Welcome, to the wonderful world of accounts payable. I mean, what is not magical about bills being paid? But, maybe your view of bill pay and processing invoices is not as rosy as ours so if you've ever found yourself buried under an avalanche of bills and payments, fear not! We're here to guide you through the world of accounts payable with a brief overview of what accounts payable is and a listing of some great online tools to help paying bills a breeze. You'll soon find yourself cutting checks and flying through the entire process.
The Basics of AP:
So, what exactly is accounts payable? In simple terms, it's the process of managing and paying all the bills that your business owes to suppliers, vendors, and creditors. From office supplies to utility bills, every penny that flows out of your company's bank account passes through the capable hands of the AP department (or the person who runs accounts payable...or maybe even you if you are a solopreneur wearing ALL the hats!).
But don't let the simplicity fool you. Managing accounts payable is not the bunny hill it seems to be on first glance. It requires meticulous attention to detail, impeccable organization skills, and vendor relationship management. After all, nobody likes dealing with late payments or unhappy vendors!
Best Practices for AP:
Now, let's talk about best practices.
Set Clear Payment Terms: Establish clear payment terms with your vendors upfront to avoid any misunderstandings down the line. Whether it's net 30, net 60, or something in between, make sure everyone is on the same page. The majority of the time, for small businesses, the terms or payment are not determined with your input, but you can decide when to pay. To maximize cash flow, pay your vendors at the latest allowable date. However, there may be circumstances where you want to pay earlier than the terms outline (ie. if there is a cash discount offered or you are building a vendor relationship and want preferential treatment when it comes to filling orders) so this is where the vendor relationship management skills we mentioned earlier come into play!
Streamline the Process: Embrace automation wherever possible to streamline the AP process and minimize manual errors. Tools like QuickBooks Online, BILL, Ramp, and many others offer features like automatic invoice scanning and digital approvals to help speed up the process. You can also minimize the time between making the payment and the vendors receiving the check by paying via ACH instead of a physical check. Credit card payments are an option (and great for earning points) but be on the lookout for fees associated with using a credit card.
Segregation of Duties: Implement a system of checks and balances to prevent fraud and errors. Assign different roles and responsibilities within the AP department to ensure accountability and transparency. Many electronic payment systems have authorization and approval thresholds that can be implemented to better secure funds, protect against fraud, and support internal budgets. Within an organization, it is recommended that a separate person will review and approve the invoices for payment, one person record the invoice and prepare the checks, and a third person would sign the checks (or authorize the payment via ACH or credit card charge).
Regular Reconciliation: Reconcile your accounts regularly to catch any discrepancies or errors before they snowball into bigger problems. The Accounts Payable Aging Report will list out all of the vendors with amounts due at any given date. This balance should "reconcile" to the amount recorded on your balance sheet (hence the word reconciliation. Tools like QuickBooks Online make this process a breeze with built-in reconciliation features.
Tech Tools for AP:
Now, let's talk tech. In today's world of AI and new software products, there's no shortage of tools and software to help streamline the AP process. Here are a few worth considering:
Ramp: Ramp is an excellent tool for managing business expenses, offering features like real-time spending insights, automated expense management, bill pay, and employee card controls. Explore Ramp here. Ramp is our current front runner as it provides credit card expense tracking, expense reimbursement management, and bill pay. The approval process is easy to maneuver, the integration with QuickBooks Online is seamless, and it sends employees a little text when they use their Ramp credit card asking them to text a photo of the receipt in response. The one caveat is that the credit card limit is based on the cash that the company has on hand so if your business doesn't have decent cash flow, it may not be a good fit.
Expensify: For managing employee reimbursements and expense reports, Expensify is a popular choice. It allows employees to snap photos of receipts and submit expense reports directly through the app, making the reimbursement process quick and painless. Learn more about Expensify here.
Bill.com: If you're looking for a comprehensive solution for bill pay and invoice processing, Bill.com has you covered. It offers features like digital invoice approval, automatic payment scheduling, and integration with popular accounting software. Check out Bill.com here.
So there you have it, folks. Accounts payable is not nearly as daunting as that back country ski adventure you've been working up the courage to try! It really is a nice and gentle blue square run. Very doable but still gives you bragging rights when you do it with style! By putting these suggestions into place and leveraging technology, you'll be mastering the art of bill payment in no time. Just remember to keep calm and stay organized. You've got this!