Optimizing your accounts payable is more than simply doing a great job for its own sake. Among the many accounting best practices and functions, few have more benefit in streamlined efficiency than a well-oiled accounts payable system of processes and people. Of course, as with any operational function, innovation and adaptation are changing the face of accounts payable constantly.
Emerging tech, new systems, different risks, and more all combine to make effective AP management tricky for all but the most experienced and up-to-date teams.
That’s why staying abreast of the latest changes in accounts payable best practices is the bare minimum required for continued competency. If you slip or fall behind on the best practices for accounts payable, you put the entire organization at risk – that may sound dramatic, but it’s a stark reality in today’s tech-driven world.
Of course, it isn’t just about avoiding trouble or failure. Optimizing your operations with the best practices in accounts payable is a surefire way to keep your organization relevant, lean, and effectively manage your cash flow.
The Fast-Changing Nature of AP Best Practices
You aren’t running your company’s back-end operations on 1970’s era tech and you aren’t using Mad Men-style marketing campaigns to deliver your product to consumers. Times change, attitudes change, techniques change, tech changes - why would you think that accounts payable best practices are any different?
As with any rapidly-changing landscape, a small slip today compounds rapidly when, months or years down the road, you find yourself at the edge of irrelevance – all due to factors or missteps easily avoided by understanding and implementing accounts payable best practices.
Example: Company X Relying on Best-Practices of Yesteryear
Company X is a mid-sized manufacturing firm that has been operating for the past 20 years. They've built a solid customer base and have reliable vendors. But their AP procedures remain largely unchanged since they founded, and they certainly aren’t following 2024’s accounts payable best practices:
Outdated Best Practices:
- Manual Invoice Processing: Company X still relies on manually processing paper invoices. This involves AP clerks physically entering data into their system, leading to slow processing times and higher rates of human error, like, incorrect debit-credit recording, incorrect amounts or due date capturing, and skipping today’s accounts payable invoice processing best practices.
- Physical Checks for Payment: They use physical checks as their primary payment method. This not only increases the risk of fraud but also delays the payment process due to mailing times and manual handling.
- Lack of Early Payment Discounts: Company X does not leverage early payment discounts because their manual processes do not allow them to process invoices quickly enough to take advantage of these discounts.
- No Integration with Purchasing Systems: Their AP system is not integrated with their purchasing system or enterprise resource planning (ERP) software, leading to discrepancies and a lack of visibility into spending and cash flow.
- Absence of Analytics: They do not utilize analytics, missing out on insights that could optimize their cash management, forecast budgets, and negotiate better terms with suppliers.
There’s more, but you get the point – lost time, effort, and money directly attributable to stale or outdated AP processes can cost your company far more than cash flow – it could impact its very future.
The Critical Need for Modern Best Practices in 2024
Of course, you’ll often find trite, generic advice when you seek out the best accounts payable practices. While some advice is evergreen, you’re a professional – you know, for example, that paying vendors on time is a good way to maintain strong supplier relations. Rehashing old, stale advice is far too common when we look for today’s top, cutting edge accounts payable best practices.
But we’re taking a different approach and focusing solely on AP best practices that are urgent and timely in 2024.
14 Updated Best Practices for AP Teams to Focus on This Year
Before we examine our best practices for accounts payable, note that we’re working on two core assumptions: you’re an accounting or finance professional and well-versed in what AP entails, and your organization is sufficiently tech-oriented that you aren’t, for example, using carbon copy to record invoicing. Assuming a baseline knowledge and tech integration, here’s what we see as the top best practices for AP teams to focus on in 2024.
Best Practice #1: End-to-End AP Automation
End-to-end AP automation describes automating your accounts payable process from the beginning to its end (truthfully, the name is fairly self-explanatory). But though the process sounds simple, it’s anything but – though optimizing end-to-end automation is an important first step in streamlining your entire operation. Remember that, with end-to-end automation, no stage is exempt.
You’ll automate invoice receipt to invoice matching, workflow routing and approvals all the way to reconciliation and reporting. We can leverage end-to-end AP automation today thanks to a diverse set of tech, tools, and software, but the impetus nevertheless lies with human decisionmakers to integrate the systems and put them to good use.
