5 Accounts Payable Best Practices to Adopt in 2024

Every business function needs to be firing on all cylinders in these uncertain economic times.  

But for accounts payable (AP) leaders, the pressure to optimize efficiency and accuracy can feel particularly intense.  Manual processes, slow invoice approvals, and duplicate or erroneous payments to suppliers can quickly turn an AP department into a drain on an organization’s resources, potentially hindering cash flow and increasing an organization’s risk of compliance and fraud issues. 

The good news?  

There are best practices that can transform AP from a burden into a well-oiled machine.  This article shows you five steps towards unlocking a more strategic, efficient, and cost-effective AP operation.  

Why adopt Accounts Payable best practices? 

AP departments can’t afford to be stuck with inefficient, ineffective, and risky processes. 

• Cost.  Outdated processes contribute to higher overhead and hinder scalability.   
• Inefficiency.  Outdated processes create bottlenecks and consume valuable staff time.  
• Errors.  A single typo or transposed number can create burdensome downstream exceptions.
• Delays.  Slow invoice approvals result in late payment penalties, missed opportunities to capture early discounts, difficulty forecasting cash, and strained supplier relationships.
• Risk.  Outdated processes increase an organization’s fraud and compliance risks. 

These are some of the reasons that a streamlined and efficient AP department is no longer a luxury, it’s a competitive necessity.  Best practices result in a more strategic and financially sound operation.

AP best practices

Here are some best practices that AP leaders can adopt in 2024 to transform their department.  

1. Embrace automation.  According to Ardent Partners, 43 percent of AP leaders say that implementing automation is a priority for their department.  AP automation solutions eliminate invoice data entry and other manual, repetitive tasks that bog processes down.  Jumpstart your AP automation initiatives by looking for a solution that includes:

• Invoice capture: Eliminate the need for manual data entry by automatically capturing invoice submitted through the mail, email, fax, an online portal, or a network.  
• Data extraction: Free your team from tedious data entry with software that can automatically extract header and line-item information from invoices, including the invoice number, supplier name, purchase order number, due date, and amount due.  Look for solutions that use optical character recognition (OCR) and artificial intelligence (AI) to accurately capture data from invoices and validate extracted data against information residing in an enterprise resource planning (ERP) application or other system of record.   
• Approval workflows: Ditch unsecure email approvals by finding an AP automation solution that digitally routes supplier invoices for approval based on your pre-defined business rules.  Some digital workflow solutions notify approvers of invoices awaiting their review, notify approvers when an invoice is approaching its due date, and automatically escalate invoices to a manager if a purchaser doesn’t act on them in time.  
• Integration: An ERP is the financial nerve center of an organization.  Ensure the smooth exchange of data by choosing a solution that integrates seamlessly with your ERP.  Some AP automation can post invoices that match a PO directly to an ERP, without the need for human operator intervention (so-called touch-free or touchless invoice processing). 
• Reporting and analytics: The best AP automation solutions put smart insights at the fingertips of the people who need them.  Graphical dashboards display the status of invoices and Key Performance Indicators (KPIs).  Drill-down capabilities enable AP staff to identify trends and uncover the source of bottlenecks.  Mobile approvals empower approvers to stay in-the-know while on-the-go.  Exports get invoice data to downstream systems fast.  And ad hoc reports make it easy to adapt to changing business needs.

By automating manual, repetitive tasks, AP staff have more time to focus on fulfilling strategic initiatives, like analyzing spending patterns and strengthening supplier relationships.

2. Go paperless.  Paper invoices are not only cumbersome to manage, but they’re also prone to getting lost, misplaced, or delayed.  Here’s how to transition to a paperless environment:

• Encourage electronic invoices: Educate suppliers on the benefits of submitting invoices electronically through email, a secure online portal, or electronic data interchange (EDI).
• Invest in a document management system: Implement a system to securely store and manage invoices in an electronic format.  Document management systems help accelerate invoice approvals, streamline archival and retrieval, and safeguard sensitive data.
• Embrace cloud solutions: Consider deploying a cloud-based AP automation solution.  Cloud-based solutions eliminate the need for expensive upfront software licenses and ongoing IT maintenance and make it easy for AP to update and scale their operations.
  

On top of streamlining workflows, paperless processes also reduce your carbon footprint.

3. Standardize and simplify your processes.  Clear and consistent processes are essential for achieving best-in-class AP results.  For starters, create a clear set of instructions for vendors on how you suggest they submit invoices. These instructions should specify the information you require to approve invoices, acceptable formats (e.g., PDF, EDI), and submission deadlines.  Next, establish a well-defined invoice approval process based on scenarios such as the business unit that made the purchase, the purchase amount, and the supplier.  These rules will ensure that invoices are routed to the appropriate personnel for timely and efficient approval.  Finally, maintain a consistent chart of accounts for all expenses.  This simplifies the coding and categorization of invoices and improves financial reporting accuracy.  Standardizing processes minimizes errors, improves efficiency, and makes it easier for new hires to adapt.

4. Digitize your workflows.  Manual or email-based approaches to routing invoices for approval can create significant bottlenecks in an AP process.  Keep your approvals and supply chain moving by digitizing the routing of invoices for approval based on predefined criteria.  Prioritize solutions that allow approvers to review and approve invoices on their mobile devices.  This provides greater flexibility and ensures approvals can be made even when staff are away from the office.  Leveraging technology for approvals can significantly reduce invoice approval cycle times and ensure a smooth, uninterrupted approval workflow.  

5. Embrace analytics.  AP departments sit on a treasure trove of data that can help an organization optimize its cash flow, better manage its spending, mitigate potential fraud and compliance risks, and improve operational performance.  Use the invoice data extracted with an AP automation solution to identify vendors who offer early payment discounts.  Leverage this information to adjust payment schedules and capture these valuable discounts.  Monitor key metrics like average processing times, invoice errors, and discounts captured to help identify areas for improvement and continuously refine your AP processes.  Analyze invoice data to track supplier performance metrics like on-time delivery and pricing accuracy and help identify reliable suppliers and potential areas for negotiation.  Use AI to analyze historical invoice data and flag invoice anomalies that may indicate a fraudulent transaction.  

Implementing these best practices in 2024 will help elevate an AP department’s performance.  

Conclusion
Every AP leader wants to find ways to elevate their department’s performance.  By adopting the best practices above and embracing automation and data analysis, AP leaders can transform their payables department into a well-oiled machine.  These best practices will not only free up an AP staff’s time for more strategic initiatives but also improve efficiency, reduce errors, and generate value through early payment discounts and better vendor negotiations.  In today’s uncertain economic times, a streamlined and optimized AP department is no longer a luxury, it’s a competitive advantage.