If you were to ask half a dozen professionals from six different industries what core factors impact a business's ability to maintain operations, there would undoubtedly be a blend of overlapping and unique factors to consider. 

One of the universal factors that apply to businesses in any industry falls under the Accounts Payable team purview: cash flow. A smooth, balanced cash flow requires transparent, adaptable, and thorough oversight.

Any business seeking to ensure that effective, efficient operational practices are in place will invest heavily into looking for and integrating steps to optimize internal processes across all departments. Accounts Payable falls squarely within that group. 

And when it comes to the AP department, now more than ever, options for improving and streamlining are easily accessible and continuously improving, from AP automation to actionable performance metrics, fraud prevention, cost savings, and more. Any efforts to reinforce a company's ability to remain progressively profitable and consistently competitive must include the AP department.

What is the accounts payable process?

The accounts payable team must function at peak efficiency if payments are to remain accurate, on time, and protected against fraud. For this to occur, the accounts payable process has to be streamlined, with measures in place that ensure data accuracy and accessibility, minimizing the time and energy required while safeguarding against potential fraud.

At its core, the accounts payable cycle is:

1. Receive an invoice via email or mail

2. Review, capture and code the invoice (manually or via scan)

3. Obtain payment approval from the required personnel

4. Process appropriate payment

5. Store the data for company records

Implementing best practices for accounts payable can ensure your AP department is operating at the highest levels of operational expectations. The following actionable principles will help eliminate or minimize any issues currently (or potentially) impacting productivity.

10 Best Accounts Payable Practices

1. Integrate AP Automation

2. Measure against Accounts Payable KPIs

3. Optimize the Timing of Payments

4. Compare Payment Terms to Industry Standards

5. Maximize the Benefits of a Supplier Portal

6. Organize and Prioritize Invoices

7. Establish Reliable Fraud Detection

8. Reconcile All Accounts on a Daily Basis

9. Proactive versus Reactive Problem Solving

10. Embrace the Hybrid Work Environment

Integrate AP Automation

Businesses recognize that automation is not simply here to stay, but its influence and capabilities will only continue to grow and evolve. When properly integrated into operations, automation can seamlessly eliminate time-consuming, cost-inefficient, manual processes.

Every department within an organization can benefit from automation to varying degrees of impact. As automation technology becomes increasingly accessible and adaptable, its effect on operations relentlessly expands.  

The accounts payable department, in particular, can see an extensive lineup of benefits. These benefits are largely due to the specific nature of AP tasks and processes and the natural transition from manual to automated labor that can occur. When menial, repetitive, and laborious tasks can be shifted to automated systems, employees are empowered to tackle bigger and broader projects. 

AP automation can include, but isn’t limited to: 

• Data entry: encompasses reading an invoice, capturing the data, and routing it for approval. 

• General ledger coding: coding invoices against a general ledger to ensure accuracy. 

• Three-way matching: linking invoices, purchase orders, receipts, and any additional supporting documentation ensuring a centralized backup. 

• Approval: identifying who must approve an invoice - and critically - in what order.

• Payment processing: automatically processing payments through desired payment methods. 

• Archiving: storing records for seven years, with the ability to easily access and search the database. 

Regardless of industry, those businesses that integrate AP automation experience improved productivity and profitability. In 2023, it is only possible to consider best accounts payable practices by first discussing AP automation.

Measure against Accounts Payable KPIs

When equipped with relevant data to pinpoint successes achieved and areas of concern, proactive AP departments are empowered to achieve their operational goals consistently. Utilized effectively, key performance indicators (KPIs) allow leadership to identify the challenges preventing their teams from functioning optimally and adjust practices accordingly.

The primary goal for the AP department is to optimize cash flow for the company, marching orders that feature a variety of workflows and operational processes ripe for optimization. Quality, accurate KPI data measures critical aspects of team and individual performance, helping guide strategic steps moving forward. 

Important KPIs to track include:

• Days Payable Outstanding (DPO). 

• Number of Late Payments

• Average Cost Per Invoice

• Average Time to Payment

• Time Spent Responding to Inquiries

• Percent of Spend By Payment Method

• Percentage of Electronic Payments

• Percentage of Supplier Discounts Captured 

• Average Time to Approve an Invoice

Optimize the Timing of Payments

In AP operations, timing is essential. The goal is to always settle obligations on time and near the due date, ensuring a strategically controlled, robust cash flow. When payments are scheduled effectively, optimal flexibility with available cash is achieved. With this practice in mind, it is ideal to avoid paying obligations earlier than necessary. It is impossible to predict what the future may hold, and when unexpected events occur, your company will want the ability to adapt smoothly. 

A significant way AP automation can benefit operations is by increasing opportunities to take advantage of Early Payment Discounts. While manual AP operations don't rule out early-payment discounts, streamlining processes via AP automated solutions significantly impacts cash flow optimization.

It is important to research any potential early payment discounts your specific vendors may offer, from discounts and rebates to reduced interest rates and more. Early payment discounts not only create a strategic differentiator without affecting your working capital, but they also allow your suppliers to increase their liquidity by getting paid faster.

Compare Payment Terms to Industry Standards

While vendor payment terms will vary, there are industry benchmarks to keep in mind. It is prudent to regularly compare any current payment arrangements to those terms currently prevalent in your industry. If your business abides by disadvantageous terms compared to the competition, the company is swimming upstream in an unfair battle. 

