The amount owed by the business for the credit purchase of any goods or services is termed accounts payable. Accounts payable is vital for any business and a blunder in the accounts payable process can incur huge losses for the business.
It plays a key role in shaping up cash flow, thus requiring constant monitoring and management. Maintaining the accounts payable can solidify business relationships with the suppliers that can vastly help your business and for this reason, it becomes vital to maintain the firm’s account payable process aptly. However, doing so is not always seamless because you can encounter several challenges while doing so.
Here are the most common accounts payable challenges and how to solve them:
Common Accounts Payable Challenges
You can encounter several problems while maintaining the accounts payable account, and here are the most common ones:
Maintaining Supplier Invoices
Losing track of your invoices and its due dates is common when your business deals with numerous vendors. In case you have lost a receipt or invoice, then you can simply ask the supplier to provide another. However, the workaround will only be helpful if you have noticed some missing invoices. Losing critical invoices can not only deter your work relationships but also hinder your reliability.
Manual Data Entry
A general accounts payable transaction goes like this:
- Inputting the transaction and supplier invoice details
- Getting approval
- Finishing the payment
However, the inclusion of manual data entry can lead to transaction errors, leading to miscalculation, imprecise payments, eventually leading to incorrect company finances.
Vendor Management Issues
No business can flourish optimally with bad vendor relationships, thus making suppliers vital. In case your company manually manages transaction details, then keeping up with the vendors to resolve any transaction miscalculation is burdensome.
Missing Purchase Receipts
Preserving purchase receipts is essential as it helps in avoiding any unapproved purchases or identical orders. It also helps in tracking the orders; however, businesses do not adopt this practice due to its intricacy and time-consumption.
Not every vendor you deal with will be ethical, so there are also chances of them sending a duplicate invoice. This can also be an error of judgment, but it can severely cost you. If your business is operated in multiple locations, then it makes it harder to keep track of the payments.
Inefficient and Time-Consuming
Inefficient business structure and manual data processing can severely hinder your productivity. A company with a medium scale of operations needs to have 2-3 personnel to manage the accounts payable process. If the entire process is held manually, then it can consume a significant amount of time.
Solutions for Accounts Payable Problems
Here is how you can solve the common accounts payable issues:
Automate the Accounts Payable Process
While traditionally, the process has been managed manually, replacing it with accounting software can enhance your productivity several folds. Accounting software completely eradicates the possibility of manual entry errors. Always prefer digital invoices as you can directly import them to the accounting software. The majority of software offer payment reminders, thus eliminating the risk of late payments.
Keep Track of Purchasing Orders
An accounting software effectively tracks the purchase orders and matches them out with the vendor invoices. If possible, make it compulsory to generate a purchase order for every purchase transaction. It can help you review the invoices and orders from the vendor.
Always verify the vendors’ reliability and
their payment approval process. A vendor portal helps you connect with the vendors in a better way. Details like transaction notes, purchase entries, and vendor details can be saved in the portal, thus efficiently managing the vendor relationships.
Maintain Digital Entries and Design an Efficient Workflow
A smooth-functioning framework speeds up your transactions and increases efficiency as well. Alongside a seamless workflow, you should also maintain the digital entries of the transactions for utmost precision. Prepare a workflow that fits your proceedings and enhance your productivity.
Accounts payable process holds major significance in forming the cash flow of a business, thus making it vital to be analyzed thoroughly. In case your firm has assigned human resources to perform the process, then it can reduce your efficiency. Investing in quick-functioning accounting software can not only increase your productivity but also smoothens your vendor relationships.
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We invite you to experience finance and accounting outsourcing through us. Contact us to develop a customized accounts payable process manual suited for your needs and business requirements.