7 Best Practices to Optimize the Accounts Payable Process

optimize accounts payable process

On paper, accounts payable (AP) is simple. Invoices come in and payments go out. Undoubtedly vital to the smooth running of a business, it is viewed as an important, but nonetheless repetitive function carried out by the back office — perhaps without a whole lot of nuance. 

In fact, many organizations could do a much better job when it comes to developing and instituting best practices for optimizing their AP processes. The results can help improve cash flow, save time, and free up employees for other tasks. It’s an area that, for lots of businesses, could benefit from being overhauled.

What is the AP process/AP flow?

The typical AP process looks something like this: To begin, an AP department is sent an invoice. The data contained in this invoice must then be captured as well as coded using the correct cost center and accounts data. This can be achieved using either automation or a process of manual keying. After this, invoices pass through a two-way or three-way match against purchase orders and, if possible, also receiving orders. The invoices can then be sent through to an Enterprise Resource Planning (ERP) or AP system or otherwise sent through to the correct people to be approved and then sent out for payment.

However, while this broad approach is likely one shared by many businesses, there is room for optimizing these processes. 

Here are some best practices you may not have considered implementing:

Best practices for optimizing accounts payable

1. Learn to prioritize

Not all invoices are created equal. Of course, this isn’t saying that every invoice shouldn’t be paid in the most timely manner possible. But in order to increase the efficiency with which these are sent out, you may be able to do a better job when it comes to organizing and prioritizing invoices. This can save not just time, but also money. 

For example, some invoices will offer opportunities for early payment discounts – which makes paying these as a top priority a smart move. In most other cases, companies may want to hold off paying an invoice until the date required, so as to help better manage cash flow. However, it’s important that these payments do not arrive late, since that can negatively affect relationships with clients.

2. Create managerial workflows

Standardization can greatly increase efficiency. Organizations should look to create workflows that provide a detailed look at how the relevant accounts payable department carries out its daily operations. This should include workflows for what happens when the department receives an invoice, how the data is both input and then shared, and whichever processes are required for invoices being approved. 

This process should also include guidelines that can help deal with custom scenarios like the aforementioned paid-on-time discounts or penalties that are incurred for paying invoices late.

3. Go paperless

Electronic communication with vendors can go a long way toward optimizing the accounts payable process. While talk of the paperless office has been around for years, many organizations still use paper for their accounts processes. Going electronic isn’t just good for the planet by eliminating waste paper; it’s also a positive step when it comes to streamlining processes. 

For example, it means that organizations can communicate with their vendors and customers alike with the ability to generate automatic purchase orders (POs) for every new order, while also electronically accepting and validating invoices, tracking goods received and more.

4. Check for duplicates

Duplicate payments are a frustrating occurrence that are likely the result of human error. As part of your accounts payable process, ensure that checking on duplicates for both received invoices and payments is built into the way you operate. Doing so not only ensures that your books are properly organized, but also plugs potentially costly leaks in your cash flow that may otherwise go unnoticed.

5. Pick your KPIs

Imagine being able to speak with the world expert in all things accounts payable. “I want to do accounts payable better,” you mumble. Their response: “What exactly do you mean by better?” That, in a nutshell, is why it’s crucial to have KPIs (Key Performance Indicators) that can help you to measure the success of your optimization methods. 

Optimization can mean many things, and if you don’t know what “better” looks like then you’re going to struggle to achieve your goals. Once you know what your goals are, KPIs will help measure how successfully these are being pulled off. For example, KPIs might be:

  • Payment accuracy rate
  • The number of invoices that are paid on time
  • Amount of time that is taken up on supplier disputes
  • Days Payable Outstanding (DPO)
  • Total cost per invoice
  • How many early payment discounts you rack up

Metrics are crucial for any business to track. When you’re in a numbers-heavy field like accounts payable, there’s simply no excuse not to keep a tally of these. Keeping records relating to these metrics isn’t just important; it’s the only way to create benchmarks that will let you know if you’re improving with time.

6. Fight back against account payable fraud

If you’re interacting with money, you’re a possible target when it comes to fraud — whether from dedicated cyber criminals, disgruntled employees, or suppliers. There are plenty of ways that this fraud could go down (for instance, employees could potentially create dummy supplier accounts and raise checks against these). 

However, the thing all have in common is that they will cost you money. In order to clamp down on fraud, create a more rigorous tracking system that can be used for approvals, along with establishing a clear and readily accessible audit trail. Of course, to make this easier you should consider the need to… 

7. Embrace automation

Automation can assist with many of the recommendations made above. Take, for instance, the importance of streamlining workflows. Manual processes are time-consuming. Automation, on the other hand, is able to help significantly reduce the time it takes to process invoices, without compromising on all-important factors like accuracy. 

KPIs, meanwhile, can be accurately tracked using automated approaches, while autom