Accounts Payable Procedures

How to make suppliers see you as heroes and
your account as zeroes

Effective accounts payable procedures are at the root of many great businesses. With a little consideration you too can have a great set up.

Before that though, you'll be wanting to know just what's in it for you if you go to the trouble of implementing an effective accounts payable process?

Benefits of Great Acccounts Payable Procedures

• When managed well, you'll improve the working capital in your business, by reducing the amount of working capital financing you need to support sales credit granted to trade customers.

• You obtain and establish business credit from new and potential suppliers in advance of when you really need it.

• You never run out of essential supplies in times when you really need them because you don't have an open supply line due to the account being over it's credit limit (or frozen).

• You're in an excellent negotiating position for obtaining price discounts and volume discounts (even early payment discounts) when you can demonstrate a track record of a well managed, well administered account. This will help you obtain an advantage over your competitors, and move you towards better returns on investment capital.

• You'll have excellent working relationships with your suppliers enabling you to call upon them for exemplary credit references which you can use to obtain further favorable credit terms with other suppliers - giving you essential alternate supplier options, and more bargaining power.

• As procedures are well documented, and communicated, no one is unclear about what "needs to be done" and reducing the likelihood of exceptional or extraordinary events that take up management time to solve and work around. You have a more efficient business.

• Clear authority levels and expenditure mandates aid control, and help appropriate expenditure decisions to be made at the right level of the business. This improves net profit - by reducing unneccessary expenditures, and improves return on capital because appropriate considerations to investments are made at the right level of the business.

Accounts Payable Key Performance Indicators

You can't move what you can't measure, and using reliable and regular metrics will show how your initiatives are changing your business performance.

Consider tracking the following:

• Purchase Orders and Mandates

• Accounts Payable Cycle Efficiency - process times

• Exceptional / Unauthorised Expenditures

As well as the usual:

• Payables Days

• Bills on Time

• Free credit available

Accounts Payable Procedures - Process Flow

If you want an effective process, then everyone involved with it has to know how it works, and what to do. Here is an example of an accounts payable process flow chart

Depending upon the size of your business, document imaging can be transformational when operating effective accounts payable procedures, as by far and away the biggest drag on an effective process is "the paper chase". Purchase Invoices and Purchase Orders wait on desks for days before the operations manager works through signing off the authorisations piled on his desk, or you're still waiting for the sales guy who hasn't been in the office all week, causing further delay.

Being able to email them and get authorisation, or raise queries is a great advantage, and will shave days off your process time.

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