Are you in a position where your Accounts Payable process seems to take up a lot of time and effort?
AP can be a function that gets little in the way of notice or attention until things go wrong. And that means that for any CFO wanting to make their mark, there are often a lot of opportunities for improvement.
Studies show that companies with an efficient AP process tend to outperform their peers, and improving your AP and Receivables function can positively impact shareholder value.
At the same time, an inefficient process can be the cause of complaints and mistrust from suppliers and frustration from managers.
So getting your AP in the best shape it can possibly be will really help your business.
In this post we discuss:
Tip number one is to spend some time process-mapping what goes on in your AP department.
What tasks do people do? What are the constraints? What things form blockers?
This can be the single most productive thing you can do to improve your department as it will highlight where you are doing things inefficiently, the things that are holding people up and the direct reasons for delays.
If you haven’t done this before in your AP department then you’ll probably find a few tasks that are being done ‘because we have always done it that way’ and you’ll be able to wipe out things that don’t make sense any more.
The starting point for change is to understand where you want to get to, so a process map can help you design how you would like your ideal AP function to work.
AI and machine learning have become so prevalent and so cheap that auto-processing is now within reach of even the smallest company.
This means that you can have an app that will open invoices sent to a central email mailbox, extract the important information, enter that into your finance system and file a copy of the invoice in the correct place, all within a fraction of a second.
This means that for routine invoices, no manual intervention is needed and your staff can have more time to deal with non-standard cases.
This will not only speed up your process but your people will be happier as they will have to spend less time bogged down in routine work, and have more time to solve interesting tasks.
How long does your approval process take?
In a lot of companies, this is the single biggest roadblock to getting invoices entered and paid.
Often the biggest challenge is knowing who can authorise which invoices and what value they are allowed to sign off on.
Create a document that lists each person with authorisation authority, what they can approve and what value they are allowed. In some cases, this might require more than one signature.
Your people now know who to go to for a signature and the person signing knows that they have the authority to do so.
In some cases, managers are too busy to worry about accounting and when they see a request for an approval hit their inbox it may quickly move down their list of priorities. The vast majority of invoices are routine and often they have been pre-agreed and are for a set amount.
So if that is the case then why should the manager then have to authorise them every time?
You can get around this by using purchase orders.
The manager concerned signs off (or raises) a purchase order for work to a set amount. As long as the invoice matches that pre-agreed amount then it gets paid.
Whilst they may seem like more bureaucracy in fact, POs reduce the effort required to actually get important suppliers paid on time.
Many companies pay their suppliers on an ad hoc basis, perhaps collecting invoices and when they have a batch, inputting them onto their bank for payment.
This is inefficient as it means that staff can’t plan when their payment tasks need to be done, people tend to get sidetracked and things may get missed.
It is far better to have specific days when you do a payment run.
This means that your people can plan to have all the inputs done by a specific day and your suppliers know that if they want to get paid they have a deadline.
You can still make manual emergency payments if you need to, but having a specific pay run day is much more efficient, and if someone misses one run then their invoice goes onto the next run.
If you still have an office full of lever arch files then it is time to step into the 21st century.
Most suppliers will send their invoices electronically so if you haven’t started filing digitally just yet, this is a great time to start.
And even if you do file digitally already, you may want to ensure that your systems and processes are fit for purpose.
As you’re setting it up, make sure to create a logical and understandable file structure from the very beginning so any member of staff can instantly find what they are looking for. It is also a good idea to create a strict naming convention and rename individual files so that they don't need to be opened to understand what they are.
Payment processing can be a pain, especially when you have a long payment run and you need to hand-type every transfer into your online banking app.
It’s far more efficient to link up a secure specialist payment app to your finance system and make payments automatically.
Using a secure API like the CXTN API to link your systems means removing the risk of manual errors that may happen even to the most diligent employee. Since you don’t need to log in to your banking app, the work is done from your finance system.
And while businesses have previously needed to use cumbersome BACS files, the rise of Faster Payments means that you can now push payments through quicker and more efficiently.
Here’s our bonus tip for busy CFOs who have a whole department to improve.
Make copious notes as you go through the AP improvement process and then collate them into a template of techniques that work.
You can then use that template for other functions that you want to improve such as payroll or receivables.
This means that you have a list of things that work well in your organisation and you don’t have to build every project from the ground up. As an added bonus, your employees will be able to help you find what you need much more quickly as they already have an overview of what the process will look like.
Speeding up your accounts payable function will make it more secure and efficient.
Your people will be handed back more time to work on more important things, and your suppliers will thank you for a more understandable process and quicker payments.
And best of all, if you use Caxton to process Faster Payments then you are likely to pay less in bank charges. Get in touch with us today for a chat on how we could help your business become more efficient.
If you're looking for more information on finance and accounting then check out our Accounting Industry Articles or our Accounting Hub.
Caxton Payments is an alternative to traditional banks, established over 20 years, we help businesses make faster payments more reliably. We offer streamlined processes, automation through API and a collaborative solution to complex payment issues all from a single platform. Our payment capability extends from business expense management, to payroll payments, supplier payments, and currency risk management. We also offer personal prepaid travel cards and international money transfer.