One of the crucial areas of concern for every business is accounts payable. Many times, since the accounts payable process is seen as a back-office function, the processes can easily be taken for granted and not receive the attention it deserves.
Below are some tips and practices that can enhance your company’s approach to accounts payable processes.
Too often, businesses take a reactive approach to payables, simply delaying payments as long as possible to improve short-term cash flow. But this approach can backfire if it puts you on bad terms with vendors.
Poor vendor relationships can affect delivery times, service quality and payment terms. A proactive, strategic approach to payables can help you strike a balance between optimizing short-term cash flow and getting along well with vendors.
It’s also critical to explore the potential benefits of early payment discounts, volume discounts or other incentives that can eventually improve cash flow. That doesn’t mean you should accept every available discount. Obviously, the decision hinges on whether the long-term benefits of the discount outweigh the immediate cost of, for example, paying early or buying in bulk.
Strengthen selection and review
Implement policies, procedures and systems to ensure that you properly vet vendors and negotiate the best possible prices and payment terms. Create preferred vendor lists so staff members follow established procedures and don’t engage in “maverick” buying — that is, purchasing from unauthorized vendors.
Review vendor contracts regularly, too. Create and maintain a database of key contractual terms that’s readily accessible to everyone. With an understanding of payment terms and other important contractual provisions, employees can use it to double-check vendor compliance and avoid errors that can result in overpayments or duplicate payments.
Automating accounts payable with the right software offers many benefits. For one thing, an automated, paperless system can increase efficiency, reduce costs and speed up invoice processing. And, of course, the ability to pay invoices electronically makes it easier to take advantage of available discounts.
In addition, automation can provide greater visibility of payables and better control over payments. For instance, cloud-based systems provide immediate access to account information, allowing you to review and approve invoices from anywhere at any time. The best automated systems also contain security controls that help prevent and detect fraud and errors.
Naturally, there’s an upfront cost to buying good accounts payable software and training your staff to use it. You’ll need to find a solution that suits your company’s size, needs and technological sophistication. You’ll also incur ongoing costs to maintain the system and keep it updated.
Pay attention to payables
Don’t underestimate the impact of accounts payable on the financial performance of your business. Taking a “continuous improvement” approach can enhance cash flow and boost profitability. Let us, your Rudler, PSC advisors, help you devise strategies for the optimal tracking and handling of outgoing payments. Contact us at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Erin Mauch, Staff Accountant and Karen Daugherty, CPA.
If you would like to discuss your particular situation, contact Erin or Karen at 859-331-1717.
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