Top 8 Account Payable Best Practices for 2024 to Streamline Accounting Workflow

As your business grows, the number of bills grows parallel to it. Processing a large number of invoices every month creates certain challenges. Mainly, the cash gets trapped in balance sheets, bottlenecks decline productivity, and you miss out on growth opportunities.

Accounts payable (AP), a critical component of financial management, encompasses a series of processes and practices to ensure the seamless flow of financial transactions. From invoice receipt to payment processing, the efficiency of AP directly impacts an organisation's financial health and operational agility.

By adopting high-performance accounts payable practices, you can overcome challenges such as manual data entry errors, unorganised invoice handling, etc. Consequently, there's more working capital to fund growth-oriented projects, more time for core tasks, and more accurate balance sheets.

Top 8 Accounts Payable Best Practices for 2024

Let's explore AP practices that maximise cash flow, efficiency, and opportunities within your company.

Simplify Data Entry
Work Strategically With Suppliers
Control Access & Divide Duties
Organise Invoices
Arrange For Communication & Conflicts
Centralise Tracking & Reporting
Reconcile Accounts Daily
Establish Effective KPIs

1. Simplify Data Entry

Let's begin with the AP department's topmost challenge: manual data entry. The accuracy and speed with which data is entered in financial transactions can significantly impact your organisation's operational efficiency. Not to miss, they put your reputation and vendor relationships at stake.

Simplifying data entry involves leveraging modern technologies and strategic approaches to mitigate common challenges.

a. Using OCR to digitise invoices

By replacing paper-based invoices with digital ones, things can be made simpler and faster. Eliminating endless piles of papers and storage also saves significant time and cost. Remember, digital invoices and electronic invoices are two different things. While the former is as simple as receiving a PDF/Word format invoice over an email, the latter requires XML/EDI standards. Implementing either one of these saves time and effort.

b. Data capture algorithms

Inaccuracies in data entry lead to payment discrepancies, financial errors, and strained supplier relationships. Intelligent data extraction algorithms can be leveraged alongside OCR to digitise paper invoices and accurately capture relevant information. This ensures that critical information is integrated into the cloud based accounting systems.

c. Electronic invoicing

E-invoice processing, although useful, is feasible only for some types of companies and suppliers. You can automatically create purchase orders (POs), perform three-way matching, and flag invoice errors along with simultaneous entry into the accounting system.

2. Work Strategically With Suppliers

Improving supplier onboarding and coordination is often overlooked by most businesses. However, strategic collaboration with suppliers is the key to preventing inaccurate invoices, unethical billing, and maverick buying.

Regular communication: Foster open lines of communication with suppliers to stay informed about any changes or updates.
Transparent processes: Communicate payment schedules, terms, and expectations to build trust and avoid misunderstandings.
Negotiation strategies: Work with suppliers to negotiate favourable terms and ensure mutual benefits.
Regular reviews: Conduct periodic audits to ensure vendors comply with agreed-upon terms and conditions.
Compliance checks: Verify that suppliers adhere to regulatory requirements, quality standards, and contractual agreements.
Addressing discrepancies: Promptly address any discrepancies or issues identified during the audit to maintain a smooth supplier relationship.

3. Control Access & Divide Duties

AP activities have become an active avenue for fraud and data breaching. Manual invoice approvals invite added risks. Therefore, effectively managing access and dividing duties within the AP process is crucial for maintaining security and preventing fraudulent activities.

a. Implementing Role-Based Access Control:

Define roles and responsibilities: Clearly outline the responsibilities of each team member involved in the AP process.
Assign access levels: Implement role-based access control to restrict access to confidential information based on job roles.
Regularly review and update permissions: Periodically assess and update access permissions to align with staffing changes and evolving business needs.

b. Segregation of Duties (SoD):

Identify critical tasks: Identify key tasks within the AP workflow, such as invoice approval workflow automation, payment processing, and vendor reconciliation.
Assign separate individuals: Ensure that no single individual controls an entire process; distribute tasks among team members.
Cross-functional collaboration: Encourage collaboration between departments to foster transparency and accountability.

c. Utilise Automation for Access Management:

Implement access control tools: Leverage automation tools to manage and monitor access to sensitive financial data.
Real-time monitoring: Set up real-time monitoring to detect and respond to unusual access patterns promptly.

4. Organise Invoices

Consider creating standard payment policies for all vendor payments. But be open to renegotiating with vendors if there's a win-win situation.

For example, if your vendor offers rebates or discounts for advance payments, pay their invoices on priority. In other cases, move in line with your standard payment policy and pay by the due date.

An important thing to remember here is that you don't have to accept all early payments. Paying later can be better if the discount benefits don't effectively compensate for the expense.

In addition, your policy should include refusing to pay error-prone invoices. Invoices with mistakes or mismatches should be sent back to vendors.

