Do you have a hard time managing your accounts payable? If so, you’re not alone! Maintaining and managing your Accounts Payable can be tricky, especially if you don’t have systems in place to ensure the accuracy of your payments. The accounts payable management department has one of the biggest impacts on the bottom line of your business because it directly handles the paychecks and invoices sent to suppliers and vendors that provide your company with products or services. When there are errors in accounts payable, this can have a negative effect on your business’s cash flow as well as on its working capital, which in turn affects its credit rating with lenders and other financing sources.
Fortunately, there are some tips that you can take to make the process more streamlined and efficient. But before jumping into that, let’s understand who are accounts payables.
What Do You Mean By Accounts Payable?
Accounts payable (AP) is a major category of an organization’s outstanding debts. Accounts payable consists of trade payables (money owed by one company to another as part of a purchase) and individuals or other organizations that have provided services or goods on credit and have not yet been paid.
Accounts payable is the money owed for items purchased, usually on credit. These debts typically come from vendors who sell products or services on credit.
Accounts payable can accumulate rapidly during high sales periods when many invoices arrive in short order. If these debts aren’t paid within a reasonable period, usually thirty days, the supplier will often assume that it’s not getting paid for some reason and start charging late fees and interest payments, which end up costing more than just paying off the original bill quickly in most cases.
Now, It’s Time To Look At The Different Types of Accounts Payable Errors.
Different Type Of Accounts Payable Errors
There are several problems that may occur with accounts payable, some of Accounts Payable Errors are:
1. Duplicate Payment
This is one of those common errors that everyone should know about. Sometimes, you get an invoice from a vendor and have to pay it twice because you don’t catch it. But sometimes, people use duplicate payments in their accounts payable program and then they pay two invoices with one check, which makes their financials look all messed up and gives them some hard explaining to do when auditors ask why they made such a stupid mistake.
2. Wrong Amount
If you’re experiencing a high amount of accounts payable due to an accounts payable error, first confirm there isn’t a mistake or any wrong amount added by your finance department.
The checks that clear an account need to be legible and match exactly with what has been sent over, which is why it’s critical to double-check your accounting department before making any allegations.
3. Payments Not Recorded
If payment is not recorded within 45 days of when it was made, then it can be considered unrecorded property. This can have a serious effect on your business’s cash flow and financial stability. You may also lose money on interest penalties that you would normally accrue during that time frame.
For example, if you receive a 1099-INT for $500 but don’t record it until a year later, you will owe taxes on $500 in interest in addition to any late fees or penalties that could apply.
4. Data Entry Errors
Data entry errors can cause significant problems in accounting. Many small companies do not use advanced software to keep track of finances and so input everything by hand.
With large numbers of transactions, even a few simple errors will begin to affect your bottom line. Because financial documents need to be reviewed for accuracy, it is critical that nothing goes unchecked as you input data into an accounting system.
Also Read: The Future of the Subscription & Billing Management Market
You can significantly reduce the chances of an error by knowing what kinds of mistakes are expected and how you can avoid them before they have a chance to happen. You can also use accounts payable software which will help you to deal with these errors feasibly.
5. Excessive Overpayments
Overpaying your suppliers is one of those accounting mistakes that look innocent on paper but can lead to bigger problems down the road.
If a company overpays, that money is lost and it often requires a lot of work to get it back. Overpayments also create a hassle for accounts payable departments. For example- if there are multiple vendors with one payment covering more than one invoice, tracking down which vendor gets reimbursed can be time-consuming.
It’s also possible that an invoice was already paid by another department perhaps even years ago making recovery nearly impossible.
Instead of blindly paying invoices as they come in, it’s important to understand how overpayments affect both your balance sheet and cash flow. This way, you’ll be less likely to do it again. After all, a small mistake today can become a major problem tomorrow.
So, as of now, you are familiar with what account payables are and what are their different types.
Now let’s look at the eight tips that will reduce errors in your Accounts Payable and help you to save some time and money!
1) Get Rid Of Manual Data Entry
First and foremost, you want to get rid of manual data entry. This is one of your biggest errors, especially if you don’t employ double-entry bookkeeping. Automate your accounts payable process so that it’s efficient and error-free.
Spend money on software or accounting outsourcing services, whatever it takes to get out of manual data entry. Just because you have an old system doesn’t mean you have to keep using it. Technology has changed quite a bit over time, with some tools becoming more powerful than others. It may take some research and trial-and-error before finding just what works for your business, but by taking these initial steps, you should be able to greatly reduce errors going forward.
2) Improve Communication
Some say too much communication is a bad thing. That might be true, but when it comes to Accounts Payable, effective communication with your vendors can ensure you have everything you need when it’s time to pay their invoice.
Since errors are more common than most companies would like to admit, improving your communications with vendors can help reduce mistakes and, ultimately, save you money.
