In the modern-day and 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 pertaining to 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 that the business is liable to pay to their creditors.
Therefore, it becomes really important to manage accounts payables, for better outcomes in terms of overall liquidity cycle within the company. Here are a few tips which companies can use in order to manage their accounts 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 a level of around two per month.
Secondly, proper reconciliation and verification with the respective signatories is also an important component, which can help in the effective management of the Accounts Payable Process.
2) Prioritizing in accordance with the due dates
When it comes to paying back the creditors, a useful approach in certain cases is to ensure that there is proper clarity regarding the possible discounts which can be availed, 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 are able to manage and constantly review the overall data mechanisms, pertaining to accounts payables, to track the historical performance of a certain company.
Advanced reporting and analytics in this regard are often helpful as it helps companies to maintain a proper track record regarding how they can improve their credit rating, or how they can 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 be helpful in managing data, and ensuring that there are no data entry errors resulting from manual invoicing.
Furthermore, this can also 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 to be unnecessarily time consuming, but it can help the company to mitigate the risk that might otherwise occur from losses or thefts.
6) Application of the 5W1H Principle
The 5W1H Principle mainly vests on the idea of ensuring that an analytical strategy is formulated in lieu of creating and subsequently managing an accounts payable workflow management.
This strategy mainly revolves around asking questions and ensuring that there are proper answers pertaining to who should be paid, what do they need to be paid for, when should they be paid, why was the vendor chosen in the first place, where is 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, it is often helpful to create a portal specifically directed towards vendors.
This can ensure that the company is able to manage vendors, and establish a smooth communication channel with them, so that they have clarity as to when they are going to be paid, and how much time lag will be required in order to make the due payment.
8) Creation of Chain of Responsibility – RACI Model
RACI is an acronym used to describe Responsible, Accountable, Consulting and Informing. This model can be applied to the Accounts Payable mechanism in lieu of ensuring that the company is able to optimize results and ensure that there is proper clarity regarding the overall job descriptions and overall 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 a 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
Despite the fact that Accounts Payable is directly under the jurisdiction of the Accounts Department, yet 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 of the supplies made, and payment should subsequently be cleared after approval from the department has been made.
Therefore, it can be seen that managing accounts payable in a systematic manner can really improve the overall efficiency and productivity within the department.
Furthermore, it can also mitigate the company from significant losses and risks which might otherwise occur. From perspectives of liquidity, as well as financial leverage, it is really important to track and monitor these accounts for better outcomes.