In this present economic situation, companies shouldn’t miss opportunities to enhance their working capital. To be successful, you need to build a strategy that provides flexibility with cash strapped on the balance sheet. All these begin with an efficient AP management solution.
Organizational transformation is critical to fostering a working capital culture. For SMBs, it can produce key benefits. Refining the accounts payable process boosts cash flow prediction accuracy that allows the AP team to set better budgeting. It positions a firm to enhance liquidity and helps to prevent gaps in funding while making huge profits. A cloud-based accounts payable management solution can provide multiple insights to help strengthen the negotiating power and help you partner with better vendors.
Failing to deploy a good AP method hinders your business’s ability to process invoices on time, take advantage, and set shorter or longer payment terms with vendors when required.
- Depending heavily on traditional methods as they are error-prone. It is specifically the case when it comes to approving requisitions.
- Overextending payment cycles, thus causing loss of access to early payment discounts
- Acceptance of discounts before calculating the cost of capital outlay
- Data entry errors for providers
- Failing to confirm deliveries match contractual terms
- Not issuing purchase orders for every order
- Failure to build systems or methods that prevent duplicate, inaccurate, and missed payments
The objective is to make as few errors as possible. If you do not have the labor available, several AP systems can help keep an eye on everything.
Strategic AP Management
Organizations have to take a strategic approach to AP management. The procurement and AP teams need to collaborate with higher management in order to establish a working capital culture across the company.
A great deal of this comes down while processing invoices. Are the invoices being received and process on time? Companies must implement a management strategy, which prioritizes the importance of freeing up working capital via the optimization of payables. As many businesses may select to adopt a custom approach, a few strategies work across the board.
Deploying Robust Governance Practices
It will not only strengthen the internal controls but also minimize manual error around the complete account payable procedures and contract review.
By utilizing a shared service environment for reporting, all workers will adhere to a common standard and practices. Also, it becomes easier to measure everyone’s performance against the established metrics so that a firm can achieve tasks in a shorter amount of time using fewer resources. Such an approach minimizes costs.
Consider automating AP management with electronic data interchange. An organization that considers electronic communication with suppliers streamlines approval methods and generates timely payments. It allows you to take advantage of available rebates and discounts for paying on time or being early.
Using a robust account payable automation solution ensures that your business can manage various tasks and saves time including:
- Approval requisition
- Accepting and verifying invoices
- Generating PO automatically
- Monitoring goods receipts
By relying on automation, it may be possible to scan invoices electronically, monitor delivery receipts, and solve disputes.
Adopting Vendor Portals
A vendor portal must be set up to enable suppliers to monitor what the business is doing. It can include activities like:
- Order status
- Product shortages
- Payments received
- Scheduled deliveries
Deploying a vendor portal minimizes manual mistakes while generating convenience for the suppliers. Also, it helps to enhance order accuracy.
Generating a management workflow helps to identify issues quickly and boosts AP method efficiency. Also, it resolves process bottlenecks and optimizes everything to boost liquidity management efficiently. When it comes to purchasing approval, it is imperative that you define the authority level needed for multiple purchases. It can differ based on quantity or price.
Within the accounts payable team, there are major functions that need to streamline.
Supplier Selection Method
Setup a preferred vendor list to prevent maverick purchasing. The approach also positions a company to negotiate the most favorable terms to streamline the working capital.
- Seek chances to negotiate better payment terms including, minimized late fees.
- Establish priorities for the supplier negotiations method, ensure major decision-makers are involved.
- Build vendor performance scoreboards for the strategic vendors to use during negotiations to receive excellent quality in terms of services, enhanced client service, or better pricing.
Vendor Master Data Setup Method
After you have negotiated terms with suppliers, you should maintain the data. Inaccurate data entry can cause more than payment errors. It can lead to account delinquencies that prevent you from being able to get available discounts and may lead to supply disruptions.
- Upgrade payment terms and volume discount availability on a daily basis with other periodic rebates. When contract terms change, ensure the master data is amended accordingly.
- Keep SLAs reflected in the accounting software. The vendor master data requires detailing the service information, delivery timelines, vendor responsibilities, and much more.
- Store the contract appropriately with document management software.
Good management of the invoicing method is critical to boosting liquidity.
- Refusing to pay incorrect invoices- any mistakes cause the invoice to be sent back to the vendor.
- Deploying an EDI solution that enables you to get invoices electronically.
- Developing appropriate channels and methods to manage reporting and exceptions.
- Leveraging a three-way matching to match invoice number to purchase order to goods receipt.
Accounting and Reporting
Before you can handle accounts payable actively, you must make sure that your reports are accurate. Without the details, several organizations don’t have a clear picture of how much they are spending, when they pay suppliers, and how often. This can make it challenging to receive the best payment terms.
- Verify invoices against POs and contract terms.
- Invest in automation and real-time reporting capabilities to manage reconciliation.
- Apply payments to every invoice on the date they are made to keep the system appropriate.
- Monitor all payments made including, supplier payments.
Successful AP teams automate manual methods and also understand how critical it is to maintain a robust business relationship with suppliers. Paying a supplier isn’t enough. You need to work with them. The better you will treat your vendors, the better the deal you will receive from them. Hence, look for the best account payable software for your business and look into various ways to streamline the AP process, and watch your working capital increase.