Why we recommend this strategy for AP teams to focus on right now.
Implementing end-to-end AP automation reduces the potential for human error, which is all-too-common in manual data entry and processing. Automated systems can extract data from invoices with high accuracy, match invoices to purchase orders without human intervention, and facilitate timely payments by following pre-set rules. Automation also provides real-time visibility into the AP process, offering instant access to the status of invoices and payments, which is essential for accurate financial forecasting and cash flow management. It also enhances compliance and control by maintaining an auditable trail of all transactions, thereby reducing the risk of fraud.
Remote work norms are also changing, meaning that having accounts payable automation best practices let teams operate from anywhere, ensuring business continuity and flexibility. Automation also opens up the opportunity for AP teams to focus on more strategic tasks such as data analysis, supplier relationship management, and working capital optimization. As businesses face increasing pressure to optimize operations and reduce costs, end-to-end AP automation stands out as a strategy that can deliver tangible benefits quickly and sustainably.
Best Practice #2: Paperless AP
Again, the name is self-explanatory – paperless AP describes realizing the early-Internet’s vision of a paper-free society able to transact and interact with screens as a sole mediator. While we’ll still be printing executive slide decks and memos well into the future, one avenue we can make paperless is our AP processes by e-invoicing, creating digital workflows, managing payments online, and using cloud computing for archival and storage.
Why we recommend this strategy for AP teams to focus on right now.
One of the top benefits of paperless AP is its environmental impact, or lack thereof. We’re all too well familiar with the glut of paper products associated with even routine transactions, and minimizing our paper footprint is an important first step in minimizing our overall environmental footprint.
Beyond that, paperless AP offers many of the same benefits wider digitization does, including enhanced collaborative opportunities (key for remote teams), smoother workflows, increased productivity, better security protocols, and scalability that paper-based systems simply don’t offer.
Best Practice #3: AI & Machine Learning Processes
AI and machine learning are hot topics right now, and many companies throw the buzzwords around with little indication they know what they mean, let alone how to deploy and leverage advanced tech within their operational ecosystem. But few sectors offer as much innovative AI and machine learning potential as AP which, with its defined workflows and systems, is perfectly suited to AI integration.
Why we recommend this strategy for AP teams to focus on right now.
Incorporating AI and machine learning into AP processes automates complex tasks that traditionally required human intervention like as invoice data extraction, categorization, and even fraud detection. Machine learning algorithms can analyze historical data to predict future trends, optimize payment times, and identify opportunities for cost savings, such as potential early payment discounts. AI can also improve compliance by continuously learning and adapting to new regulatory requirements, reducing the risk of errors and non-compliance penalties.
Better yet for smaller firms looking to leverage AI, these systems can handle volumes of data and transactions at scale, providing real-time insights and freeing up human resources to focus on more value-adding activities, such as supplier relationship management and strategic financial planning.
Best Practice #4: Fraud Detection
As tech advances, so too do fraudulent methodologies and bad actors’ access to top tools. Staying abreast of ongoing and emergent fraud detection techniques is more than an accounts payable best practice – it’s a way to ensure your company’s long-term survival.
Why we recommend this strategy for AP teams to focus on right now.
Advanced fraud detection strategies employ a combination of anomaly detection, pattern recognition, and verification checks against known fraud indicators. By implementing such systems, AP teams can proactively monitor transactions for suspicious activity, flagging anomalies for further investigation and thereby reducing the risk of financial loss. These systems can learn over time, adapting to new fraud tactics and evolving with the ever-changing digital landscape.
Moreover, a strong fraud detection protocol demonstrates to stakeholders that a company is serious about safeguarding its assets. This can enhance company reputation and can be a key factor in building trust with investors, suppliers, and customers. In a time where data breaches and financial scams happen daily and continually accelerate, an investment in fraud detection is not only a protective measure but also a competitive advantage.
