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Accounting is one of the most stressful jobs in the corporate world. The pressure of creating a budget for your company can already be enough to put you on edge, but getting your accounts payable processes in order can be just as important to the overall success of your business. As a small business owner, before you start considering strategies for optimizing accounts payable, you need to understand the process.
What are accounts payable?
The accounts payable process is the method of paying for goods and services received from your vendors. It is an essential part of your company's financial health because it represents the money your company has spent.
The accounts payable process can be broken down into three basic steps:
- Receiving the goods or services: This is when your vendors deliver the goods or services you have commissioned.
- Filing the invoice: This is when your vendors file their invoice with you for the goods or services they have provided.
- Approving payment: This is when you approve the invoice and release payment to your vendors.
When you optimize accounts payable, you are ensuring that the process is as streamlined as possible. This means that you are paying your vendors as quickly as possible and that you are getting the best terms for each invoice.
5 strategies to consider for optimizing accounts payable
Most small businesses struggle with managing their accounts payable. They often feel overwhelmed by the task of balancing their cash flow and filing invoices. Such disorganization can increase the chances of late payments, missed payments, and the need for additional credit. If you are trying to optimize your accounts payable, then you'll want to check out these five strategies:
1. Review each contract carefully
When you start working with a new vendor, it is important to review your contract closely. You should be aware of the terms and conditions of the contract and understand the terms of payment. This will help you maintain a steady cash flow and avoid late payments.
You also want to re-review your contracts periodically and validate invoices against them to ensure that the terms are not only being met, but that you are getting the best terms on the market.
2. Run an audit before making a payment
You should perform an audit before you make a payment to your vendors. This entails reviewing the accounts payable process to ensure that you are not missing any of the terms or conditions in your contract. An audit is also a great opportunity to catch any errors in your contracts.
You can perform an audit monthly, quarterly, or annually. However, the frequency of your audits should depend on the size of your business. If you are just starting out, it may be a good idea to perform monthly audits to ensure that you are meeting your contract terms and conditions.
3. Invest in object character recognition
Object character recognition (OCR) software can help automate your accounts payable process, making it a valuable investment for your business. It can identify the terms and conditions of the contract as well as the payment amount for each invoice.
OCR is also a great way to catch any errors in your contracts, and it can even identify duplicate invoices.
4. Optimize the invoicing process
One of the most important things you can do for your accounts payable is optimize the invoicing process. It can be challenging to find the right balance between paying vendors as quickly as possible while keeping your cash flow steady, but your business will be better off for it.
You should be using an invoicing template to make it easy for your staff to create invoices. You should also be using a tool to help you manage your invoices. This will ensure that you are always aware of the status of your invoices and that you are not missing any payments.
5. Outsourcing your accounts payable
Outsourcing your accounts payable can be a great way to optimize this department, allowing you to rest assured that your invoices will be accurate and that you will be getting the best terms on the market.
Outsourcing is done by giving your invoices to a third-party company, which will manage your accounts payable process for you and ensure that all invoices are accurate and timely.
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Learning strategies for optimizing accounts payable is one of the most important things that you can do for your business. It can be challenging to balance cash flow and create invoices. However, by following the five strategies above, you will be able to get the most out of your accounts payable process.
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