Looking for a way to improve your accounts payable process?
An often overlooked trick for improving the accounts payable process is streamlining the process of purchase to pay (P2P) in the company. Managing accounts payable is only a single part of the full end to end process of P2P, so it makes sense to structure your purchasing and receiving process to support your accounts payable workflow.
It's an especially good idea to organize your purchasing and accounts payable processes as your business is scaling. The larger a company becomes, the more difficult restructuring becomes, but when a strategic approach is taken, even organisations with complicated processes can begin positioning themselves to mirror the best practices followed by modern purchasing departments.
Here are some tips and tricks on how to improve and streamline your purchasing and accounts payable processes at the same time:
1) Designate purchasing roles and a single point of entry for invoices
It’s important to ensure that everyone knows what their role is during a purchasing procedure.
Assigning roles for creating requisitions and purchase orders, approving purchases, managing deliveries, as well as processing invoices and confirming 3-way matches not only makes receiving goods and services faster, but makes accounting documentation a much easier task.
The benefits of a structured purchasing process can be optimised through maintaining good team communication, explaining policies and expectations clearly, and ensuring that everyone understands what benefits the new procedure aims to accomplish.
For the benefit of accounts payable, establishing a single point of entry for invoices is a great idea for attaining lean organisation, for a few reasons:
- It allows a single designated processing party to reconcile received invoices against their respective purchase orders quickly, allowing for faster supplier payments.
- It improves internal control when a 3-way match is verified before passing details on to accounts payable, because provided information won’t need to be updated due to inaccuracies.
- It provides a safeguard against fraud by confirming that orders were actually placed for the invoices that are being received.
Some companies also choose to implement a no PO no payment policy as an extra precaution during invoice processing to avoid paying for unordered goods and services.
2) Choose software that integrates both purchasing and accounts payable
Companies that handle purchasing on a regular basis rarely operate without some kind of software to assist their documentation process. Larger organisations lean towards notoriously cumbersome ERP systems, while spreadsheets are sometimes used as a bootstrapping approach for startups.
However, there are more efficient options available for handling accounts payable electronically - such as QuickBooks and Xero.
The amount of time saved by using these tools to automate and improve the accounts payable process is well worth a small monetary investment for any business that has a large volume of payments to handle each month.
In just the same way you choose an accounts payable system, you’re going to want to structure your purchasing process with a purchasing solution. Here’s the real trick, though - when you’re evaluating different options, it’s a good idea to explore procurement software solutions that integrate with the accounts payable solution your organisation plans to use.
By doing so, you’ll be streamlining your purchasing and accounting processes, and saving your team a ton of time through automated PO and invoice processing. What’s more is that best practices for enhancing internal control over both disciplines (accounting and purchasing) are often conveniently built right into these kinds of software solutions.
3) Get the whole team involved when selecting new software for the best Return on investment
It may seem like a no-brainer, but in order to get a good return on investment on the solutions you choose, your team needs to actually use the tools that you end up paying for. That means getting your team involved in the evaluation process, and getting their expert opinions to ensure the tools you choose meet their requirements.
Many SaaS platforms offer live demos and trial versions of their services, and it’s well worth it to get your team to participate in the evaluation process before committing to a decision. Don’t rush your final choice if you have a large team - it’s not uncommon for some companies to spend a few months going over different options with a fine-tooth comb before locking in.
Remember step one? Setting up an intuitive workflow means having a platform that accommodates internal control for each of the roles you’ve assigned to your purchasing and accounting teams. When done correctly, verifying 3-way matches and synchronizing that information with accounts payable should become an effortless, regular occurrence.
4) Update your supplier database and review contract agreements regularly
If you’ve made it this far, you should have a good idea about where to start when setting up a streamlined purchasing and accounts payable process. But what steps are needed for maintaining this new process? Your purchasing and accounting departments may already be familiar with some of the best practices to follow:
- Set up reminders for evaluating different parts of your process throughout the year. Even the most efficient systems and procedures aren’t exempt from losing their effectiveness when left unchecked for long periods of time.
- Update your contract and purchasing agreement terms regularly. Sometimes archaic rules, procedures, and even sub-optimal pricing can exist in contracts that haven’t been reviewed in a long time. Look for new sources if you’re being sandbagged by outdated agreements.
- Maintain your supplier database on a frequent basis. Have a system in place to approve new suppliers, and ensure critical documents like W9 forms are properly filed during the process to make things easier when issuing 1099 forms.
Supplier relationship management (SRM) tools like supplier evaluation reports and vendor scorecards are also very helpful for maintaining working operations with other businesses.
5) Use better information to create spend analysis reports and accurate budgets
It’s finally time to harvest the fruit of your purchasing and accounts payable process: accurate spend information. Having consistent spend visibility is a privilege that not all companies have access to, and it’s one of the main incentives for improving an accounts payable process.
But why is spend data considered so valuable?
It all comes down to being able to plan effectively. Accurate spend data lets companies develop agile purchasing strategies for projects, and achieve reliable cost forecasting for their departments - something that can’t be accomplished when accounts payable is lagging several weeks, or even months behind what they should be reporting on.
Once your process is established, make full use of spend reports!
Ultimately, an efficient purchasing and accounts payable process should allow a business to receive accurate procurement analytics at least once a month for review. The tools that are used to structure purchasing and accounts payable workflows can make this easier if they include automated spend analysis reports, which can save a great deal of time and further increase their usefulness.
Creating effective budgets relies entirely on the accuracy of the information used to build them, so it’s not surprising that detailed procurement analytics are highly sought after by leaders, managers, and event organisers in a company. You may also want to read about some common pitfalls associated with budgets, and how to avoid having them hinder (rather than help) your business.
Have any other tips or tricks to share about streamlining accounts payable and purchasing?
Let us know in the comments - we’d love to hear your ideas!