Best Practice #5: Strong Internal Controls and Exception Flagging
Maintaining clear delineation of duties within your AP workflow, and proper exception flagging protocol, is especially important in a digitized environment. If you followed our other AP best practices thus far, you’re working through automated, paperless, AI-enabled workflows. But even those accounts payable best practices can’t necessarily shield you from insider threats posed by internal employees taking advantage of workflows to self-approve invoices, duplicate transactions, and other fraudulent (or merely wasteful) actions.
Why we recommend this practice for AP teams to focus on right now.
Internal controls are your first line of defense. They help in detecting and preventing errors and irregularities by setting limits on access rights, enforcing segregation of duties, and mandating regular reconciliations. These controls create a structured and controlled environment where anomalies are quickly identified and addressed.
Exception flagging is a critical component of internal controls that specifically targets outliers in data that may indicate errors or fraudulent activity. By focusing on this area, AP teams can swiftly isolate and investigate non-compliant transactions, unauthorized payments, or other irregularities. This not only protects the company from potential financial losses but also upholds the financial reporting process’ integrity.
Likewise, as regulatory scrutiny increases and business becomes more data-driven, AP teams that prioritize strong internal controls and exception flagging will be better positioned to adapt to regulatory changes and harness data for strategic decision-making. This focus is not just a protective measure but also a strategic one that can enhance operational efficiency and the overall financial health of the organization.
Best Practice #6: Maximizing Early Payment Discounts
We all want to keep cash in the company for as long as possible, but leveraging early payment discounts often has greater benefit than the marginal return we can squeeze from our capital by holding onto it for a few extra weeks. Still, many overlook how impactful early payment discounts are – especially in an era where vendors are hungrier than ever to get paid stat.
Why we recommend this practice for AP teams to focus on right now.
Maximizing early payment discounts directly contributes to cost savings and can improve a company's bottom line. In the current economic climate, where cash flow management is more crucial than ever, taking advantage of these discounts can lead to substantial financial benefits. It also strengthens supplier relationships by positioning the company as a preferred customer due to faster payment times, which can lead to more favorable terms in the future.
Internally, by focusing on capturing early payment discounts, AP teams are encouraged to streamline their processes to facilitate faster invoice approvals and payments. This can drive further efficiencies in the AP process, reducing the overall cost of operations.
Best Practice #7: Faster Reconciliation
Reconciliation — the act of ensuring that records accurately reflect transactions — is critical for maintaining accurate financial statements and understanding the company's fiscal health. But we’re operating in a fast-paced world and reconciliation, like many accounts payable best practices, benefits from rapid movement and speedy action.
Why we recommend this practice for AP teams to focus on right now.
Faster reconciliation offers more immediate detection and resolution of discrepancies, which in turn helps prevent financial statement errors, fraud, and regulatory compliance issues. At the same time, as transaction volume increases and global operations become more complex, AP teams need to reconcile accounts promptly to provide the business with a current view of its cash position.
This is vital for strategic planning, budgeting, and managing liquidity. By speeding up the reconciliation process, companies can also improve their relationships with vendors by addressing any issues quickly, which can lead to better terms and partnerships.
Best Practice #8: Increase Business Visibility and Real-Time Reporting
The best data is useless if 1) you don’t use it or 2) it’s stale, outdated, and irrelevant. In our age of real-time data access, not leveraging the depths of data within accounts payable or relying on latent information is inexcusable.
Why we recommend this practice for AP teams to focus on right now.
The ability to see financial transactions as they happen and to report on these in real-time provides AP teams and decision-makers with up-to-date information, enabling them to make informed financial decisions quickly. This is essential for managing cash flow effectively, identifying financial trends, and responding to market changes promptly.
Real-time reporting allows businesses to be more agile, adjusting strategies and operations to optimize financial performance. It also enhances transparency and accountability, which is increasingly important to stakeholders. These accounts payable best practices increase your AP’s strategic importance in the business by providing insights that can lead to improved supplier negotiations, cost savings, and investment decisions.
Best Practice #9: Streamlined Vendor Communication
Our workforces aren’t the only aspect of business that’s increasingly remote. As we move towards a globalized, digitized world, our suppliers and vendors tend to be increasingly distant as well. That makes proper, effective, and streamlined vendor communication more important than ever today.
