6 Tips to improve your accounts payable (AP) process

Peter Wise
October 12, 2022
8
min read

Paying suppliers needn’t be a pain point for your business.

In this guide, we’ll give you six tips on how to make your process for accounts payable easy, efficient and effective.We’ll sometimes use examples of how our payments platform, Denario, can be used to put into action the advice provided in this article. If you’re a non-user, don’t worry – the tips are general enough to be used with or without Denario.

Whatever your business setup, and whatever industry you’re in, you can improve your accounts payable (AP) process using these six simple tips.

‘Accounts payable’ definition

Before we talk tips, let’s quickly define ‘accounts payable’, so that we’re all on the same page.

  1. An ‘account payable’ is a payment owed by a business to a supplier or other creditor, which is due for payment within a short-term timescale.

Let’s imagine you run a restaurant and your wholesaler has raised an invoice for ingredients sold to you. That outstanding payment becomes an account payable (or ‘payable’), until you’ve completed the payment.

The same would apply if you ran a business that trades online, and you’ve been invoiced by a freelancer who provided a service such as web design or copywriting for your website. Whatever your industry or business type, any payment that you owe is an AP.

  1. ‘Accounts payable’ is the business function of paying and managing a business’s payables. The process has steps including receipt of invoices/AP documents; review and approval by responsible team members; record-keeping; and payment via your chosen payment method(s). If your business has a large finance team, there may be team members whose role is dedicated entirely to AP management and payments.

So, when someone mentions accounts payable, they could be talking about individual payments owed by a business to its suppliers – or they could be talking about the business’s process for paying its suppliers.

Tip #1: Schedule your payments

The quickest and easiest way to improve an AP process is to schedule payments in advance. You can use a payment platform like Denario – or a banking app that supports payment scheduling – to schedule payments for all your APs.

Scheduling payments is highly efficient, relative to the bad, old method of accessing your bank account to make a payment every time an AP comes due. Instead of logging into your payments platform to do AP admin when a payment becomes due, you can schedule several payments in one session, and then trust the system to make payment at the right time.

Another key benefit is that scheduling payments can help you to maintain healthy cashflow, while dependably making payments on-time. Hand-pick the dates when payments will go out, and you can ensure steady outflow from week-to-week, month-to-month. This makes cashflow more predictable, and helps to ensure you have a reliable level of cash on hand to cover unexpected costs.

Plus, with all your payments scheduled in advance, you should be able to reduce the risk of late payments caused by human error or HR problems. As a result, you’ll pay fewer late fees and enjoy better relationships with suppliers.

Tip #2: Automate key AP tasks

Some of the most time-consuming, labour-intensive tasks of AP can now be automated.

On the Denario payments platform, these tasks include:

  • Find invoices/AP documents from email and other apps
  • Interpret and record the details of payables
  • Send notifications to team members when an account payable requires approval
  • Reconcile payment records to completed transactions
  • Schedule recurring payments, e.g. monthly retainers or subscription fees

Even if you don’t use a payments platform, you can still automate AP tasks. For example, if you manage AP in Google Sheets, you could set up notifications to be sent to the team member responsible for approval of payments, whenever a new payable is entered into the spreadsheet.

Think about all the steps in the AP process where team members have to do repetitive, low-skilled admin tasks – and then think about how those steps could be automated.

Multiple automations can flow together to create a highly automated AP workflow. With Denario, you link the platform to your email accounts and other places where there are payable invoices; and from then on, Denario finds invoices in those places automatically. It uses a technology called OCR to read and interpret the documents, and it then puts all the invoices into the same format and organises them within your payments dashboard. Multiple automations flow together to replace several individual, manual steps of the AP process.

Whether you use Denario or not, automations could be a fruitful avenue for optimising your AP process. It’s for good reason that the AP automation market is forecast to be worth $7.5bn by 2030, up from $2.6bn in 2021 (source: The Brainy Insights).

