11 Best Practices for Accounts Payable

If you’re in charge of Accounts Payable (AP) for your business, you know how time-consuming and stressful it can be. From entering data and processing invoices to creating purchase orders and making payments, the responsibilities of AP management can be overwhelming. However, there are ways that can lead you to significant cost and time savings and improved vendor relationships.

In this blog, we share the 10 best AP practices to help you improve your payment management system:

1. Go paperless
2. Outline workflows for tracking your AP process
3. Prioritize invoices and payments
4. Set up a payment schedule
5. Track early payment discounts
6. Keep accurate AP records
7. Communicate with your suppliers
8. Establish reliable fraud detection
9. Check for errors and duplicate payments
10. Establish access controls
11. Automate AP processes

Let’s get started!

#1. Go paperless

Transitioning to a paperless AP process is a key step in modernizing and streamlining accounts payable management. By eliminating paper invoices and checks, companies can reduce administrative overhead, minimize the risk of errors, and improve overall efficiency.

Digital invoices are easier to track, store, and retrieve, offering greater security and accessibility. Leveraging AP automation tools allows you to scan and process invoices electronically, making your AP process much faster.

#2. Outline workflows for tracking your AP process

One of the key elements of managing your accounts payable is to put a system in place to effectively track, review, prioritize, and organize all the bills and invoices that the company owes.

You can do so by using an Excel or Google spreadsheet or by implementing an accounts payable software to keep track of due dates, amounts owed, and payment statuses.

Having a clear and organized system for tracking your AP will help you ensure that bills are paid on time and your company has an accurate record of its financial obligations.

#3. Prioritize invoices and payments

Managing accounts payable efficiently requires prioritizing invoices based on urgency and importance. This involves assessing due dates, early payment discounts, and supplier relationships.

High-priority payments, such as essential vendors or invoices with potential penalties for late payments, should be addressed first. By having a priority system in place, you can ensure timely payments while also managing cash flow effectively.

#4. Set up a payment schedule

Another accounts payable processing best practices is establishing a payment schedule. This includes outlining when bills are due, and when payments will be made to suppliers. 

In some cases, you can even set your payment terms. If that’s the case, aim to pay your suppliers on a weekly basis as it is likely to align with most account settlement periods, which are typically every 7, 14, 21, or 30 days.

By having a clear overview of due dates and payment schedules, you can prevent missed payments or late payment fees, which can damage your company’s reputation and relationships with suppliers.

A consistent payment schedule can also help build trust and establish good relationships with vendors, as they will know when to expect payment.

#5. Track early payment discounts

Paying suppliers early can be beneficial for the smooth functioning of the business. This means adhering to the agreed-upon payment terms and making timely payments. 

By doing so, businesses can avoid late payment fees and penalties, maintain strong vendor relationships, and improve their reputation as reliable partners. Additionally, paying vendors early not only helps the company meet its financial obligations, but also helps suppliers increase liquidity by getting paid faster. 

Bonus tip: Did you know that some suppliers offer early payment discounts? For instance, if the invoice is paid in full within 10 days, the supplier may grant a 2% discount. For timely and complete payments, some creditors may also lower interest rates.

By taking advantage of early payment discounts provided by suppliers and vendors, businesses can reduce their accounts payable costs and boost their cash flow. However, businesses must enquire about these discounts as they are not often promoted.

#6. Keep accurate AP records

To ensure effective accounts payable management, it is vital to monitor and review the company’s payables regularly. This means making sure that:

• All bills are being accounted for;
• Payments are being made on time;
• Supplier agreements and payment terms are favorable and in line with the company’s needs;
• Any potential issues are identified and addressed before they become more serious.

Consistent monitoring of your accounts payable data will help you improve your cash flow planning, reduce the risk of fraud, and make better business decisions. 

#7. Communicate with your suppliers

Maintaining good communication with suppliers is a key factor in managing accounts payable. This could include notifying them when payment is expected and keeping them updated on the status of a payment.

Doing so helps to build trust and form positive relationships, as well as avoid disputes and misunderstandings.

For instance, if vendor bills don’t match approved purchase orders (POs), contact the vendor to investigate the difference and resolve it before the due date. Never pay for a bill you know or suspect is incorrect.

#8. Establish reliable fraud detection

There are many steps you can take to prevent accounts payable fraud. These can include implementing strict controls on access to financial systems, regular vendor payment and invoice reviews, and implementing document fraud detection software. 

Note that any place where money is handled can pose a significant risk to a business, so it’s essential to implement policies and procedures to minimize that risk. 

A good starting point could be checking for dummy vendor accounts, which can be used by employees to commit fraud, and setting system parameters to prevent staff who issue checks from creating new vendors. Also, check for fake invoices as document vendor poses a significant threat to companies.

Lastly, cross-referencing vendor information with data from the Chamber of Commerce (CoC) can also aid in identifying and preventing vendor fraud.

#9. Check for errors and duplicate payments

Whether you are using invoice automation software for your AP process or doing it manually, it’s among accounts payable best practices to regularly check for errors, duplicate invoices, and duplicate payments to vendors. 

This can be done by periodically reviewing vendor invoices and purchase orders, as well as reconciling vendor statements to ensure that all payments have been correctly recorded and accounted for. 

The accounts payable department plays an essential role in safeguarding the company’s financial health and should be diligent in identifying and preventing errors and duplicates.

#10. Establish access controls

To protect your organization from employee fraud, it’s crucial to establish internal controls and separation of duties within the AP process. 

One way to achieve this is to limit access to the master vendor file or, in other words, the supplier portfolio to specific employees. As a result, companies can have better control over approved vendors and monitoring of payments.

Additionally, to further reduce the risk of fraud, you should assign different tasks such as invoicing, payment processing, and invoice approval, to different individuals, rotating these duties periodically. This ensures that the team is aware of all activities and is able to handle all duties smoothly.

#11. Automate AP processes

Paper invoices and checks are becoming increasingly rare—and for good reason. Automating invoice processing and payments with software solutions boosts efficiency, reduces manual effort, and simplifies overall payment management.

AP automation leverages technologies like OCR (Optical Character Recognition) and AI to eliminate manual tasks, minimizing the need for printing and mailing checks.

Automation software streamlines invoice generation, sends payment reminders, and tracks payment statuses, significantly reducing errors and improving financial accuracy.

A Goldman Sachs study found that businesses automating their AP processes can save up to $16 per invoice and cut processing time by 80%. These savings enable faster payments and strengthen supplier relationships.

As the data shows, automation solutions like Klippa SpendControl can be a game changer for managing AP effectively.

Automate your Accounts Payable Today

Klippa SpendControl is an all-in-one digital pre-accounting software that combines invoice processing, expense management, and corporate credit card modules—each available individually, so you can choose only the ones you need. 

Our software utilizes OCR technology to ensure accurate data capture and enable invoice scanning, approval, archiving, and booking directly to your financial administration.

With Klippa SpendControl your AP team can:

• Submit, process, and approve invoices via web or mobile app
• Achieve 99% invoice data extraction accuracy with Klippa’s OCR
• Regain control over your accounts payable with intuitive dashboards
• Customize your approval management with multi-level authorization flows 
• Never fail to comply with tax and data privacy regulations with our ISO27001-certified and GDPR-compliant solution
• Rely on automatic multi-currency support for international payments
• Prevent invoice fraud with built-in duplicate and fraud detection
• Integrate SpendControl with your accounting and ERP software, like Quickbooks, NetSuite, or SAP

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