The rapid move of the world towards digital technology is making it essential for business to take a more strategic approach towards handling their business activities. Cash flow management is one important task that any business needs to handle carefully. Accounts payable and accounts receivables should be recorded carefully in order to have a clear track cash flow. Accounts Payable may not be an exciting task; it’s all about freeing up the working capital to fuel growth. Here each vendor invoice is routed to accounts payable for processing. When it comes to working capital optimization, many companies extend payables as long as possible that results in slower delivery times, onerous payment terms and erode supplier’s relationships. On the other hand, assuming discounts 30-90 days on payments earlier is also not worth it.
Here is the list of six main strategies, if optimized, can get cash fit and strengthens the working capital.
1) Supplier Portals:
Set up a centralized portal for suppliers to track orders, deliveries, payments etc. Streamlining the process ensures to gain proper business insights, track invoices to make payments and help speed up the time to approve invoices. There are lists of steps one can take to optimize your working capital:
- Ensure that the decision makers are involved in the process.
- Regularly ask vendors to lower prices or negotiate the volume of discounts.
- Include supplier contract clauses for underperforming vendors in some respects.
- Complete periodic and timely vendor contract reviews against industry standard terms.
AP automation gives businesses power to enjoy faster payments and healthy cash flow. Since the process is automated, all the documents and payments are exchanged in the automated environment with no need for manual processes. All the financial reports are available for analysis, be it outstanding payments, invoice aging, estimates, purchase orders, taxes and more. It lowers the cost per invoice processed.
3) Invoice to PO matching:
The main role of AP is to manage an organisation’s outgoing transactions, and forge strong relationships with suppliers. The set of circumstances arises when businesses work with more than hundreds of suppliers, keeping track of invoices received with the associated PO’s can be challenging. Consider these strategies:
- Issue PO for each new order so you can validate any invoices received, track invoices against PO. This ensures suppliers to get paid according to the agreed terms.
- Explore the latest offerings like early payment discounts, volume rebates or trade initiatives.
- Track outstanding payables by vendors.
- Set clear accounts payable metrics.
- Negotiate longer payment terms to increase working capital and reduce risk.
Creating workflows ensures the detailed view on what and how accounts payable department does the operations. According to the Deloitte, these processes should detail what the accounts payable department does when it receives an invoice, how data is input and shared and what the process is for getting invoices approved. There should also be guidelines for determining the best ways of dealing with paying different types of suppliers. Dealing with issues like:
- Many suppliers offer discounts for payments after 30-90 days, that’s not worth a discount
- Verify that both suppliers and company are meeting the contract or agreement
- When suppliers are not delivering on time
Therefore, it is important to create workflows that may help the company to prevent losing discounts, incurring penalties for late payments and more.
5) Invoicing and reporting process
Ensure that the financial reports are up-to-date that reflects the current accounts payable balances. Improve the real-time reporting capabilities by automation and ensuring that they remain current. To bolster the process, follow these steps
- Properly track all payments
- Select a method of payment
- Validate supplier invoices against contract terms and ensure PO’s billing accuracy
To put it Another Way:
These are the few basic, yet effective steps to help better manage the AP functions more effectively. The accounts payable process impacts the trusts between an organisation and its suppliers. The right partners ensures to maintain operating margins and supports bottom line performance. When approached effectively this can build up corporate cost management, minimises the risks, reduces proper complexity and enhances vendor contract compliance.
BY ALL MEANS:
Invoicera, the online invoicing software, manages the accounts payable process with increased processing accuracy, optimizing payment timing for available discounts and more. The online invoicing software optimizes total cost of service and creates agility for a profitable growth through an integrated and industry-led approach.
The in-built accessibility to track project timing accurately lets you calculate exact time you spend on a project and charge your clients accordingly.