Drowning in Accounting? Try These Accounts Payable Best Practices

An organized AP department runs smoother. If daily operations seem unmanageable, try these top 10 accounts payable best practices to get back on track.
Written by:  Bridey Joyce
Last Updated:  April 17, 2024
accountant carefully checking the numbers

The phrase “What got you here won’t get you there” applies to many areas of business, but it’s especially true for AP. While success is sweet, it can also strain systems, requiring them to evolve. Planning for scale is necessary before your department feels the pressure of too many orders. 

A streamlined process organically supports AP teams as volume increases. There are many ways to achieve optimization with process and technology. If your team is feeling the heat at month-end or struggling with too much accounts payable workflow, these 10 best practices will help them get their footing and stay balanced — even during crunch time.

Download the free tool: Invoice Tracking Template

1. Streamline accounts payable processes

Integrating software into the AP process establishes a stable system to support the business as it grows. Automation empowers most of the vital tasks in an AP workflow, including:

  • Purchase requisition
  • Approval management
  • Invoice capture (digital and physical)
  • Invoice approval
  • Purchase categorization
  • General Ledger (GL) coding
  • Paperless invoice matching and reconciliation
  • Exception management 
  • Reporting
  • Automated payment methods
  • AP payments and payment consolidation

Automation eliminates manual data entry and errors that keep AP teams from delivering their best work. Once implemented, it makes daily operations easier, enables real-time visibility into outstanding payables, and helps teams manage cash flow effectively.

Also, the software ensures compliance with tax rules and generates insightful reports for decision-making to simplify the entire accounts payable process.

2. Document processes and procedures

Well-documented policies are the foundation of stability in the AP process. They help stakeholders understand their roles and facilitate standardization. Documented processes with effective communication and change management support let the department adapt as systems change over time. Reference material also helps new employees onboard with a full understanding of AP department policies and procedures.

Accurate and complete documentation helps the team respond correctly during audits and disputes. It enables compliance with financial regulations and accuracy in financial statements and reporting. Documentation boosts confidence in data integrity while promoting efficiency and transparency in handling payables.

tracking invoices

Invoice Tracking Template

Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.

Download the tool

3. Include anti-fraud measures

Building robust fraud detection measures into the AP process is crucial to ensuring financial integrity. With over 60 percent of businesses reporting rising levels of fraud, companies must prioritize making it harder for internal bad actors and unscrupulous vendors to commit procurement fraud. 

Strong internal measures, such as the segregation of duties and dual controls, add layers of security and offer protection. Advanced software tools can detect transaction anomalies and suspicious patterns while enforcing compliance with company policies and regulatory requirements. Regular audits and surprise checks serve as deterrents and help identify vulnerabilities in company systems.

4. Establish responsibilities and access levels

Establishing clear roles and responsibilities within the AP process makes it easier to administer the workload and work collaboratively. They delineate the authority and responsibilities of each team member, ensuring tasks are allocated appropriately based on skill level and job function.

Roles and access permissions also safeguard sensitive financial data, restricting information to those who need it to avoid potential security risks. A clear hierarchy for approval processes and escalations supports the abovementioned anti-fraud measures. It’s the best way to promote operational efficiency, security, and accountability in managing accounts payable. 

5. Build an approval workflow

Automated approval workflows take the surprises and delays out of the procurement and AP processes. To establish or refine an approval workflow, complete the following: 

  • Identify workflow steps from requisition to payment 
  • Outline potential exceptions to the approval policy, such as when a transaction or contract exceeds a pre-established dollar value
  • Identify individuals responsible at each stage of approval

Automation software can digitize this workflow, enabling real-time tracking and management of requests. It can enforce predefined authorization rules for expenditure approval, ensuring only those with the correct access permissions can approve purchases. It also supports exception handling and escalations automatically, enhancing control over expenditures. 

Automated systems increase efficiency, reduce errors, and strengthen financial controls in procurement and AP processes.

6. Find the right automated solution

Software is the cornerstone of scalable AP management. Identifying an effective software solution makes the automation process much easier for the accounts payable department. 

There are plenty of options on the market, but few provide end-to-end support for purchase order management and accounts payable automation

When looking for an advanced procurement tool, consider these elements during the search:

1. Define unique requirements. No solution is one-size-fits-all, but options like Order.co provide all the features of an enterprise-class tool without the large implementation framework or extensive costs. 

