Accounts Payable Management: A Complete Guide

Accounts payable is one of a company's most critical financial procedures. Effective accounts payable management is thus an essential task for businesses nowadays to learn. 

AP goes beyond the scope of timely debt clearance and payments. Maintaining good relationships with vendors, negotiating favorable payment terms and managing payables cost-effectively are all affected by accounts payable management.

What is accounts payable management?

Accounts payable management entails managing short-term liabilities owed by your company to your vendors. It involves ensuring that your vendor invoices are paid on time with the help of accurate invoice data entry, streamlined approval workflow, quick discrepancy resolution, good vendor communication and timely payments. 

Accounts payable management helps companies maintain good relationships with their vendors, negotiate favorable payment terms and easily avoid late payment fees or capture early payment discounts. This helps companies improve their bottom line and gain a healthy cash flow. 

Steps in Accounts Payable Management

Invoice data entry

When the AP team receives an invoice, they enter it into their accounting system and assign it to the correct cost centers and GL codes. The invoice is also matched with supporting documents like purchase orders and contracts in this step to look out for any differences. 

Approval routing

After an invoice is processed, the AP team sends it over for approval from relevant business heads. A non-PO invoice requires approvals in place to ensure its validity. PO invoices can be processed without approval as they have already been verified against their purchase order. 

Payment processing

After obtaining necessary approvals, the AP team processes the vendor payment via their preferred method. This process might involve printing and mailing checks to the vendors or processing ACH payments. 

Vendor data management

Maintaining accurate vendor details and records is also an important task for the accounts payable department. Correct vendor records reduce the risk of vendor fraud and ensure up-to-date payment information for quick payment processing. 

Challenges accounts payable departments face

Accounts payable management is not an easy task. Due to efficient and decentralized processes, payables can become a challenging task to perform. 

Time-consuming processes

Manually entering invoice data and performing invoice matching are time-consuming processes. With such mundane tasks taking up accountants’ time, focusing on more strategic accounting tasks and timely book closing is tough. 

Human errors

Manual processes often also let errors slip in. Even after they are caught, correcting these errors takes up a lot of time, especially if the invoice has already been paid. Getting credit notes from vendors and adjusting them against late payments leads to decreased cash flow in the current cycle. Accountants might also miss duplicate invoices when they appear, leading to the company paying the vendor twice. 

Late or missed payments

Late or missed payments lead to many consequences, such as late payment fees, bad vendor relationships or loss of negotiating power. Missed payments might also get a company involved in legal issues with their vendors. 

Fraudulent activities

With technology advancing in recent years, catching fraud is becoming more challenging. Companies end up losing millions of dollars to fraud every year. Fraudsters can easily intercept low-security software or vendor email threads to scam accounts payable teams out of money. 

Unfavorable payment terms 

Negotiating payment terms is one of the most important tasks of procurement management. However, when companies aren’t in a good negotiating position, vendors can get unfavorable payment terms. Processing invoices within these terms can be challenging for accounts payable teams due to less bandwidth or cash flow. 

Scaling processes 

With companies scaling rapidly, the volume of invoices their AP teams have to process also increases drastically. Even after increasing headcount, invoice inventory and vendor master management can become burdensome. Scaling often also requires upgrading to new software that might take weeks or months to implement. 

Best practices for effective accounts payable management

Despite all the challenges discussed above, effective account payable management cannot be compromised with. Following some best practices while managing accounts payable can help mitigate these challenges. 

Implement invoice automation

Manually entering and GL coding invoices can be a time-consuming and mundane task for the accounts payable team. This won’t only lead to payment delays but might also cause costly errors that would have otherwise been avoided. 

Implementing invoice automation can help accountants process and match invoices on time, avoiding any human errors. These software can also help detect duplicate invoices.

Streamline approval workflows

Constantly following up for approvals from business heads can also take up a lot of accountants’ time. Delayed approval is a huge cause of late or missed payments, as circulating paper invoices can lead to them getting lost. 

Streamlining approval workflows and tracking approval TATs can help keep track of invoices in approval and expedite the process.

Foster good vendor relationships

Keeping your accounts payable processes transparent and processing invoice within payment terms is very important to foster good vendor relationships. This will help you gain a good negotiating position and be prioritized in case of supply chain shortages. 

Negotiate favorable payment terms

It is important to manage cash flow in the accounts payable process. Having more flexibility in paying your vendor invoices can help maintain a good bottom line.

Keep track of accounts payable KPIs

Knowing when your accounts payable processes need improvement is essential for a company. 

Adopt end-to-end AP automation

Adopting end-to-end AP automation software can help companies streamline their accounts payable processes while getting a good return on their investment. A comprehensive end-to-end accounts payable software helps automate mundane tasks like, invoice data entry, GL codes and cost center assignment and approval routing. Even approval requests and follow-ups get automated.

With good accounts payable automation software, like ClearTech, approvers can approve or reject invoices with a single-click on the approval request email. ClearTech’s interactive dashboards make tracking accounts payable KPIs and other important metrics, such as approval TATs, easy.

With smart detection of duplicate invoices and automatic payment run creation, companies can avoid overpayments and late payment fees altogether. 

Conclusion

• Accounts payable management is managing payments owed to vendors or creditors. 
• Accounts payable management involves invoice data entry, cost center and GL code assignment, approval routing, bill payments and vendor management.
• Accounts payable teams face several challenges: error-prone and time-consuming processes, rampant fraudulent activities, scaling processes and late or missed payments. 
• Following best practices such as automating invoice processing, streamlining approval workflow, fostering good vendor relationships, negotiating favorable payment terms, keeping a close eye on accounts payable KPIs and adopting end-to-end accounts payable automation software can help manage accounts payable.
• End-to-end accounts payable automation software reduce time-consuming and error-prone manual tasks while facilitating timely payments.