Best Practices for Accounts Payable

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Managing account payables is an important best practice which affects business matters in two ways. It can affect the cash flow, and at the same time have an impact on relationships with the suppliers. Therefore it is imperative that businesses employ best practices for managing accounts payable processing.

Best practices in managing accounts payable affect cash flow positively. A company with smooth operational systems for accounts payable saves money. This is because they process invoices with a minimum staff strength and therefore have low cost of materials. For example, if a firm reduces its processing cost from $3.55 to $0.35 for 12,500 involves it can save as much as $40,000 per account payable for its employees.

With regards to supplier relations, accounts payable has a huge impact on establishing trust between the suppliers and buyers. Paying bills upon receiving goods and within the agreed upon time is a best practice. It strengthens the relationship and creates trust and builds good and lasting cooperative associations. This is important because suppliers provide valuable trade credits. They also provide new methods and information about products. These play a significant role in establishing a smooth and impressive customer service which is an essential best practice.

Keep the Cash Flow Steady

Effectively managing the cash flow is an unavoidable best practice for success of any organization. Your approach to management of the capital is the cornerstone for success. There are some best practices which must be introduced into the system to ensure a steady cash flow. These are;

Control on Finances: There are best practices which are required to ensure good financial controls. The employees must have working practices to stick to. For example distribution of duties is an important best practice for reducing the margin for errors.
Minimize Error Rates: There are some errors which are difficult to detect. These errors subsequently lead to loss of capital and loss of time. On average about 4% of invoices in any organization have errors. This is why best practices are recommended to minimize the error rate to as little as 1%.
Improve Automation: It is a best practice to make things as automated as possible. This saves time, reduces risks and maximized efforts. Therefore, finding and using appropriate tools is a good idea to improve the company’s productivity and image.
Manage Cost of Process: It is essential to manage cost of processes. Best practices ensure that expenses are minimized and resources are maximized. Additionally, it is important to manage time of processing.
Avoid Duplicate Payments: There are times when there may be lapses leading to duplicate payments. This will have detrimental consequences on the accounts payable. There will be losses and at the same time it reflects lack of appropriate control and management of an organization.
Ensure Supplier Satisfaction: The supplier must be satisfied with your payment and discipline. It is a best practice when companies track the suppliers’ satisfaction using different ways. The payment options must be acceptable for the suppliers to ensure strong relationships.

These are recommended best practices required by organizations managing the accounts payable.

Further reading: Corporate Governance | Audit | Performance Improvement

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Best Practices for Accounts Payable