Accounts Payable is vital aspect of every organization's financial operations...
and staying on top of your accounts payable is crucial to maintaining healthy cash flow and ensuring financial stability.
Let's dive in...
Accounts Payable is kinda what it sounds like…
the “Accounts” that relate to amounts “Payable” to vendors.
Put differently, Accounts Payable is the money a company owes to its suppliers and vendors for goods and services purchased on credit…
and because it’s something you owe, it is a liability - a legal obligation to fulfill.
This is a reaaaallly important account, for a few reasons:
That’s right…if your company tries to sell, or goes bankrupt - your creditors have a claim on your businesses assets of the owners in the company
Now that we understand what Accounts Payable is and why it’s important, let’s discuss how to structure your accounts payable function correctly.
Managing accounts payable is something we often times see founders get tripped up on…
when not set up correctly, your accounts payable function can:
👎 Drain your resources, adding large inefficiencies
👎 Leave room for fraud or critical mistakes, resulting in lost funds
👎 Annoy key suppliers & vendors
Thankfully, there’s a way to fix all of these…let’s explore them each one by one:
1. Use an AP Software
AP softwares have exploded in the recent decade, with many platforms out there making it really easy for you to manage your accounts payable.
With AP Softwares you can:
✅ Forward bills as they arrive right in your inbox
✅ Classify bill categories using enhanced tools, and sync to your accounting platform
✅ Assign bills for approvlas
✅ Pay vendors via ACH
Don’t make the mistake of doing this all manually - you will be wasting tons of time & effort!
2. Create a group email address “AP@[your-domain].com”
Wanna know what one of the biggest reasons for a delay in processing AP is?
The vendor sends their bills to the CEO, and the CEO doesn’t forward to the accounting team.
That’s why it’s a great idea to create a unique email for all vendors to send emails…but you don’t need to pay for an extra license.
Instead, you can create a group email using a platform like gsuite, and add the relevant people to this group.
3. Invite vendors to complete their banking information
There’s one mistake that you really want to avoid with AP…
and that’s processing payment incorrectly.
Trust us…it can be a NIGHTMARE trying to recoup those funds.
Stay safe, and always invite the vendor to complete their own details…
but be careful with inviting a vendor to “change” their details once they are entered, as it’s a common trick for fraudsters to act as a vendor and gain access to their account.
4. Collect approval on all bills
All bills should be approved, ideally twice.
Once for accuracy…
another time for the release of payment.
This should be done at the executive level…whether that’s your CEO, CFO, or anyone else.
5. Process your AP on a specific day of the week
Processing AP can be time consuming, but you save time by batching tasks.
Dedicate a specific ay of the week to process AP and avoid the “interruption” costs associated with managing a bunch of tasks throughout the day
Now that we’ve gone over 5 tips for how to structure your Accounts Payable function, let’s discuss a few key software players in the space.
One of the most common AP platforms is bill.com, which we are a big fan of using.
To us, they were the pioneers in the space…but like most spaces in demand, new players have since entered.
Our favorite tool is Ramp - with ramp, you can manage your accounts payable, corporate credits cards AND expense reimbursements…all entirely for free.
Another popular tool is Airbase