7 Tips For Effectively Managing Accounts Payable

If you think “accounts payable" simply refers to bills that must be paid, you're missing out on an important business strategy tool. When the accounts payable function is strategically integrated into your business, it can drive cost savings, time savings and bottom-line growth.

"Accounts payable automation can save you hundreds of hours and thousands of dollars spent on invoice processing, which in turn can be used to maximize and optimize your business,” said Rosetta Rajoyan, treasury product manager at City National Bank. “Accounts payable automation can also improve cash flow by reducing mistakes and fraud in accounts payable processes."

But that's not the only potential benefit of automating accounts payable. Keep reading to learn more strategies for your company.


Understanding Accounts Payable Management

Accounts payable management is the way a company handles its short-term unpaid debts. Those short-term debts may include paying a contract worker who invoices monthly, a software company that charges monthly subscription fees, or a supplier for recent inventory purchases.

It’s important to efficiently manage the accounts payable process in a way that controls the company’s working capital. To preserve working capital, accounts payable management might involve asking for favorable purchase terms, managing the timing and flow of purchases, or asking for trade credit lines.


Results of Effective Account Payable Management

Effectively managing accounts payable requires a balance between completing financial obligations and preserving needed working capital.

Successful accounts payable management can result in:

  • Making timely payments.
  • Reducing the costs of invoice processing.
  • Processes and payments that better comply with relevant compliance guidelines.
  • Reporting vendor and payment information accurately.

Optimizing Your Accounts Payable Process

Utilizing your accounts payable system to optimize some of your business functions is one way to overcome cash flow challenges. Consider these seven ways to integrate your accounts payable function with your business strategy to help your company save time and money.

1. Build Long-Term Relationships with a Smaller Number of Suppliers

Rather than constantly shopping for the lowest price on supplies or services, you can save time by building ongoing relationships with a few suppliers. And when those suppliers know you'll come back to them again and again, they're often willing to offer you discounts or more agreeable payment terms.

By keeping your vendors and suppliers paid up and paid on time, you'll build loyalty among them. Loyal vendors and suppliers are more likely to give you discounts, work hard to meet your needs in a pinch to help you win more customers, and help build your business in other ways.

If you ever have a payment dispute, it will likely be easier to resolve if you have a long-term, ongoing relationship with the supplier.

2. Make Purchases Strategically

When you've developed long-term relationships with suppliers, it's time to get strategic with your purchases. You may be able to cut costs by working with your suppliers to develop monthly or quarterly purchasing agreements, or by maximizing discounts for bulk purchases.

For example, business owners might look into building relationships with a mix of vendors for different needs. One vendor might be good for bulk purchases while another can be relied on for emergency needs.

3. Automate Your Accounts Payable Process

Develop a structure to review payment terms, prioritize vendors based on your internal system, and avoid any late penalties or payments to keep service providers happy.

If you're still handling accounts payable manually, writing checks and using spreadsheets, you may be leaving time and money on the table as well as opening your company up to check fraud.

One way to streamline this process is by leveraging technology to automate purchasing processes.

Consider Embedded Banking Solutions

For example, your existing enterprise resource planning (ERP) system can be bolstered with an embedded banking solution. That's why banks offer tools like Easi Link to simplify integrating the software you use with your bank.

Using embedded banking can help:

  • Automate and expedite key payment and transaction activities.
  • Customize workflows and approval processes for payments.
  • Reduce duplicate entries and input errors.
  • Add security to your accounts payable process through automated risk controls, approval workflows and audit trails.

Other automated tools, such as City National's Book2Bank, enable business owners to connect their bank accounts to their bookkeeping functions, helping to ensure that their accounts payable records are auditable, secure and easily accessible.

Also, “because it’s web-based, mobile friendly and secure, you can review and approve your payments on the go wherever you are,” Rajoyan said.

5. Schedule Payables to Run in Sync with Receivables

Accounts payable directly impacts cash flow, so gaining control of the process can help improve your business operations.

Work with your vendors to spread payable due dates out so that those dates can correspond with your receipt of receivables. Strategically scheduling your payables can provide flexibility in your cash flow and help ensure that you have cash available when you need it. It can also help reduce your credit obligations, allowing you to move forward without a corresponding increase in receivables.

5. Use Key Performance Indicators (KPI) to Measure Performance

As with any process, it’s important to measure results to see whether your goals are being met.

With accounts payable management, some of the KPIs to track include:

  • Cost per invoice.
  • Number of invoices paid on time.
  • Payment accuracy.
  • Early payment discount rate.
  • Days payable outstanding.
  • Amount of time spent handling disputes.

6. Integrate Fraud Prevention

You can also minimize the risks of fraud by integrating fraud prevention techniques in your accounts payable management process. For example, verify vendors and their payment information over the phone on a regular basis, and implement a check review process. You may also choose to implement electronic payments to avoid the potential for check fraud.

7. Conduct Regular Audits

Finally, be sure to conduct regular audits of your accounts payable process to find new opportunities to better manage payables or capitalize on the strength of your data. Reevaluating your process can help you determine what fine tuning it might require.

Your payment terms, due dates and vendor relationships directly impact your banking opportunities. For instance, if you're able to accurately describe and illustrate your cash flow situation based on payables and receivables, your banker may be able to offer more services such as overdraft protection, money market accounts and lines of credit.

Rather than simply writing checks, take a hard look at your accounts payable function. By integrating it with your business strategy, you may be able to also fuel bottom-line growth. You should also consider how you're managing accounts receivable to ensure you have the funds you need to achieve your accounts payable strategy.

This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.