Accounts Payable Process Improvement: 9 Steps to Better Invoice Management

As a small business owner, you have to buy things to run your company. Many vendors and suppliers send invoices when you buy from them. Not managing invoices could lead to late payments, extra fees, and damaged relationships. To better manage business bills, take steps towards accounts payable process improvement.

9 steps to accounts payable process improvement

Accounts payable is a tough but important part of running a business. Use the following accounts payable process steps to learn how to improve accounts payable processes.

1. Go paperless when possible

Electronic bills can make the accounts payable process easier. You don’t have to wait on the mail to receive bills. Plus, paper invoices can easily be lost or damaged. Online billings help you avoid late payments due to lost hard-copy bills.

Some vendors give you the option to receive a paper or electronic invoice. Encourage your suppliers to email invoices. Give them the contact information they need to do so.

Once you receive an online invoice, you can import it into your accounting software. You can also scan and upload paper invoices into the software so that all your bills are in the same place.

When possible, set up online payments for your regular vendors. You will need information like the account number, contact information, and amount owed. With online billing, you can manage payments from your phone or computer. You don’t have to worry about hand-writing checks or buying postage.

2. Standardize your accounts payable workflow process

Repetition is key to an efficient accounts payable process. Set up a standardized system for managing invoices from when you receive a bill to when you pay it.

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Keep your invoices in a central location where you can easily locate them. Order the invoices by priority and date. For example, organize bills by the closest due dates to the due dates furthest away.

Use an accounts payable aging report to manage invoice due dates. An AP aging report helps you see which vendor payments are past their due dates.

An AP aging report lists vendors on the left side. The following columns show how old invoice amounts are from left to right. They are labeled “current,” “past due 1-30 days,” “past due 31-60 days,” and so on. The total amounts for each row are listed in the last column.

Creditor NameCurrent1-30 days past due31-60 days past due61-90 days past dueOver 90 days past dueTotal
creditor #1      
creditor #2      
creditor #3      

3. Set up reminders

Take a proactive approach to organizing accounts payable. It can be easy to forget about payments and let some invoices slip through the cracks. By setting up reminders, you can take care of bills before their due dates pass.

Reminders help you anticipate expenses. Use a calendar to manage invoice due dates and set up alerts that automatically let you know when a due date is approaching.

4. Archive your data

One of the best practices in accounts payable process management is keeping track of invoice data. Immediately after receiving billing documentation, save it in an online file. This includes purchase orders, invoices, receipts, and notices from vendors.

Saving these kinds of documents helps you accurately pay invoices. You know when you must pay bills, who to pay, how much to pay, and what you are paying for. Reference these documents when answering invoice questions and filing your small business tax return.

5. Update contact information

You need to be able to reach your vendors and suppliers. Get your vendors’ current phone numbers, email addresses, and mailing addresses. Compile vendor contact information into a collective space.

Your vendors also need to be able to reach you. Make sure your contact information is up to date for all communication channels.

6. Look for discounts

The payable process flow becomes less stressful when you owe less money. Try to find discounts on the supplies, inventory, and services you need.

Some vendors offer early payment discounts. Find out if your vendors will take amounts off of your bills for paying before the due date. Also, learn who charges interest or late fees and avoid paying late to those vendors.

If you order a large number of certain items regularly, you might be able to get a discount by buying in bulk. When you buy in bulk, you order a larger number of items with a discount on the total. This could end up saving you money in the long run. Just make sure you need what you order before buying in bulk.

7. Maintain relationships

Your relationships with vendors are a crucial part of accounts payable efficiency. Establishing trust goes a long way. Vendor relationships can help you through many situations, from needing on-the-fly supplies to delaying a due date.

Be sure to pay your vendors on time as much as possible. When you are unable to pay, be open about it. Contact your vendor as soon as you realize you won’t be able to make the due date. Come up with a solution together, such as a payment plan that you both can agree on.

Vendor relationships help you get better deals on the things you need. You also grow your network, as loyal vendors are likely to advocate you to others.

8. Budget your expenses

Creating a business budget can improve the end-to-end process of accounts payable by helping you avoid late payments. You know what you need to pay, and how much money you have to make payments.

Use your invoices to determine how much your monthly bills add up to. Make sure you have at least that amount when creating your business budget. Use the budget and invoices’ due dates to time expenses. That way, you don’t spend more money than you have available.

9. Create a cash reserve

Sometimes, it’s difficult to pay your business’s bills when they are due. When slow cash flow months cause you to be short on current invoice payments, it’s a good idea to have a cash reserve.

A cash reserve is an emergency fund that you use only when necessary. Open a business savings account and contribute money to it regularly. The cash reserve can help you when you don’t have enough money available for bills during a given month. Make sure you replace the money you use from the cash reserve as soon as possible.

For a simple way to manage accounts payable, use Patriot’s online accounting software. We offer free, USA-based support. Try it for free today.

This article has been updated from its original publication date of November 21, 2017.

This is not intended as legal advice; for more information, please click here.

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