Why we recommend this strategy for AP teams to focus on right now.
Effective vendor communication ensures that transactions are processed smoothly, discrepancies are resolved quickly, and relationships are strengthened. In an era where supply chains are global and markets move quickly, having a strong communication channel means that AP teams can more effectively manage payment terms, negotiate discounts, and ensure a reliable supply of goods and services.
Moreover, streamlined communication is essential for mitigating risks associated with delayed payments, which can result in supply disruptions and damage to the company's reputation. By focusing on this strategy, AP teams can contribute to a more collaborative, transparent, and resilient business ecosystem.
Best Practice #10: Weeding Out AP Redundancies
A common trend for AP teams first embarking on digitization or automation is jumping in too enthusiastically, trying to capture every tactical nuance or data point, no matter how small. While the effort is admirable, the fact is that indiscriminate integration can create more bottlenecks than it solves by creating redundancies. Luckily, these AP redundancies are just as easy to ferret out and remove with a little due diligence.
Why we recommend this strategy for AP teams to focus on right now.
Redundant tasks in AP often involve repetitive data entry, multiple approvals that don't add value, and excessive manual reconciliations. These not only slow down the process but also tie up valuable resources that could be better utilized in strategic activities such as data analysis, negotiation with suppliers, or cash flow optimization.
From a big-picture perspective, many of the tasks that were once manual can now be reliably automated, reducing the need for human intervention and minimizing the risk of errors. By focusing on removing these redundancies, AP teams can streamline workflows, enhance compliance, and free up time to concentrate on higher-value work that requires human judgment and expertise.
Best Practice #11: Mobile Adoption
Many of our operational workflows are mobile now, from email, real-time communications, travel, and even banking. One area in which mobile adoption lags, though, is within our accounts payable teams.
Why we recommend this strategy for AP teams to focus on right now.
As workforces become more mobile and remote work continues to be prevalent, having AP processes that can be managed via mobile devices ensures that teams can approve invoices, make and receive payments, and access financial data from anywhere at any time.
This mobility allows for faster decision-making and processing times, which is critical in a dynamic business environment where delays can lead to missed opportunities and strained vendor relationships. Additionally, mobile solutions can improve the work-life balance for employees by offering them the flexibility to manage work tasks outside of the traditional office setting.
Mobile technology adoption also enhances collaboration and communication between team members, vendors, and other stakeholders. It ensures that the AP process is not halted due to the unavailability of key personnel who can authorize payments or resolve issues promptly.
Best Practice #12: Cloud Computing
Self-storage is increasingly risky, whether we’re talking hardware stacks or (worse yet) manual paper-based AP management. At the same time, tech advancements make cloud computing more effective, efficient, and cheap for companies looking for an AP edge.
Why we recommend this strategy for AP teams to focus on right now.
Cloud computing’s scalability allows businesses to adjust their resources according to their needs without significant upfront investments in hardware. This is especially beneficial for managing the fluctuating volumes of invoices and payments, which can vary due to seasonal trends or unexpected market conditions.
Furthermore, cloud computing typically offers enhanced security features, including regular updates and patch management, which are critical for protecting sensitive financial data. The centralized nature of cloud services also facilitates better compliance management with regulations such as GDPR, as data handling and privacy controls can be standardized and monitored more effectively.
Best Practice #13: Internet of Things in AP Processes
The Internet of Things (IoT) is tangential to AP, but still ultimately impactful. By integrating IoT advancements into your wider operation, whether inventory, shipping and packaging, or data collection, IoT’s downstream effects on quality AP management is undeniable.
Why we recommend this strategy for AP teams to focus on right now.
IoT enables devices can communicate directly with AP systems, allowing for real-time data collection and processing. This connectivity can significantly enhance efficiency in areas such as inventory management, where sensors can automatically trigger reorder processes and update financial records without manual intervention.
To that end, IoT can also play a crucial role in predictive maintenance and asset management. By monitoring the condition of equipment and predicting failures before they happen, IoT allows AP teams to proactively manage maintenance schedules and associated costs, preventing unexpected expenditures and downtime.
