Every business tries to keep the working capital in good shape. One traditional approach to achieve that goal is to delay the accounts payables as long as possible.
That tactic can create extra cash for the short-term but the long-term effects can be devastating for the business. Good supplier relations can improve your company inventory management, production, and ultimately sales.
Calculating and forecasting customer invoices is relatively easy, it gets complicated to know what and when a business owes to the suppliers. A clear and precise forecast for this important cash outflow can help management with working capital, cash flow, revenue, and profit forecasts.
A good accounts payable department can adapt a few habits and methods to effectively streamline the payables process. Accounts payable strategy would differ on a case to case basis depending on company business size and industry.
Here are some useful strategies that all account payable departments can follow for effective management:
Automate the Accounts Payable Section:
It’s highly likely that your business is already using digitized and automated accounting department services. The accounts payable department often takes the backseat as the accounts department often follows a traditional approach when it comes to supplier relations management.
Automation of supplier invoices will form the basis of a good accounts payable management system. Account payable department can stay ahead of the schedule proactively rather than just chasing notices all the time.
Adapt to a centralized Approach:
If your business is large enough, operating with branches and service centers, your accounts payables need to be centralized. Centralization of all accounts payables in one place will provide manifold benefits.
Some key benefits of a centralized approach will include increased supplier data, increased control over payment terms, and increased price negotiation power.
The approach will add benefits of efficiency and lower costs by following the standard procedures and practices.
Define Roles And Delegate Powers:
In large firms, the accounts payable departments always needs prior approvals and follow instructions from top-level management.
If the top management can define the accounts payable staff roles more clearly and delegate powers it can speed the whole process. It’s important to delegate powers with additional power and controls.
Streamlining the workflow can ease all business operations. It will eliminate inefficiencies and reduce lead times. If it’s not possible to delegate powers to lower management a clear and precise flow of work can help with effective payables management.
Create Supplier Database:
Create a supplier database electronically, linking both accounts payable department and suppliers. This portfolio of suppliers can provide valuable information to both suppliers and payable departments such as payment schedules.
It will increase supplier reliability as they can track their payment schedules, amounts, and any changes requested electronically.
Apart from setting up procedural methods and newer technology, a successful accounts payable department should create a good culture. Effective management techniques should then become the norms and characteristics of a successful team.
A good team managing effective accounts payable department should create some habits:
- Shun the notorious habits of procrastination, become more flexible. and proactive by reducing wait times for the suppliers.
- Deal with one task at a time when faced with multiple tangling issues from suppliers.
- Make full use of technology; automation and software are to help you streamline your workflow.
- Accounting software and automation help you assign clear roles and delegate powers to the right person; make the best use of it.
- Make supplier relations your priority, it will benefit the whole organization and increase your stocks.
- Once you take up a delayed payment or deferred payment issue, do it from start-to-finish.
Effective accounts payable management is not just about the automation of manual processes. Creating a quality culture prioritizing the organizational goals and managing supplier relations reaps rewards of long-term success.
Streamlining the payables accounts through innovative technology and efficient management will increase the overall organizational efficiency.