Paying invoices on time is key to keeping suppliers happy. A positive supplier relationship can lead to rewards like on-time payment discounts or longer payment terms, so it's worth having a well-organised payment process.
Accounts payable (AP) are the short-term liabilities or invoices your company owes to suppliers. It is the direct counterpart of accounts receivable (AR) in accounting.
AP is a key line item in your company's balance sheet. Your AP department is responsible for processing expense reports and invoices and ensuring they are paid following established workplace policies.
A well-organised AP process is critical to your cash flow management strategy. It can be managed through centralised expense management software to prevent you from running out of money. This article will explain the AP process and how Summit can help you simplify it. Let's jump right in!
Accounts payable refers to the bills that your company owes. This differentiates it from AR, which is the funds a company is due to receive from creditors, including customers, distributors, and partners.
Reimbursements, expenses, and short-term loan payments are all listed on a balance sheet as AP. Payroll is notably not considered AP and is itemised separately. Trade payables are often conflated with AP but are considered a subset because they list outstanding amounts due for inventory delivered to a business.
AP is important because it represents a significant portion of a company's liabilities. Failing to manage the AP process properly can be costly, with supplier agreements penalising late payments with escalating fees. Falling behind can also delay receiving goods and services from suppliers. If your company regularly pays invoices late, it may be a symptom of cash flow issues.
There are several steps in the AP process, from when you first get quotes to approving and executing payments. We'll break them down below.
Be precise when placing orders. Your vendor needs to know what you want, so make sure to carefully review any quotes and estimates to ensure they fit within your budget and match your order. Before you sign off on the expense, discuss payment terms and see if you can negotiate a flexible payment schedule.
Once the terms are agreed upon and the expense is organised, you may assign a purchase order (PO) number to help you track it. Ensure the supplier knows where to send their invoice to avoid delays.
Summit recommends using a dedicated email address to receive invoices and keep digital copies in one easy-to-search place. Effective expense management software can automatically scan emailed invoices to create detailed reports of what you owe and when.
Ensure that the invoice cost is correct and that it details the goods or services you received. If you spot a mistake, contact your supplier as soon as possible. It's best to address issues before the bill is overdue.
After you've reviewed the invoice for accuracy, record how much and when the bill is due. Save a copy of the invoice for your tax records in case of an audit. For paper invoices, you can take a photo of your invoice from your mobile phone and upload it to your expense management software.
It's best to schedule your payment when you have sufficient funds to cover it, allowing you to take advantage of any early-payment discounts. This isn't always feasible but aim for it when possible.
The scheduled payment will be included in your payment run, providing visibility into your available cash when you schedule payments. This information will flow directly into your expense management software, giving you valuable insights that help with cash flow management. You’ll be able to assess whether there’s enough cash to pay the bills on time and make adjustments if necessary.
If you cannot make the deadline, remember to contact your supplier to negotiate a later due date or set a payment plan. Credit cards and bank credit are usually best avoided due to their added interest rates.
Now that the invoice is approved and the payment is scheduled, it's time to follow through and make the payment. Expense management software can schedule automated payments and set up reminders.
Spend management and expense software can help streamline the AP process and track its moving parts. It should be able to scan emailed invoices or digitise paper invoices and automatically populate amounts, taxes, categories and due dates into your accounts payable.
In the dashboard, you should also be able to check your projected cash balances on the due date and after paying the invoice. With accounting software integration, your spend management software will automatically update your general ledger with the relevant details.
With the help of smart AI tools and automation, Summit Spend Management Software can accelerate your AP process by up to 90%. It integrates into your existing accounting and finance software with smart scanning and customisable approval workflows to reduce errors and manual labour.
If you want to try Summit's centralised Reimbursements and Vendor Invoice Management, contact us to talk to one of our representatives. They will schedule a free demo and would be happy to answer any questions you have about our products.