3) No More Excel
If you find yourself spending hours entering and correcting data, it’s time to say goodbye to Excel and make room for a professional accounts payable system. Automating your AP processes with workflow automation software can not only save you time but also reduce errors, reduce labour costs and increase compliance.
With a smooth-running automated process, you’ll be able to get back in control of your AP while saving valuable time and money.
4) Control The Process
Control how you pay your bills. While it’s tempting to pay all your bills online, if you have a lot of them, spending hours on an accounts payable system can be frustrating. Instead, try making payments by check or by hand when possible. This will help keep control of each invoice and reduce errors from confusion over which payment goes with which bill.
Make sure that every single receipt for your business is accounted for as well so that there are no unidentified costs or revenues appearing out of nowhere.
5) Perform Reconciliations Regularly
When many people use your accounts payable system, it’s important to regularly reconcile your list of vendors with a recent bank statement.
Reconciliation ensures that all transactions are recorded accurately and that there are no duplicate entries or errors. This can go a long way toward keeping errors low and reducing concerns about security breaches. It also helps you catch mistakes before they grow into bigger problems.
For example, suppose you miss a credit card charge from a vendor because you didn’t verify it against your statements on time. In that case, someone might later make an unauthorised purchase with that same card number, which will not only cost you money but raise further questions about internal controls over financial information.
With proper reconciliation procedures in place at all times, there should be fewer transactions to double-check and fewer mistakes to slip through.
6) Use Control Accounts Wisely
Control accounts track revenue and expenses that are associated with a specific project. Using control accounts wisely will help you manage projects from start to finish and reduce errors associated with closing out multiple general ledger accounts at once. If you want to minimize the mistakes in Accounts Payable, use control accounts like items on an invoice.
A good rule of thumb is to have one control account for each GL account you’re paying. This will help you to account for your costs and revenues more accurately as they flow through your business. It also makes balancing a lot easier at month-end since all of your expenses should be accounted for in their respective accounts no matter how many invoices or purchase orders you’ve got outstanding.
7) Automate Billing And Payments
Automating tasks is one of many ways you can reduce errors in Accounts Payable. By automating your billing, you ensure that payments are only made for invoices that have been approved and sent through a process that includes both internal and external parties.
Automating your payment processing saves time and money by ensuring that payments are correctly processed. And also, There’s no need to worry about misfiled documents or incorrect data entry with automation.
Simply create rules that dictate how each invoice should be paid, so it happens automatically. This allows you to reduce manual work and spend more time focusing on growing your business.
8) Select The Right Tools
Before you even set up an accounts payable system, it’s important to choose software that’s right for your company. Some solutions are perfect for small businesses, and others better serve larger organizations. Research different products and compare their features before choosing one.
Suppose you decide on one that can be used across multiple devices, for example, on a mobile device and your desktop computer. In that case, you’ll have more flexibility when processing invoices, entering transactions and making payments.
Also Read: Why Traditional Banks Don’t Work Hard Enough for Small Businesses?
Best Online Billing Software: Invoicera
With Invoicera’s best online invoice software, companies can manage accounts payables, invoices and track payments right within their browser. Whether you’re just getting started or are already handling thousands of invoices every month, our accounting software provides a full suite of tools designed to make your life easier.
Our goal is to create an online invoicing experience that seamlessly fits into your workflow without sacrificing quality at a price that allows even small businesses access to powerful features they previously only dreamed about.
Invoicera helps your business and account payable to be more efficient by making it easier for customers to pay you with advanced features like one-click payments, email reminders, partial payment tracking, and much more.Recurring invoices can also be generated and modified by using Invoicera recurring billing software to make your working process more efficient.
Additionally, our best invoicing software allows you to make changes before they go out while ensuring that all edits are tracked within a built-in audit trail. With Invoicera at your side, you can save time and money on each invoice and free up more of both for other aspects of your business.
So what are you waiting for?
Manage your vendors with Invoicera’s best online billing software. Whether you have a few invoices every month or thousands, we have an option that fits your business needs.
Sign up for our free plan today and get started improving your accounting processes!
No matter what your business size, all businesses need a compelling accounts payable process. Whether you are a two-person company or a multinational corporation, your vendors deserve timely payment and accurate invoices.
However, most businesses don’t have time or resources to manage paper checks and physical invoices. This leads them to make costly mistakes like paying late fees or sending inaccurate payments that cost time and money down the road. Fortunately, these issues can be avoided with the right tool or software.
Instead of managing outdated processes that aren’t suited for today’s digital world, many businesses opt for online invoice management solutions that help them save time and reduce errors while streamlining operations.
We hope these 8 tips help you implement a better and more efficient accounts payable process. If you have any additional tips or questions about online invoicing software, please let us know in the comment section.