2. Look for software that offers real-time tracking, automatic workflows, error detection, and fraud controls. The right tool will be user-friendly and integrate easily with existing systems to minimize disruption. Software with automated reporting and spend analysis helps AP teams deliver data without recreating the wheel for every request. 

3. Find a tool with vendor-agnostic ordering. This feature is less common but highly valuable, allowing stakeholders to use their preferred vendors easily. A vendor-agnostic solution also helps users order from offline vendors or those with email- or phone-based systems.

4. Select a tool with curated buying. A curation of common and preferred vendors and items ensures everyone can buy within policy without heavy research or uncertainty.

7. Organize vendor data

Decentralized data is one of the most common challenges facing AP departments. Without straightforward, central access to data, it’s impossible to address spending issues, create strategic sourcing plans, evaluate pricing, or negotiate from an informed position. 

Centralized vendor data ensures all relevant information lives in one place, eliminating inconsistencies and reducing the likelihood of discrepancies that rob companies of leverage. 

Organized data also enables faster, cleaner financial reporting, audits, and compliance checks. Visibility enables finance and AP teams to make the best decisions with full context. 

tracking invoices

Invoice Tracking Template

Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.

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8. Find discounts where available

Discounts and volume pricing can significantly improve cash use — but only if a business knows to ask for them. Often, organizations don’t have visibility into purchasing patterns and trends, especially across multiple locations. Buyers choose options without the context of available discounts, which leads to ineffective and decentralized purchasing.

Procurement management software makes analyzing vendor offerings and finding cost-effective options much easier. By leveraging these savings, businesses free up funds to invest in strategic growth. 

Since every supplier appreciates consistent and reliable business, streamlined purchasing also builds stronger vendor relationships. Preferred buying gives sellers security and allows them to extend discounts they can’t justify with transactional, one-off purchase orders. 

9. Build and track KPIs

KPIs (key performance indicators) are targeted metrics that help companies evaluate their progress with quantitative measures. Accounts payable KPIs provide valuable insights into the organization's payables performance, enabling accurate assessment and forecasting. 

By identifying trends and patterns in AP data, a company can optimize payment schedules, detect inefficiencies, and improve cash flow management. 

KPI tracking encourages accountability and the AP process as a whole. Strategic use of KPIs aids in maintaining fiscal responsibility and contributes to business growth and stability.

Top AP KPIs for tracking efficiency and savings

Consider tracking the following KPIs to gain valuable insight into your AP practices:

Invoice processing cost: This measures the average cost of processing a single invoice. Processing cost helps identify inefficiency and potential cost savings in the AP process.

Invoice cycle time: This metric tracks the average time to process an invoice from receipt to payment. A shorter payment processing time indicates higher efficiency.

Early discount capture rate: This KPI measures the percentage of available early payment discounts a company captures. Discounts enable better cash optimization and bottom-line savings.

Electronic invoice percentage: This gauges the proportion of invoices received electronically versus on paper. A higher percentage indicates modernization and increased efficiency.

Supplier payment accuracy: This is used to assess the accuracy rate of payments made to suppliers, which can help minimize disputes and maintain strong vendor relationships.

Late payment percentage: This metric tracks the percentage of payments made after due dates as they negatively impact cash flow and supplier relations. Over 40 percent of CEOs cite payment delays and late fees as the most important source of AR disruption.

Payment error rate: AP uses this metric to evaluate the frequency of payment errors, including duplicate invoices or incorrect amounts. Reducing human error can lead to significant cost savings.

Days payable outstanding (DPO): DPO calculates the average number of days it takes to pay bills. Gathering stats on paying invoices provides insights into cash flow management strategies.

10. Review processes regularly

Process review helps companies spot bottlenecks, inefficiencies, or inaccuracies in the current accounts payable system. These issues are easy to miss and can drain resources if they go unnoticed. 

Organizations that use process reviews reduce errors, optimize their cash flow management strategies, and enhance supplier relationships. 

Every process benefits from regular review and updates, but these options create the most impact to smooth AP operations:

  • Invoice processing
  • Vendor management
  • Payment authorization
  • Cash flow forecasting
  • Exception resolution
  • Expense reimbursement
  • Data entry and validation
  • Regulatory compliance

AP automation software is the ultimate best practice

The best practices we’ve shared here will help your team manage daily AP operations better. But manual processes can only take AP teams so far, even when employing best practices. You need software to empower a streamlined process that lets accounting apply their talents to the most important business activities.

To get started managing invoices using best practices, download our free invoice tracking template. Ready to move up to AP automation? Schedule a demo of Order.co today. 

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