Accounts Payable Management tends to have a significant amount of importance for companies, primarily because of the reason that they tend to influence the overall liquidity cycle of the company. If not managed in an optimal manner, it might result in companies facing significantly higher purchase costs. Therefore, it is quite important to ensure that those companies pay significant attention to the management of these payables so that they are able to extrapolate the best possible spread between the time when they receive the money and the time when they have to settle their debts.
A lot of strategy and thinking goes into typical accounts payable management. The main criteria in this regard are to ensure that companies are able to manage their accounts, and ensure that they avoid any undesirable circumstances in the form of increased costs, or strained relations from the company in this regard. Given below are some tips and tricks that can be used in order to manage accounts payable for organizations.
Tips and Tricks to Manage Accounts Payable
- Simplification of the Accounts Payable Process: This tends to be one of the main precursors of accounts payable management. As a matter of fact, it is highly important to ensure that the process is as simplified as it can be, in order to eradicate any confusion. This can be done by reducing the number of check runs in a month, and establishing payment cycles over a period of time so that there is clarity regarding settling of debts over the course of time. In the same manner, SOPs before payment disbursement are also effective, because they ensure that organizational heads do not have to spend time verifying their transactions.
- IT Integration: IT integration is perhaps the best tool that can be utilized in order to get the maximum advantages from the Accounts Payable Cycle. Using technology can enable companies to ensure that they have a proper idea regarding the integrations that need to be carried out so that they can ensure that they do not miss out on payment discounts, or payment cycles. Transaction flow and arithmetical errors can also be highly damaging to the cause. Therefore, it is in the best interest of these companies to ensure that technology integration is in place so that the chance for human error is minimized.
- Internal Controls to reduce Fraud: Segregation of duties and a clear cut protocol to be followed in terms of cash disbursement is a preventive measure that can be utilized by the companies in order to ensure that they are able to reduce fraudulent activities within the company to a maximum. Prevention of dummy vendors by dishonest employees can only be curtailed if companies have a stringent structure to follow in terms of verifications within the company.
- Negotiation of Vendor Terms: Inventory holding and ordering costs can be detrimental to the finances of the company, if not managed properly. Therefore, in order to set up an Economic Order Quantity for the company to follow, it is imperative that companies are able to set up an agreement with their suppliers regarding the terms that are going to be offered to them. By establishing loyalty with these parties, companies can easily ensure that they are able to get the best contracts for themselves, and they do not have to spend time looking for other vendors. The lesser the vendors they need to manage, the easier the management of these payables.
- Role of the CFO: It can also be seen that the role of the CFO should be limited to the signing of authorities, and other relevant documents so that he does not get overwhelmed by the need to check every payment made from the company’s account. This can be done by establishing other secondary signatories, and verification channels, so that the entire burden does not fall on one person.
Therefore, it can be seen that accounts payable management tends to be an increasingly important component for companies. As a matter of fact, it can be seen that this particular management can easily help companies to manage their resources in a much effective manner. Proper management considerably adds to the credibility of the company and helps them establish their integrity in the market. This also opens avenues to get more discounts, and more credit periods for the company, because of the fact that the suppliers know about the intent of the company to settle their debts on time.