating than not spending 3-days on data entry?

A task that once upon a time took days can now take just a few minutes with automation. So there’s more time to spend on the more important work. 

Speeds up your entire invoice processing time. Did you know that manually dealing with your invoice processing can take around 20 to 21 days? This is according to iTech Data. That’s a lot of time. 

And when you save time. You save money. 

Increased subscription oversight. Every company has subscriptions, but not every company knows exactly what they’re subscribed to, how much it’s costing and who manages the account. Getting on top of subscriptions is messy business and only gets harder as your company grows. 

Invoice automation means you’d have all your subscriptions centralised, not only giving you clear visibility of costs but also giving you the opportunity to spot duplicate signups. 

How can Pleo help with your accounts payable process?

Invoices are a huge part of how companies spend money, and the manual process involved in invoice management doesn’t just swallow time. It also creates stress when it comes to budgeting and managing company cash flow.

We know that invoice management is a huge deal for businesses across Europe; in fact, our survey found that for the majority of companies, invoices make up more than 50% of all spending — and for half of all finance teams, bills account for 75% or more of all outgoings.

So while automation can’t handle every area of your business (maybe in 100 years from now?), it can do a great job at getting all your invoices centralised, tracked and paid for on time. There’s no simpler way to deal with all your accounts payables.