Incorporating IoT devices can also lead to more accurate and timely expense tracking. For instance, smart meters can report utility consumption directly to AP systems for automatic invoice generation and payment, ensuring that expenses are recorded as they are incurred.
Best Practice #14: Maintain Up-to-Date Supplier Data
Operational data latency isn’t the only thing that can cripple your organization. Like supplier communications, latent, outdated, or “bad” supplier data can cripple the most effective AP teams. Like we said up top, we’re increasingly disparate from suppliers and vendors – making the virtual Rolodex all the more important to maintain.
Why we recommend this strategy for AP teams to focus on right now.
Up-to-date supplier data enables AP teams to quickly respond to changes in pricing, availability, and supplier terms. This responsiveness is essential for managing costs effectively and can lead to better negotiation outcomes. Additionally, in the event of supply chain disruptions, current supplier information allows AP teams to swiftly identify alternative vendors, minimizing potential operational delays.
The Future of Accounts Payable Best Practices
Where we end up in the next few years technologically is anyone’s guess; few likely anticipated the recent AI surge impacting all aspects of business including accounts payable. But the future of AP best practices is likely to be shaped by further technological advancements, increased automation, and a shift towards more strategic financial decision-making. Tech will keep transforming the AP landscape, making processes more efficient, secure, and cost-effective. These technologies will enable real-time data processing, predictive analytics for cash flow management, and enhanced fraud prevention measures.
AP practices will also become more enmeshed and integrated with other business systems, facilitating cross-functional data sharing and analysis. This will help organizations gain a holistic view of their financial operations and contribute to more informed strategic planning. AP teams will increasingly rely on cloud-based platforms that offer scalability and remote accessibility, aligning with the global move towards flexible work arrangements and distributed teams.
Sustainability will also be a focus area, with paperless processes becoming the standard, driving down costs and aligning with corporate social responsibility goals. Overall, the future of AP will be about agility, smart use of data, and seamless integration within the broader context of business intelligence and operations.
How to Optimize Your Payables Processes With The Latest in AP Technology
Embracing the entire range of tools and accounts payable best practices is necessary to optimize your payables systems today. Unfortunately, picking and choosing a handful of pet practices isn’t enough, missing just one can have catastrophic downstream effects.
This begins with implementing end-to-end AP automation solutions that can handle everything from electronic invoice capture to automatic payment processing. Utilizing AI and machine learning can further refine these processes, enabling the extraction of invoice data with high accuracy, categorization of expenses, and predictive analytics for better cash flow management.
Additionally, cloud-based AP platforms facilitate accessibility and scalability, ensuring that your AP team can work efficiently from any location and easily adapt to the changing volume of transactions. Integrating these platforms with real-time analytics and reporting tools can offer insights into spending patterns and help identify opportunities for early payment discounts and dynamic discounting strategies.
By adopting these advanced technologies, companies will enhance their efficiency and accuracy of their AP processes but also shift the role of the AP department from transactional processing to strategic financial management.
Conclusion
Change is unavoidable, so don’t get caught using outdated accounts payable best practices. As a professional, part of your professional duty is staying abreast of the latest tech, trends, and tools within accounts payable.
But, ultimately, embracing end-to-end automation, utilizing AI and machine learning for data processing and predictive analytics, and adopting cloud-based platforms are not just trends but requirements for modern businesses aiming to optimize their payables processes. These technologies revolutionized the way AP departments operate, shifting the focus from manual, time-consuming tasks to strategic financial activities that drive growth and efficiency.
The adoption of mobile solutions and IoT in AP processes further underscores the movement towards a more agile, real-time management approach. These advancements facilitate enhanced decision-making, offer greater visibility into financial operations, and enable AP teams to contribute more significantly to the organization's financial health.
As we look to the future, it is clear that companies that continue to invest in the latest AP technologies and best practices will gain a competitive edge, achieve operational excellence, and realize improved bottom-line results. The key to success lies in continuously adapting and innovating in response to the evolving technological landscape, ensuring that AP processes remain robust, compliant, and aligned with your strategic objectives.
