There are only two ways to increase the bottom line - increase sales or control expenses. Accounts payable is the last chance to control expenses prior to money going out the door. Adequate software is a critical part of ensuring expense management success. This guide provides a practical how-to for selecting the right AP software to cut unnecessary costs and create efficiency in payables processing.
This guide will help provide information on the following topics:
Accounts payable software provides the ledger and related software functionality for managing money owed by an organization to creditors. It provides a coordinated system for ensuring AP automation for tasks such as invoice processing, payables approvals, and executing payments.
Key financial benefits include:
|AP record creation||Provides all the tools necessary to create records for payment obligations|
|Check-writing||Creation and printing of individual checks or batch check runs for supplier/vendor payments|
|Vendor/supplier database management||Tracks vendor information such as name, contacts, preferred payment method, address, etc.|
|Aging reports||Allow users to report on AP records by the number of days they are outstanding|
|Records/account lookup (search) and filtering||Lets the AP database be searched and filtered to affect the effectiveness of company cost control efforts|
|1099 processing||Creates the tax form documenting earnings for individual subcontractors paid by the company|
|Electronic payments||Uses ACH or EFT formats to execute payments to vendors/suppliers and involve coordination of accounting capabilities|
|Recurring payments||Provides pre-approval and execution for payment of repeating expenses|
|Purchase order reconciliation||Coordinates workflows and provides functional support for matching AP & PO records|
|Payment approval authorization management||Set user privilege levels in order to control the final payment of accounts payable items|
|Due date alerting||Alerts the relevant employees responsible for executing payments and helps them avoid late fees via system messages, emails, or SMS|
|Positive pay support||A means of enabling financial institutions from paying fraudulent checks by uploading records of authorized payments for cross-verification|
Accounts payable software provides tools to help drive down costs, increase productivity, improve cash management and improve vendor relations. Understanding the software options is critical to finding the best software program for your use.
Managing expenses is a task that every business, government agency, church, non-profit, or school faces. The size of your organization, your existing information system environment and your particular functional requirements will determine which AP software option is right for you. In fact, in most cases, accounts payable functionality will be part of a larger accounting or ERP system. Understanding your options in terms of which payables solutions are right for your needs can help you make the right call on a full accounting or ERP system.
Accounts Payable is one of the core functionalities included with any version of QuickBooks. QuickBooks allows AP workflows to be input through two workflows:
The most fundamental part of the payables process is recording the entry and cutting the check. The level of automation at this stage will surely have consequences in terms of the time you spend managing your accounts payable. When considering different accounts payable options, you’ll want to evaluate how different payables options provide you the ability to populate check fields, schedule batch check prints, and prepare the actual mailing of these payments.
There are many important reports in accounts payable. The ability to report on your accounts payable entries can have a significant impact on helping you to tighten your cash flow. For instance, if you discover you’ve been assessed interest charges by a vendor, you’ll want the ability to report on which payables have caused the charges. The amount of data available in these types of reports will be critical in helping you to quickly determine why the charges have occurred, the responsible parties, and how to avoid similar costs in the future. At a minimum level, you’ll want to create reports based on expense type, due date, payment date, payment period, payment status, internal source, and vendor. Perhaps most importantly, your accounts payable module needs to clearly show you which payments have been made, which have been made but have not yet cleared, and which have been processed.
Your accounts payable module will not only track individual payments but also provide you with an ongoing vendor database. The vendor list will need to be able to track information such as contact info, addresses, vendor terms, and other data. The precise way that each software package handles the vendor list will vary. You’ll want to make sure that the software supports all the vendor information you need to keep on hand. For instance, you may have a pre-established convention for setting up vendor codes. Does the software support the necessary number of characters and digits your codes require? The vendor list should also be easily sorted and exported for printing.
Your accounts payable software should include controls to identify the authenticity of each payment. No one likes to think they’ve lost money through errors or fraud, but audits often turn up evidence this has happened. Associating each payment record with the original purchase order and/or the vendor bill helps reduce errors and fraud. Your software package should eliminate unauthorized payments specifically by reconciling invoices and PO’s with the corresponding AP entry.
Throughout the year, it’s likely that you’ll make non-payroll payments to non-corporate entities at some point. As the payee, you are responsible for providing the 1099 tax form. Your AP module should allow you to flag these payments and create the necessary paperwork.
Accounts payable transactions don’t occur in a vacuum; they’re part of larger business processes. Most importantly, your Accounts Payable module should efficiently deliver the payables ledger information regarding current liabilities to the balance sheet located in the general ledger. In many integrated accounting systems, this happens in real time. If for some reason integration isn’t possible, make sure the Accounts Payable module exports data to the general ledger in a format that it can interpret. Another key integration point is with the purchase order module. Integration with the Purchase Order module is important as both Accounts Payable and Purchase Order processes benefit from mutual access to the master vendor list. Bank reconciliation capability functionality may also be contained in its own application. If this is the case, integration is critical to identify which payments have been made and to reconcile the Accounts Payable and bank records.
Many accounts payable solutions now include support for ACH (Automated Clearing House) payments. The advantage of using ACH payments is that it reduces the cost of physical printing checks, mailing checks, and leads to a quicker turn-around in completing transactions.
The payment terms for different vendors vary greatly. There can also be an advantage to keeping cash on hand, potentially earning interest, until payment is actually required. Conversely, it can be beneficial to make early payments if there is a financial incentive for doing so. Some accounts payable software provide the ability to identify upcoming payments and when it is most beneficial to make the payment and take advantage of cash discounts offered by your vendors.
The level of reporting functionality will vary greatly between different solutions. Not all accounts payable packages will include the functionality, but the ability to customize fields, report using complex instructions, and create graphical reports can create additional efficiencies.
Accommodating the payment of funds that may or may not actually be cashed, creates a unique accounting challenge. Certain accounts payable modules will provide specially developed tools to manage these transactions.
Small businesses should make sure their software can handle the volume of invoices they deal with each month, as well as save the necessary data on the vendors they have a relationship with. Starting out, you may just have a few invoices here and there for just a few vendors, and you’ll likely need to only save basic contact details about the vendor. But a growing business will soon realize that their AP system might not be able to handle the volume of records they are keeping in it, which means you’ll have to upgrade the system for more storage, pay for data backup services, or simply delete historical data.
Converting to automatic digital systems from manual paper methods. A recent report found that companies process an average of 290,667 invoices each year, 58% of these invoices arriving by U.S. mail. A company using a manual AP system may pay up to $35 more to process an invoice compared to companies with automated processes.
Accounts Payable Fraud. The Association for Financial Professionals found that 74% of surveyed organizations in 2016 were victims of payments fraud, which has grown from 61% back in 2013. This makes it just as important as ever to spot fraudulent accounts payable activity before it spirals out of control. Some preventative measures you can take to reduce your chance of fraud in your accounts payable area are: convert payments to electronic methods, reconcile checking accounts promptly, keep any paper blank check stock under lock and key, introduce a centralized check writing review process, and have two separate individuals handling check writing and reconciliation.