In the modern-day age, it is increasingly important for corporations to be increasingly vigilant about their liquidity cycle to ensure that they retain their competitive edge.
In this regard, it also becomes rudimentary to have proper management of factors that directly impact the overall cash management that they have on hand.
Accounts payables tend to be one of the primitive factors in this regard. Accounts Payables are accumulated amounts the business is liable to pay their creditors.
Therefore, it becomes really important to manage accounts payables for better outcomes in terms of the overall liquidity cycle within the company.
Why Should the Company Manage Account Payable Properly?
Proper accounts payable management is essential for any company, as it helps ensure timely payments and improved cash flow.
Companies can improve their credit rating and maintain better supplier relationships by properly managing accounts payable.
Additionally, having accurate accounts payable records can help with budgeting and forecasting, as well as help to identify any discrepancies or inconsistencies in payables quickly and efficiently.
All of these benefits lead to increased profitability for the company.
Here are a few tips companies can use to manage their account’s payables.
1) Simplification of the Accounts Payables Process
More often than not, accountants and finance managers find it gruesome to handle the bulk of payments that are extended to suppliers or creditors.
However, this can be effectively managed by ensuring that the number of check runs is reduced to around two per month.
Secondly, proper reconciliation and verification with the respective signatories are also important, which can help effectively manage the Accounts Payable Process.
2) Prioritizing in accordance with the due dates
When it comes to paying back creditors, a useful approach in certain cases is to ensure that there is proper clarity regarding the possible discounts available by obliging with the stipulated deadline.
This turns out to be an effective trick, which can help the company save useful cash. Additionally, it is also important to realize the fact that these amounts have to be repaid anyway, so it is often a good strategy to avail of these discounts and create a good rapport with clients.
3) Constant Reviewing and Monitoring
It is a good practice to ensure that corporations can manage and constantly review the overall data mechanisms about accounts payables to track the historical performance of a certain company.
Advanced reporting and analytics are often helpful as it helps companies to maintain a proper track record regarding how they can improve their credit rating or negotiate better credit terms with different creditors.
4) Implementation of EDI (Electronic Data Interface) and e-invoicing.
Enabling technology into the overall accounts payable process can significantly help manage data and ensure that there are no data entry errors resulting from manual invoicing.
Furthermore, this can reduce the chance of fraud within the company, as it can not be overwritten or artificially created.
5) Creating responsible personnel (preferably upper management) for Accounts Payable
In the case of Accounts Payables, when payments have to be provided to suppliers, it becomes highly integral to ensure that Upper Management is given the responsibility for authorization of payments.
This chain of command might seem unnecessarily time-consuming, but it can help the company mitigate the risk that might otherwise occur from losses or thefts.
6) Application of the 5W1H Principle
The 5W1H Principle main vests on ensuring that an analytical strategy is formulated instead of creating and subsequently managing an accounts payable workflow.
This strategy mainly revolves around asking questions and ensuring that there are proper answers about who should be paid, what they need to be paid for when they should be paid, why the vendor was chosen in the first place, where this association headed towards, and how will the payment structure be set up.
7) Creation of Vendor Portal
When it comes to vendor-related payments, creating a portal specifically directed toward vendors is often helpful.
This can ensure that the company can manage vendors and establish a smooth communication channel with them so that they have clarity as to when they will be paid and how much time lag will be required to make the due payment.
8) Creation of Chain of Responsibility – RACI Model
RACI is an acronym that describes Responsible, Accountable, Consulting, and Informing. This model can be applied to the accounts payable mechanism instead of ensuring that the company can optimize results and ensure proper clarity regarding the overall job descriptions and KPIs that need to be targeted in this regard.
9) Creation of SOPs to ensure proper information management
When it comes to managing Accounts Payables, it often becomes hectic to keep track of all the payments that need to be made.
Furthermore, given the overall differences in invoices that are generated by different suppliers a given company works with, it becomes important to keep track of the taxes that are paid on certain invoices and the overall ledger account they should be posted to.
Therefore, to avoid confusion and clutter at the end of a given financial year, it is often a smart strategy to ensure that there are SOPs in place, which can ensure that step-by-step information is recorded so that there is perpetual record-keeping without any chances of data entry errors.
10) Efficient and Effective Inter-Departmental Communication
Even though Accounts Payable is directly under the jurisdiction of the Accounts Department, it becomes quite important to ensure that inter-departmental communication is top-notch, to ensure payments are made, only when supplies have been approved and checked for quality by the respective department that is procuring the given goods and services.
Therefore, it is quite important to keep a tab on the supplies made, and payment should subsequently be cleared after approval from the department has been made.
Therefore, it can be seen that systematically managing accounts payable can improve the department’s overall efficiency and productivity.
Furthermore, it can also mitigate the company from significant losses and risks which might otherwise occur. From liquidity and financial leverage perspectives, it is really important to track and monitor these accounts for better outcomes.