Introduction and Background

Except your business is in the 0.00001% category, we can guarantee that your business will have creditors, or what is technically known as “accounts payable”. Even with big businesses that have huge cash reserves, they still have accounts payable. Managing accounts payable is a critical part of working capital management and should not be taken lightly.

Often, managing the process can be very daunting and time-consuming, and some common issues with a broken accounts payable process include:

• Paying for items not delivered or services not rendered.

• Litigation cases from vendors.

• under and overpayments, duplicate or missed payments.

• Faulty product or service quality.

The accounts payable process refers to the practices, policies, and procedures that flow together to ensure creditors are being paid successfully and on time and to better manage cash flow and working capital.

The key objectives that the process must seek to achieve are that there is accurate and updated information as to WHO the business is owing for WHAT services already rendered and that there is a conscious plan to pay off the amount.

Tips to manage the payables process

Here are a few suggestions to help manage the process:

1. Standardize the Process:

It can quickly get complicated, so keeping it simple should be the aim here. The process should be standard and easily repeatable. Whatever method is used should be applied throughout.

2. Use Reminders:

Reminders are a safe way of ensuring that due dates for bills are not missed. It also helps in enabling a business to anticipate expenses that are upcoming and plan accordingly.

3. Set up controls:

This is important, especially in a scenario where the management/owner is not directly involved in day-to-day management of payables. Simple controls such as segregation of duties go a long way. The person in charge of receiving goods and items from the vendor should be independent from the user department and should also be different from the person paying the bill. This way, the business can protect itself from having to pay bills for which it may not have received service. Monthly reconciliations with suppliers are a good form of control.

4. Planning and Budgeting:

Upfront planning of what to purchase or what services to enjoy goes a long way in improving the process. It is common for small businesses to purchase on impulse and then find out that they cannot pay when due. Planning enables businesses to take advantage of trade discounts, cash discounts, and other incentives that simplify and improve the process.

5. Maintain relationships:

It is assumed that vendors or suppliers are a critical part of a business. If they do not supply products or render services when due, there is a chance that the business operations may suffer. Therefore, it is important to keep that in mind when dealing with them. Having a good relationship with them may come in handy in loyalty programmes and after-sales support. These relationships will come in handy if past-due payments cannot be avoided.

6. Optimal vendor selection:

No matter how small a business is, it can attempt to negotiate with vendors from a position of strength. The business is the customer, and the vendors are always looking to make sales. If there are multiple vendors that can provide the same service, shop around so you can always get the best deals in terms of prices, loyalty programmes, payment terms, product quality, delivery terms etc. if possible, conduct a bidding process. When managing working capital, these terms make a substantial difference.

7. Automation:

Going paperless is the present and future of managing payables. Data capture should be automatic. All accounting software has the capability to handle everything in the process, from set up to reporting. A cloud-based application will also ensure that the information is processed in real time and management can make decisions quickly that will affect cash flow and working capital management.

With these tips, the aim of having a better managed accounts payables process will be achieved.

Do you have issues with accounts payables management? Talk to us today.