The ongoing impact of COVID-19 has affected organizations acutely in areas where the outbreak was intense. For instance, several businesses that deal with global suppliers were not prepared for high levels of supply chain disruption. However, enterprises are quickly getting back on track and reorganizing accounts payable functions in order to keep the supplies coming and cash flowing.
Yes, AP teams play a crucial role in business continuity at this challenging time by implementing an effective and efficient approach to payments, ensuring nothing affects the highly essential business supplies and the company’s reputation. AP activities have an impact on your internal operations, vendors, and clientele; therefore, it is best to produce and implement the best AP policies in your business.
How Does Accounts Payable Affect Your Whole Company?
How your AP department works influences your entire company. Much of this impact comes from cash flow in your business. Besides, AP plays a significant role in handling and improving your company’s relationships with suppliers, vendors, clients, etc. Here are a few points on how accounting affects your whole business. AP helps;
To Keep a Smooth Cash Flow
The accounts payable department plays a crucial role in cash flow management. A well-organized and dedicated AP department helps your company prepare better, advantageous payment terms with vendors. It also enables you to see a clear picture of how much money your company needs to pay and when the payments are due. All of this gives you valuable insights into the current state of your company’s cash flow.
To Build & Maintain Vendor Relationships
Your AP department takes essential steps toward building, maintaining, and improving trust with your suppliers. This team is responsible for responding to queries about your company’s payment policies, negotiating flexible payment terms, and ensuring that suppliers receive their payments on time.
To Improve Collaborations with Other Financial Departments
Accounts payable acts as the initial stage for collaborating with other financial teams. For instance, AP can review invoices that are yet to be processed and convey this to other departments to ensure the funds are divided and allocated according to different departments’ needs.
To Streamline Audit Functions
The accounts payable department can help determine how your company performs an audit. If AP reports are prepared accurately, helping audits to be carried out smoothly, your entire company gets benefits. An AP team responsible for maintaining complete, organized records can improve the audit process as a whole.
Why are Accounts Payable and its Management Important?
An efficient accounts payable process and its management are vital for the smooth functioning of your overall business functions because;
- It ensures your entity’s bills are paid on time so that to maintain a strong, long-term relationship with the vendors.
- As invoices are paid timely, vendors will ensure a smooth flow of supplies, resulting in a systematic, uninterrupted flow of business operations.
- A well-oiled accounts payable process ensures your company does not have to pay overdue charges, late fees, or penalties.
- A responsible AP team ensures all the due invoices are tracked on time and paid properly, helping you avoid missing payments and making double payments.
- By having a robust accounts payable process in place, businesses are more likely to avoid thefts and frauds to a greater extent.
Why Should the AP Process Have Internal Controls?
Your company’s AP process should have internal controls to:
- Avoid paying a vendor invoice twice
- Avoid paying for a wrong invoice
- Prevent payments for a fraudulent invoice
- Ensure that all vendor invoices are processed and stored safely for audit
How to Manage Your Accounts Payable Responsibly?
Ask for Discounts
As a business owner, you always want your customers to pay you in full and that also in a timely manner. Similarly, your creditors expect you to make their payments as soon as possible. Thus, if you make complete payments to your creditors on time, you never know they might be willing to offer a discount on early payment or reduce interest rates. You can take this advantage best in peak seasons of sale.
Pay Off High-Interest Debts First
Suppose you generated great revenue in a month that you have enough extra cash on hand. Do not miss out on this opportunity to pay off debts with high interest. This way, you will be able to reduce the amount of money going out of your company in the form of interest.
Keep Your Creditors, Supplies Informed, Anyway!
If you expect your earnings to go low in the coming time, you should talk to people you owe money and tell them the exact situation. Discuss your issues with them instead of not responding to them. This will not only help you take a breath of peace but also initiate renegotiation of payment terms and plans.
Consider Setting-up Automated Payments and Alerts
Automatic payment alerts are best for your business to be aware of pending bills and due dates. Have an automation-powered payment management system in place and never miss a deadline. This way, you get real-time alerts on invoices coming to your accounting department, and the automated payment system will make the payments as soon as they get approved. Some systems also allow you to make a list of trusted, frequent suppliers for whom you can set auto-payments that don’t require multiple approvals, reducing the time taken for invoice processing.
Take External Support
It is not always easy to find and hire the right people for AP management. Also, this has become more difficult after the recent COVID-19 outbreak that shook the world and caused a shortage of workforce. Besides, several companies laid off employees to cut costs. However, there are other solutions to deal with such challenges, especially when it comes to AP management. Accounts payable outsourcing can be your best choice in these tough times. Most outsourcing firms have skilled, experienced, and trained AP professionals who can help you handle this aspect of your business accounting efficiently and securely.
Yes, accounts payable makes sense with large-size businesses, then what about small-size corporations that have a shortage of resources? Regardless of anything, it is a necessary department for all types and sizes of companies. There are several ways you can follow to structure this department so that it works at its best. One of the very effective ways we have just discussed above is outsourcing accounts payable services to a reliable and reputed firm.
There’s no reason to ignore the requirement of having an excellent AP team in your company and the appropriate software and tools in order to carry out the process productively. If you are looking for business success, in the long run, AP is a crucial process you should not overlook.