Money is the fuel that keeps the business motor running, which is why having a capable, efficient accounts payable process is critical. Accounts payable is money you owe to different creditors and vendors, such as suppliers and lenders.
There are many ways to set up effective accounts payable systems for your small business. This article will share tips to help you optimise your processes and create a thriving company.
We’ll discuss the following:
- Select your vendors wisely
- Eliminate paper invoices
- Track every payment
- Create a budget
- Build a cash reserve
- Create reminders for payments
- Keep your records up to date
- Choose the right accounting software
1. Select your vendors wisely
When examining how to improve your accounts payable process, one essential part is choosing suppliers that will contribute to things running smoothly. First, you need to establish your priorities and then look around for vendors that meet those requirements.
Once you find suitable companies to work with, track how your chosen suppliers measure up. You can develop a scoring system and simply rate each supplier on areas like payment terms, prices, customer service, product quality, and prices.
It’s also good to regularly seek opportunities to negotiate better pricing. For example, you can ask your vendors to match lower prices offered by competitors or negotiate volume discounts.
Keep in mind that working with vendors is a two-way street, meaning you have to do your bit to create a successful partnership with them. The better your relationship is with your vendors, the more likely they are to agree to your terms.
2. Eliminate paper invoices
One of the best ways to add efficiency to your accounts payable process is upgrading to a digital invoicing system. Paper invoices take longer to process and are easier to misplace, leading to payment delays, errors, and other headaches.
You need a system that helps you get paid on time so you can, in turn, pay any of your own suppliers before the deadline. Faster payments will help you create good relationships with these companies and avoid any late fees. You could even save money if your suppliers offer early-payment discounts.
Countingup is a great example of this kind of efficient digital invoicing system. This accounting app allows you to create and send customised invoices on the go as soon as you finish a job. The earlier you send an invoice, the faster you can get paid and settle your accounts payable.
3. Track every payment
As a business owner, it’s important to know what you owe to whom and when the payment is due. You’ll need a system to track every due payment. The easiest way to do this is through your accounting software.
Set up direct debits for your recurring payments so you’ll never miss one and remove the stress and distraction of managing repeating bills. That said, it’s still a good idea to go over them regularly to avoid paying for stuff you no longer need.
4. Set aside some emergency funds
Every business needs a budget to understand how much money they need to cover liabilities like accounts payable. Learn more about creating a budget for your small business.
When considering how to improve your accounts payable process, it’s a good idea to set money aside to cover unforeseen expenses. For example, your laptop might break down, so you need to pay for repairs or buy a new one. Or, perhaps you experience a sudden drop in sales but still need to pay your dues. That’s when a cash reserve comes in handy.
In these situations, keeping emergency funds on hand can help keep your company financially healthy and ready to handle unexpected obstacles. When it comes to your accounts payable process, this reserve money could be vital to ensure you can pay your vendors on time.
5. Create reminders for payments
Another way to improve your accounts payable process is to set reminders of payment due dates. If you have to manage several payments on different timelines, reminders are essential to ensure you meet your deadlines and maintain a good relationship with your vendors.
There are several ways you can set reminders for yourself. An easy way is to create a reminder in your calendar app. Alternatively, accounting software often has built-in reminders that you can sync to your calendar. Whatever method you choose, make sure your reminders include all the relevant information, including payment information and final due dates.
6. Optimise your record-keeping
Looking into how to improve your accounts payable process requires you to examine your overall accounting processes. After all, it’s impossible to run accounts payable effectively without accurate accounting records.
One way you can optimise your records is to run a reconciliation, which is the process of matching one account to another.
Typically, a reconciliation involves comparing the balance of your accounting records with the information on your bank statement. The goal is to uncover any differences and make adjustments to make sure they match. In terms of your accounts payable records, you can double-check that invoices match the terms outlined in the contract and purchase orders.
You’ll also need to find a centralised location to track progress and payments. Using one system for every aspect of your business finances helps you stay organised and keep your records up to date. The best option is robust accounting software, which we’ll get into next.
7. Choose the right accounting software
Our final tip on how to improve your accounts payable process is to invest in account software. Financial management can be stressful and time-consuming when you’re self-employed, so you need a robust and efficient system to make it more efficient.
Join thousands of business owners and start using the Countingup app to optimise your financial admin and, by extension, your accounts payable process.
Countingup is a two-in-one business current account and accounting software that allows you to manage all your financial data in one place. With features like invoicing on the go, payment reminders, direct debit, cash flow insights, and receipt capture tools, you can confidently manage your business finances from anywhere.
You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags, or inaccuracies. Seamless, simple, and straightforward!
Find out more here.