5. Arrange For Communication & Conflicts

Instances of receiving invoices without purchase orders or with quantity mismatches open a loop for review. Moreover, payment delays initiate repeated queries from vendors asking for invoice updates.

a. Establish clear communication channels

Some issues can be resolved by setting up communication platforms and vendor portals. These portals facilitate easy interaction among team members handling AP processes. Establish clear guidelines for communicating information within the team, including preferred channels and frequency.

b. Get regular updates

Hold regular meetings to discuss ongoing tasks, address concerns, and ensure everyone is on the same page. Provide timely updates on the status of invoices, payments, and other AP-related activities, maintaining open lines of communication.

c. Establish conflict resolution strategies

Clearly outline steps to follow in case of conflicts, ensuring a structured approach to resolution. Foster an environment where team members feel comfortable expressing concerns or disagreements, promoting transparent communication.

d. Implement a ticketing system

Implementing a ticketing or issue-tracking system will allow team members to log and track issues, ensuring accountability and resolution. However, you must clearly define who is responsible for addressing specific issues and streamline the conflict resolution process.

6. Centralise Tracking & Reporting

Lack of visibility into payment details, such as amounts, frequencies, and dates, can severely impact financial management and cash flow.

a. Implement a centralised tracking software

With software that enables centralised tracking, you can track multiple bills simultaneously while segmenting them into categories like in-revision, approve, to be paid, overdue, etc.

b. Customise reports for in-depth analysis

Custom reports can be created by sourcing data from invoices and filtering them based on status, date, requester, location, budget, and more.

c. Regularly update tracking status

The software should be set up to provide real-time updates on the payment status with automated alerts. Additionally, ensure relevant team members can easily access and understand the tracking status, promoting transparency and collaboration.

7. Reconcile Accounts Daily

It's better to rectify and correct minor mismatches daily before they compound into major losses over time. Here is an example of how the problem may unfold.

Let's say you made an additional payment to a vendor that wasn't recorded. You left the task for later and forgot it eventually. Now, your books won’t match the bank. This can hurt cash flow.

Issuing POs for each new order is a good practice. Invest in tools that automate the vendor reconciliation process, minimising manual effort and reducing the likelihood of errors.

Once the software is set up, regularly compare transactions recorded in the Accounts Payable system with corresponding entries in the general ledger. Identify and rectify discrepancies between the two sets of records to maintain financial accuracy.

8. Establish Effective KPIs

Many companies keep their metrics restricted to timely delivery, defect rates, and deliverables quality. A better accounts payables practice involves going beyond these and tracking metrics like:

Number of invoices that match POs
Amount of discount captured
Days Payable Outstanding (DPO)

Staying vigilant to the above KPIs helps you identify the scope for further optimising the process, meet the company's cash management goals, and keep effective capital flowing for other purposes.

Bonus Strategies For New-Age Companies

Here are strategies you can pair with the above practices and extend the efficiency of your accounts payable processes.

1. Regular Compliance Audits

Good financial health is crucial to securing funding, reporting to investors, and projecting accurate budgets. Compliance audits keep you ahead of tax-related/legal complications. They also help your company avail tax benefits and maximise cash flow.

Key areas to focus on are:

Ongoing notices or fines from tax authorities.
Annual balance sheets of the past three years with a precise view of assets and liabilities.
Profit and loss statements over a specified period.

Optimise your AP processes with this carefully curated compliance checklist for new-age companies.

2. Friction-free Approvals

In the above sections, we already discussed how centralised approvals narrow down the challenges of the AP department. To streamline the process further, you can create an approval framework.

To create one,

Specify approvers at different levels and cases. For example, pre-define the scenarios where invoices should be sent for review, require unique approval, and who will approve exceptions or who will be responsible when manual reviewing is needed.
Specify approval thresholds and the respective person for each threshold. For example, invoices under $500 will be approved by managers, but above this amount, CFOs will take the charge.
Define maximum approval timeframe, invoice format, and preferred mode of payments under different cases.

Document the framework, discuss it with stakeholders, and get all staff members to adhere to it.

3. AP Automation

AP automation simplifies two big responsibilities of the accounts team — correct matching and preventing fraud.

Manual AP processes can be automated end to end. Automation software enables smooth workflows and fine-tuning of the relevant data with the accounting system.

Automation benefits can be extrapolated to each step of the payment cycle. Automating AP means,

Auto-capturing invoice details into the company's system with accurate validation, verification, and taxation
Lightning-fast approvals with pre-specified instructions to handle errors and redundancy
Scheduling, tracking, and reporting multiple payments at once.

All this occurs at the intersection of low risks, high speed, and least bottlenecks.

Implement Best Accounts Payable Practice With Mysa

Mysa helps businesses to execute AP strategies that drive growth. With intelligent software designed for digital-first companies, you can streamline banking, accounting, and taxation (BAT) processes.

Empower your AP staff with everything they need to eliminate challenges, control costs, and boost working capital availability. From processing GST-compliant invoices to setting up approval workflows, automating payments, and seamless reporting, Mysa facilitates smooth-running AP activities so you can focus more on scaling and strategic functions.

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Let's empower your first employees together!

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Focus on your growth & leave the boring stuff to us!

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