Tip #3: Work on AP remotely

By using a browser-based business payments platform, you can log into a payment dashboard wherever you are, and make payments at the most expedient moment.

There are several benefits to working on AP remotely. One is optimal collaboration among your team. Multiple team members can use their own password-protected user accounts to access business payments and work together in real time.

With great remote collaboration comes enhanced speed. Team members responsible for authorisations and other actions can simply log in from anywhere and perform the required action, quickly enough to prevent bottlenecks in the workflow or late payments.

So long as your cybersecurity standards are on-point, there’s no good reason not to let your team work on AP remotely. With that said, it’s a good idea to put in place some appropriate training and measures, e.g.:

  • Give personal cyber-security training to each team member who will work remotely on AP
  • Use strong passwords. If the passwords are to be recorded, the records should be kept in a secure password storage vault such as 1Password
  • Carefully set account permissions for each payments platform user, so that their access and abilities within the platform are limited to what their role requires

Some payment platforms make it easier to keep your data safe while you work on AP remotely. Denario’s security measures are designed in accordance with the Payments Directive 2 (PSD 2) standard – which means we use measures such as two-factor authentication (Email One-Time Password (OTP)) and zero-trust data storage.

Tip #4: Track accounts payable (AP) as a component of cashflow

AP is a crucial component of cashflow, which we define as the movement of money in and out of a business.

In cashflow, there are two key components:

  • inflows of money into the business, including accounts receivable; and
  • outflows of money, including accounts payable.

Accounts payable will likely make up a major share of your outflows, and they are therefore a significant factor in overall cashflow. With this in mind, it’s important to consider the effect of AP on cashflow – especially if you have a lot of AP to manage, and the net total payable can vary significantly from month to month.

A simple way to understand the impacts of accounts payable is to track which payments are completed, scheduled or outstanding, using a spreadsheet or payments platform dashboard.

And for more in-depth insight into the future effects of AP on cashflow, you can set up an accounts payable ageing report, which shows the net cost of your AP over various time periods, e.g. 0-30 days, 31-60 days, 61-90 days. Accounts payable ageing reports are available in some of the accounting applications that integrate with Denario, including QuickBooks and Xero.

Tip #5: Decide who is responsible for accounts payable

AP can be a complicated process, involving several steps and often multiple team members. You’ll need to identify who is responsible for which steps.

For example, you might decide that Anita is responsible for reviewing the details of invoices payable; Tony is responsible for approving and processing payments; and Fatima is responsible for making sure the others are performing their AP roles correctly and on-time. Or, one team member could do everything. The key point is that you need to define who is the ‘owner’ of which steps.

If you have multiple people working on AP, you should specify how those team members will communicate with each other about payables. For instance, you might instruct the owner of document review that they should regularly report to the owner of payment approvals, to let them know which invoices are ready for approval and payment.

If you’re using Denario, you can set up automated notifications for team members when something they need to know about happens in the AP process. You can create clear AP roles and responsibilities by setting up custom payments workflows.

Tip #6: Make multiple payments in bulk

Some payment platforms and banking providers allow you to instantly pay multiple APs in one go, as a bulk payment.

This can be done instantly, or the bulk payment can be scheduled for a chosen future date. The payment can include multiple APs from the same supplier, or various APs from multiple suppliers. All you need to do is approve each of the payments individually, and then initiate a single bulk payment to process them all in one go.

Bulk payments could save you a significant amount of admin time. Instead of selecting payment options for several APs individually, you can select your desired options just once, and click to pay.

Conclusion: accounts payable (AP) is always evolving

Every business and finance team is evolving at its own pace. Some teams will set up lots of new AP processes at the same time, while others will be best off implementing new ideas gradually.

The most important thing to bear in mind is that AP is a business process that can change, grow and improve continuously, just like other functions from marketing to product design. If you need advice on how to make the next steps in evolving your AP, the Denario team is here to help.