Your organization’s accounts payable (AP) operations can have considerable impact on your overall success. This means you should follow modern business practices in order to make a mark and stay ahead.
One such practice is to pay your vendors accurately and on time. Late payments can result in a number of problems, including:
- Duplicate payments: If an invoice is not paid on time, the vendor is likely to send follow-up invoices, and this can result in duplicate payments.
- Negative impact on suppliers’ cash flow: When you’re late to pay a supplier, this can lower the supplier’s closing balance, resulting in financial challenges for them.
- Broken Business Relationships: When a supplier doesn’t get paid on time, your business relationship is negatively affected. A good customer-supplier relationship is critical, as it points to things like valuable trade credit and more favorable payment terms.
- Increased cost and workload: Late payment makes your AP team consume time handling supplier queries and renegotiating their terms. This increases your costs of operation.
- Damaged reputation and distrust: Your company’s reputation and trustworthiness are important. If you’re known for late payments, you’re likely to be distrusted by suppliers, financial service providers, and potential business partners.
- Supplier frustration: When payment has been withheld for a long time, suppliers become disappointed after numerous calls or visits.
- Inaccurate financial reports: A businesses that does not pay invoices on time will eventually find it difficult to give an accurate reporting of its financial standings.
Wouldn’t it be better to avoid all these problems and instead put your business in a favorable position, where it can often easily take advantage of opportunities like early payment discounts?
Speeding up your invoice payments yields a healthy cash flow for your company. But how can you accelerate your processes such that you pay accurately and on time? Which strategies can you deploy to honor payment terms?
While some cases of late payments are a result of a company’s poor cash flow, others are unambiguously caused by poorly managed AP business process. In this post, we’ll focus on how to deal with the latter. Below are our recommendations on how your company can stop making late payments forever.
1. Push for an invoicing method based completely on electronic data interchange (EDI)
By now, you should already know that paper invoices take more time to procedure. With electronic invoices, you immediately bypass the time-wasting steps associated with paper invoices.
EDI lets you and your vendors exchange documents electronically, following a set standard. When all vendors follow the same standards in sending their invoices, this results in quicker cycle time, and ultimately, rapid payments.
2. Work on the go
If you want to be able to approve invoices quickly, then you shouldn’t limit yourself and your team to the bounds of your office. An accounts payable tool that works as a mobile app lets you handle these tasks regardless of where you are.
The ability to approve invoices from any location moves things along more quickly. You can get tasks done whether you’re attending a conference, watching Star Wars with the kids, or dealing with a cancelled flight at O’Hare Airport.
3. Get suppliers to send accurate invoice data the first time
When an invoice arrives with incorrect details, two things are likely to happen: you’ll waste time trying to figure out the details, or you push it into the exception folder for later correction.
Either way, payment is delayed.
It makes sense if you can get your suppliers to send accurate invoice information every time. You might want to tell them to keep an eye out for any line item information that looks out of place and make appropriate corrections before sending those in. You might also provide a system that causes suppliers to always send in the complete and correct invoice information.
This will go a long way towards reducing the time your team puts into processing invoices, meaning your business more readily makes payments on time.
4. Analyze how your team members spend their time
Time analytics will let you notice patterns and discover areas for improvement.
Consider looking at metrics like receipt-to-pay time, early payment discounts secured or missed, late payment penalties incurred, approval turnarounds, and the like.
Remember, the goal here isn’t just to track and analyze, but to use this information to expedite payments.
5. Reduce approval steps and processes
“Keep It Simple” — applies to lots of things, but it definitely applies to accounts payable too. Keep your AP processes simple, straightforward, and quick. This will reduce invoice processing time and speeds up payments.
Figure out which steps you actually need and get rid of the rest. By tracking, analyzing, and testing your AP processes, you’ll be able to determine whether or not your license flows have more steps than necessary.
6. Streamline internal communication
Without a good communication system, tasks will fall through the cracks. You need a secure, easy-to-use system that lets your team members collaborate and exchange information in real-time, from wherever they are.
The ability to communicate in real-time boosts efficiency and create a means for your employees to feel comfortable sharing ideas. But that’s not all; they’ll be able to build stronger working relationships amongst themselves, which is specifically important for remote teams. This all leads to quicker turnaround time for paying invoices.
7. Make it easy to receive and respond to queries
When an invoice is overdue, the supplier will more often than not call or send an inquiry. The easier it is for your team to receive and respond to these queries, the more quickly they’ll resolve issues and get invoices paid. Otherwise you need to deal with unnecessary delay.
There should be a structured management process for resolving overdue invoices. Create a communication channel through which suppliers can send their queries, and have an internal structure which allows the right person to respond accordingly and in a timely manner.
8. Know your suppliers
It’s not only the suppliers that will be contacting you; sometimes there will be cases where you need to contact them in order to clarify something that could otherwise lead to a delay in paying them.
It’s always in your interest to have suppliers’ contact details at hand.
You might also consider categorizing your suppliers for the sake of more easily prioritizing them. For example, you can prioritize suppliers with late payment penalties or early payment discounts to make sure that their invoices are paid quickly.
When you payment these suppliers on time, you contribute to improved cash flow for your company.
9. Delegate intelligently
Sometimes late payments are as a result of work overload. If you find your team members being overwhelmed with other activities, chances are that processes will get bottlenecked.
This means you ought to put some thought into how you delegate tasks. Be strategic! Ease the workload by spreading it out. Get staffers that are less busy to take over part of a procedure. Give the right task to the person with the right skillset to be most effective at completing it.
With your work delegation right, processes will fast track. Idle time goes out the window, mistakes are eliminated, productivity is restored, and your employees are more happy.
10. Schedule invoices for payment as soon as they arrive
This is a no-brainer, but some AP teams still miss it. Why do you have to wait until invoices are nearly overdue before processing them?
Processing an them from the get-go will only make it simplest to pay it on time.
11. Establish a routine for processing invoices, and follow it every time
When you regularly follow a routinize plan of action, you standardize your accounts payable process and reduce its cycle time. This promotes consistency, reduces costs, and increases expertise, as your team makes it a habit, instead of finding new ways to work.
12. Automate your accounts payable
We saved the best for last. If you decide to do nothing else, this step alone could completely change your accounts payable game.
From eliminating late payments to preventing errors, automation save you time and money, as it is proven to be the best solution for AP teams looking to optimize how they work.