FINANCE

Ten habits of a successful accounts payable department

An effective accounts payable (AP) department is an essential part of any business, helping maintain healthy finances and happy suppliers.

Ian Smith

Ian Smith

The accounts payable process is the engine room for reliable management accounts and effective cash flow forecasting. Businesses know the customer invoices they have raised but are less certain about the status of the invoices raised by their suppliers on them. Reliable management accounts are dependent on the timely and accurate processing of supplier invoices to match the revenues they record based on customer invoicing. Effective cashflow forecasting is in part, (for cash expenditure) dependent on knowing when suppliers are required to be paid.  Visibility of the flow of supplier invoices towards payment is therefore essential.

Accounts payable is in control, if this flow is known and visible, and the business can choose when to pay its suppliers rather than be forever reacting to payment requests. Suppliers that are paid according to their agreed payment terms, have some certainty over their own cash receipts. This generates more confidence in a business and it is therefore more likely to have a happy and reliable supply chain.

If your business has an automated accounts payable system, there are 10 habits your team can establish to improve their chance of success and efficiency.

What do successful accounts payable departments do? 

  1. They focus on minutes and not hours
    For a business receiving a deluge of supplier invoices on a daily basis, efficient process management is essential. Automated invoice capture replaces hours of data entry and the focus is instead shifted to data quality, with validation requiring minutes.
    Automated invoice capture utilises optical character recognition (OCR) to digitally capture the data traditionally keyed into finance systems manually from supplier invoices. This data can be captured from paper invoices or directly from digital documents, like e mail attachments. Data entry becomes quality control to ensure the dta is captured correctly and the software itself identifies areas that need review based on referencing data in the finance system.
  2. They focus on one thing
    The workflow in an automated AP system ensures staff are only sent one transaction at a time so they are not distracted by piles of problem paper invoices.
    Supplier invoice approvers can tackle one task at a time rather than a pile of paper invoices dropped into an intray amongst lots of other correspondence.
  3. They don’t use to-do lists
    They have visibility of where each invoice is in the process and so when a supplier calls they do not have create to do lists to follow up on questions about the progress of an invoice.
    Knowing where a supplier invoice is in the process enables the AP team to reliably predict the passage of the supplier invoice to payment and the resulting expectation management builds confidence in suppliers reducing the frequency and the overall quantity of information requests.
  4. They beat procrastination with time travel
    Automated AP software gives full visibility of the purchase invoice commitments in flight and so they are able to quickly identify the payables commitment forward rather than procrastinate and try to work out what will be due in the future.
    This systematic approach removes the need to create short term cash expenditure forecasts based on assumptions and drive them with real data.
  5. They make it home for dinner
    At month-end, accounting departments often have to work extra hours to compute accruals for invoices in flight. Faster invoice processing arising from automation reduces the number of accruals required. Where accruals are required these are easily identified because of the visibility of invoices in the process.
  6. They only process email a few times a day
    Supplier invoices received by email are automatically captured into the Automated AP software direct from the email and so there is no need to frequently check e mail.
    According to Forbes, office workers receive at least 200 messages each day and spend about two-and-a-half hours reading and replying to emails. For busy AP departments removal of supplier invoices into a folder that deals automatically with supplier invoices will help them to focus only on emails that need their personal attention.
  7. They avoid meetings at all costs
    The audit trail in automated AP software allows tracking of where an invoice is in the system and the workflow makes it clear to staff in other departments what is required of them (approval and or coding). Automated accounts payable software enables AP staff to progress invoices rather than have to meet with departments to investigate problems.
  8. They follow the 80/20 rule
    Typically 80% of supplier invoices received by an accounts department should flow through to payment without problems, while the remaining 20% of supplier invoices are complex and cause delays.
    In a manual process, the processing of the 80% is often held up as the department are dealing with the 20% that require more attention. Automated AP software allows 80% of transactions to flow through the system without delay. Staff can focus their efforts on progressing the 20% of invoices that need more attention.
  9. They delegate almost everything
    Automated AP software ensures the right task is addressed to the right person using workflow. The AP staff can manage the process across departments rather than spend their time trying to find out where invoices are and what stage they are in the process.
    Those with the authority to code and approve supplier invoices are systematically identified by the rules and roles set up in the system. Complex and  unwieldy authority structures become visible and can if necessary be modified rather than worked around or ignored.
  10. They only touch things once
    Automated accounts payable software enables supplier invoices, once validated, to pass through the workflow and be posted directly to the purchase ledger without further processing by the accounts payable department.

The traditional approach of sending invoices out for coding and approval and then receiving them back to manually enter them into the finance system lead to multiple touches of supplier invoices by finance departments. This was in part caused by the physical flow of paper documents around an organisation, introducing the risk of loss, delay and duplication. This resulting uncertainty about the whereabouts of supplier invoices caused many interventions (more touches) by AP staff in the process to help it flow. In an automated acccounts payable system the touch point is reduced to a focus on the accuracy of the initial capture of data and the certainty of a visible work-low for coding and approval, cumulating in an automated posting of supplier invoices that are properly coded and approved utlising an integration with a finance system.

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