Luckily, vendor payment terms are not set in stone – your AP team can always call to renegotiate. If no agreement can be made to find more amenable terms, it may prove worthwhile to search for alternate vendors willing to offer terms in line with industry standards.

Maximize the Benefits of a Supplier Portal

Introducing the use of a supplier portal into your current AP operations comes with a variety of important benefits. First and foremost is the positive impact it will have on your vendor interactions. Creating and sustaining positive relationships with your vendors is crucial to ensuring uninterrupted deliverables and a smooth cash flow. 

An effective supplier portal provides a secondary benefit: reducing the hours your team must commit to vendor inquiries. With the tools and resources available to them, your vendors will be empowered with a user-friendly avenue for account management. 

The increased visibility into the AP process made possible by quality supplier portals is a mutually beneficial evolution for both parties. All pertinent data is organized in one place, including invoices, tax records, and payment information. A one-stop, self-service portal allows vendors to quickly and efficiently find answers to many inquiries, freeing them and your AP team from wasting quality time that can be more effectively utilized elsewhere.

Organization and Prioritization of Invoices

At first glance, it's clear that AP teams need to utilize organization and prioritization concerning their business and the steady stream of invoices they handle. However, integrating an effective processing system can take time, depending on the size and scope of the company and the industry within which it operates. 

Accounts payable must correctly track what needs to be paid and when and decide what payment prioritization when matches their company's specific cash flow needs. The damage of late payment on vendor relationships can be difficult to repair, and avoiding this at all costs is paramount.

A secondary benefit to successful organization and prioritization of invoices is the opportunity to take advantage of early payment rewards. Early payments can deliver quality rewards when feasible and advisable within a business's cash flow constraints. 

Establish Reliable Fraud Detection

One of the most important ways accounts payable automation impacts your business is enhanced fraud detection and prevention. The challenge of proactively fighting potential fraud is the litany of potential threats, including cybercriminals, dishonest supplies, internal deception, and more. 

AP automation helps mitigate fraud risks via several features, including enhanced visibility throughout the payment process, rigorous approval tracking, and automated three-way matching. Additionally, internal controls must be a priority for your AP team and any efforts in countering potential fraudulent activity.

1. Separation of duties is arguably the most critical defense against potential internal fraud: never have a single employee handle billing, payment processing, and check approval. 

2. Limit access to your Master Vendor File, reducing the potential for fraudulent vendors to be created.

3. Shift to electronic payment methods wherever possible, avoiding the potential risks inherent with paper checks.

Reconcile All Accounts on a Daily Basis

Lost in the shuffle of major changes or significant adjustments are the tried and true actions that will always be the smart call. Reconciling all accounts on a daily basis is not an enviable task, yet it's a crucial one. 

The discrepancies that can be discovered and addressed as a result of daily reconciling will impact a company's cash flow and the AP department's reputation and standing with it. Ensuring error-free and on-time payment processing reflects high-quality bookkeeping practices.

Support the Hybrid Work Environment

An untold number of changes have been experienced in the business world. How long they endure is unpredictable, particularly given the unprecedented events of the past several years. 

For many industries, the hybrid work environment continues to remain a volatile topic. Those able to observe from a distance can often recognize the pros and cons that largely depend upon the industry and the specific makeup of a business. No one situation is alike.

However, the rise of the hybrid work environment continues to play an integral role in creating and retaining a quality workforce in a competitive market. 

Additionally, embracing the hybrid work environment highlights the growing need to centralize data and safeguard systems. AP automation is an excellent way to accomplish these objectives, enabling employees to process payments more efficiently, centrally store data, better control access, and increase visibility. 

Whether AP automation is the right approach for your company, attracting and retaining top talent is an absolute. Today's workforce has demonstrated that the demands of modern life necessitate a hybrid or remote working environment. Adaptable businesses and departments will have a greater chance for stability and growth.

Proactive versus Reactive Problem Solving

As the landscape of business continues to develop and evolve at breakneck speeds, every company of any size, enterprises of a thousand makeups, must learn to adapt to the changes to survive. 

Implementing best practices is the operational imperative that drives efficiency for all departments, and of them, accounts payable is uniquely situated to experience a positive ROI. 

Accounts payable are fertile grounds for automation to cement strong roots and deliver stellar results. Using AP KPIs will allow team leaders to sharpen and streamline departmental processes. 

More than just the individual benefits, best practices like these will empower AP teams to begin to operate proactively, anticipating issues before they grow beyond quick and precise resolution. Amidst the breakneck pace of industry change, being on the offense may prove crucial in the long term.

Best Practices to Boost your Accounts Payable in 2023

Regarding best practices, some steps are fairly straightforward; others are more complex but equally prudent. Avoiding late fees, for example, is a simple and routine practice. Integrating accounts payable automation and AP automation KPIs is a more complex endeavor. 

No industry is alike, and every business is unique. Each AP department will have unique challenges within their company's specific operational structure. How that AP team successfully applies best practices to optimize their processes carries an outsized impact that some may underestimate. Striving for excellence is the standard operating procedure for the companies at the forefront of their industries. The actions taken to research and apply best practices throughout all departments defines them.

Written By: Daniel Redding
Date: February 2023