Tips for better accounts payable management

by | Apr 19, 2016

Tips for better accounts payable management. When times are a little tough, companies often defer payment of accounts. It makes sense. You need sufficient cash flow to stay afloat. Smart management of your Accounts Receivable (AR) and Accounts Payable (AP) is essential to a healthy cash flow.

You don’t want to develop a reputation for being a business that defaults on your AP (or creditors) by being reported to the Credit Bureau, but you need to balance how you pay your creditors to ensure that you don’t end up with a cash flow issue.

ERP software guides decision making

Deloitte says that extending payments to the eleventh hour not only erodes supplier goodwill, but also means that your company could be missing out on early settlement discounts for prompt payments. At the same time, you need to have sufficient cash to keep your business running and to achieve growth. Enterprise Resource Planning (ERP) software can help SMEs to manage accounts payable by prioritizing payments based on cash flow and vendor priorities.

It eliminates much of the time needed to analyze cash flow by tracking resources and comparing them to your commitments including your purchase orders and your payroll. Departments across the organization contribute to this data, ensuring a smooth flow of information across the organization.

Financial decision-makers can find out what resources are required based on production projections, and can plan inventory accordingly. This, in turn, helps with determining cash flow priorities. They can also monitor their cash flow budgets and determine whether actual results are living up to their expectations or whether adjustments to the payment policy need to be made in order to keep cash flow healthy.

ERP software can help SMEs to identify times when payments need to be delayed and also helps to prioritize collections from clients. By using this tool, you can optimize your cash flow much more effectively than you otherwise would, keeping your business healthy.

Other tips for optimizing your Accounts Payable

1. Negotiate with your suppliers

Negotiate better pricing and longer payment terms if possible. In many cases, an opportunity to gain increased sales volume from your company acts as an incentive to offer you better prices. If you already buy a significant volume of goods from a supplier, this could be sufficient incentive for them to agree to better payment terms.

Paying bills on time is important, but if you find yourself in a tight spot, re-negotiation can lead to an amicable solution in the form of partial payments or deferred payments. Alternative payments such as a post-dated check could also be considered.

2. Maintaining supplier data

This is yet another area where automation helps. By inputting agreed payment terms correctly, you can ensure that you do not pay more than necessary too early on, while simultaneously ensuring that you don’t miss out on discounts offered for timely payment or end up defaulting on accounts.

3. Review supplier information regularly

Agreements and contracts with suppliers should be reviewed regularly. Determine your level of satisfaction with supplier service, and compare their payment terms and pricing with industry norms to ensure that you’re getting a good deal. Re-negotiate if necessary.

4. Streamline your procurement process

If your procurement process is chaotic, it will be very difficult to forecast and plan your cash flow. Are your buyers remaining within their budgets? Are they choosing approved suppliers? Once again, this process can be automated using ERP software, ensuring that you know where you stand with current and future accounts payable.

Whatever you do, ensure that each purchase is accompanied by a Purchase Order (PO) that can be linked to a supplier invoice number.

5. Process invoices efficiently

Vendor invoice processing should be centralized to ensure consistency. For example, inaccurate invoices should not be paid until they have been corrected by the supplier – and there should be set parameters for processing invoices. If you can be confident that invoices will be processed within 2 working days, for example, you can be confident that your cash flow reports are relatively accurate, even if you draw them at short notice.

Regular checks of your AP age analysis will help you to determine how pressing your accounts payable situation is and whether anything is being overlooked for too long. Automation helps here too. EDI systems cut out a lot of the labor by requiring your suppliers to submit invoices electronically, linking them to purchase orders.

6. Keep your accounts up to date at all times

Ideally, you want to have access to a snapshot of your business and its cash flow at any time. Too many business only update their accounts quarterly, but a lot can change in three months. One significant order to a supplier could change your whole cash flow outlook, so being able to check your financial position on a monthly, or even weekly basis can keep you out of a cash flow crunch.

Maintaining the balance

As a business, you aim to pay your creditors on time, but your income determines how much you can afford to pay at any given time. Good management of accounts payable can see you through, maintaining your business reputation while ensuring you have adequate cash flow. Share your best practices for managing accounts payable processes.

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