Keeping track of invoices, payments, and due dates can quickly become overwhelming for the AP staff, especially if the business is growing and the volume of transactions increases.
To keep your company’s financials in order, accounts payable must be tracked carefully and paid on time, since it can directly affect the cash flow. If all the bills and invoices are left to pile up, it can lead to unhealthy financial practices that put the company into further risk.
Managing invoices is a time-consuming job for any finance department, but with the right tools and processes in place, it doesn’t have to be so challenging. With suitable software and good workflows, it is possible to make the process faster, simpler, and more cost-effective.
In this post, we will explore some of the best practices to keep track of accounts payable and explain why automation is a good idea for any business. From using software to automate data entry and tracking to implementing internal controls, we will provide tips and tricks to help you stay on top of your accounts payable and improve the overall efficiency of your business.
What Is Invoice Management?
Invoice management, also known as accounts payable management, is the process of tracking, approving, and paying invoices from various suppliers and vendors.
This process typically includes the receipt and review of invoices, ensuring they are accurate and valid, 3-way matching, obtaining necessary approvals, and making payments to the vendors. Invoice management can also include tracking outstanding invoices and monitoring payment due dates to ensure compliance with the agreed-upon terms.
The essence of invoice management is to ensure that invoices are processed on time and to provide transparency into the financial transactions taking place within a company’s ecosystem.
So what is the secret of successful invoice management?
Well, for one, keeping a good track of accounts payable.
How To Keep Track Of Accounts Payable in 9 Steps
Here are a few essential steps you can take to stay on top of your accounts payable. Just remember that all businesses have unique needs and requirements, so customize your strategy accordingly.
- Set up a system for recording invoices
- Implement approval workflow
- Monitor invoice data capturing
- Regularly review accounts payable
- Match invoices and purchase orders
- Pay invoices on time
- Track payments
- Periodically run reports
- Utilize automation where possible
1) Set up a system for recording invoices
Having an appropriate accounting system in place for capturing bills and invoices is crucial for keeping track of your accounts payable.
This system could be software-based, like Netsuite or Quickbooks, or in rarer cases, it could be a manual system that involves using a physical ledger or notebook. When setting up your accounting system, it’s important to consider factors such as how you will enter invoice data, how you will organize and store the data, and who will be responsible for managing accounts payable.
2) Implement an approval workflow
To have successful invoice management, you need a very clear approval workflow.
Accounts payable processes can be notoriously slow and tedious, and not having an approval workflow in place can prolong the payments.
It’s important to make sure there is an approval process for each payment made so that all invoices are properly authorized before being paid.
3) Monitor invoice data capturing
The very important step where lots of mistakes occur is invoice data capturing. Especially if you still use a manual process, it’s important to closely monitor the data that enters the accounting system.
The best practice is to enter the invoice details into your system as soon as the invoices arrive in your mailbox. Data entry should include the vendor name, invoice number, amount due, and due date. It’s also a good idea to include additional information, like the date the invoice was received and the purchase order number, to ensure that the invoice is correctly matched to the corresponding purchase order.
4) Regularly review accounts payable
Reviewing your accounts payable regularly is essential for ensuring that your invoices are paid on time and that you are not running short on cash.
Review all outstanding invoices at the end of each week or month, and compare them to your cash flow forecast to ensure that you will have enough money to pay your bills on time. Reviewing your accounts payable regularly also allows you to identify any discrepancies or issues with invoices before they become a major problem.
5) Match invoices and purchase orders
The very definition of accounts payable is that it’s a money that company owes to its vendors for goods and services delivered. So compare and match your invoices and purchase orders to ensure that you’re paying for something valid.
This step can also help you to identify discrepancies like overcharges or different quantities, and it is one of the most important ways to detect a potential AP fraud.
6) Pay invoices on time
It goes without saying – paying your bills on time is important to maintain good relationships with your suppliers and vendors and to avoid late fees and penalties.
It’s good to ensure that your bills are paid before they become overdue, which can negatively impact your business’s credit score.
Paying invoices on time is important and shouldn’t be overlooked as it can save you time and money in the long run. Meeting payment deadlines is a critical aspect of keeping a good track of accounts payable, as well as overall business success.
7) Track payments
Keeping a clean record of payments made is important for maintaining accurate records of your accounts payable. Payment records should include the date, amount, and method of payment for each invoice that is paid. It’s also helpful to track the contact person and the bank account details of your vendor.
Keep track of all transactions that occur throughout each month so that you know exactly what invoices need to be paid and when. Tracking payments will give you an accurate view of your current cash flow situation at any given moment.
8) Periodically run reports
It’s a good practice to ocassionaly run reports like accounts payable schedule, to evaluate if there’s any delay in payment to your vendors. These reports can identify vendors who have delayed payments often or the ones that might need more attention.
By organizing payments according to their due date or payment terms with your vendors, you can efficiently map out which bills need to be paid first.
9) Utilize automation where possible
If all of the steps above seem like a lot of work, that’s because it is. The ultimate goal of any well-organized AP department is to streamline the processes as much as possible.
Automation has revolutionized accounts payable, making payments faster and easier.
By using automated accounting software, you can ensure that payments are issued on time every month without having to manually input the details yourself.
Why Automation Is A Good Idea?
Many companies implement accounts payable automation solutions because the technology offers increased accuracy, efficiency, and improved supplier relationship management.
In general, AP automation is all about streamlining accounts payable (AP) transactions by using a technology platform to store, organize, and monitor invoices. Accounts payable departments can automate tedious tasks such as data entry and invoice processing, allowing them to focus on more important tasks like reducing overhead costs or finding discounts from vendors.
By implementing automated accounts payable solutions, you can ensure that every AP transaction goes through a review process with multiple levels of approval.
Furthermore, automated accounts payable gives better visibility into cash flow, enabling a business to plan better for future accounts payable transactions. With automation, AP staff has real-time visibility into outstanding payables and complete control over vendor payment cycles while mitigating late payment penalties.
Automation also helps reduce the risk of human error and fraud, preventing costly mistakes. Ultimately, accounts payable departments will become more efficient, improve cash flow cycles, increase financial accuracy and save time that would have been spent manually reconciling payments.
With automation, accounts payable processes are simpler, faster, and infinitely more secure.