Updated: Apr 12, 2022
For most founders, sending money out of the business isn't normally one of their favorite tasks. It's much more fun to watch money come into the business.
That being said, the way a startup manages accounts payable (AP) is important. It can either be a hindrance to the company, or help the company in its efforts to scale.
There are a number of important factors to consider when it comes to your startup's AP function.
The most important one to start with is security.
There's no shortage of fraudsters out there, constantly trying to find ways to scam startups. Take an experience from one of my clients, for example.
An email came in that seemed to be from the CEO to the person who usually processes wire payments, asking for an immediate wire payment to be processed. However, the request wasn't from the CEO and was in fact a scam.
Thankfully, this startup had a number of security protocols in place in order to prevent a fraudulent activity like this. But it really just goes to show how important it is to have proper security protocols in place.
For that reason alone, it's really important that any bill that gets processed gets approved by someone in the organization. Ideally, there are two approvals - one for the accuracy of the bill and one for the actual release of the payment.
On top of that, no one should be able to process a wire directly from your bank, independent of a second person approving and releasing that wire.
With these measures in place, you could prevent fraudulent activities that could be potentially catastrophic for your startup.
In addition to preventing fraudulent activity, you also want to do everything that you can to be accurate with your process. Processing wires is a very sensitive task. Oftentimes after a wire is sent, it's close to impossible to retrieve the wire. So you want to make sure all the information that you've entered is correct. Just one wrong digit in the wrong place can potentially cause you to send money to the wrong recipient.
Finally, as with anything in your startup's accounting and finance function, you want to be efficient with everything that you do. If a startup doesn't think through it's AP processes, it can find them taking up an inordinate amount of time through simple, repetitive tasks.
The AP cycle typically starts with a vendor sending an email through one of your channels with a bill that needs to be paid. That bill then needs to:
Get the proper approval
Get forwarded to your accounting software and uploaded
Get processed at the right time.
Automating this process as much as possible is key, and a number of platforms to facilitate this process have recently surfaced in the last decade or so.
With their software, you can automatically forward a PDF that gets received by an email address, which will then upload into their platform and sync to your accounting software.
You can then get the proper approvals from the necessary department heads. And lastly, you can process the payment in their platform, again syncing into your accounting software.
To put it all together, let's look at what the process in a well-run AP function should look like.
First, a bill is received.
Google groups is a service that comes for free with any business Gmail account. It allows you to set up email addresses that various people on your team can then subscribe to and receive those messages.
In this example, we have this bill going to firstname.lastname@example.org. This way everyone in the organization will get a copy of that bill.
In the next step, this bill goes to the person who needs to approve it. Now this could either be via email or directly in a platform like bill.com or ramp.
Finally, the bill gets forwarded to the AP platform that you're using. It gets uploaded to their platform and then coded accordingly.
When the due date come, they have the option where if you want to have a second level of approval, then payment can be processed in a bulk fashion or via your bank using dual approvals.
At Mighty Digits, we love combining technology with expertise, and there are several technology platforms that help the AP process run smoothly.
Using these while keeping security in mind, AP will be something that boosts your growth, rather than slows you down.
Josh Aharonoff CEO and Outsourced CFO for startups
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