Imagine if you could process all of your accounts payable in 70% less time.  You can, with some of the strategies I am going to outline here.  On average a mid-sized company of around 50 staff, spends on average 40 hours per week paying bills.  If I can show you how to save 70%, that puts 28 hours a week back into your pocket. 

Perhaps you experimented with streamlining your accounts payable routines before, but with so many different factors impacting who gets paid and when, it seems like an impossible task – or at least one that could be much improved. 

I know that these strategies work because I’ve implemented them myself and also for other clients.  The ROI is there and it’s immediate. 

The Rules of Engagement: Who gets paid, and when? 

We all have expenses.  Sure, they look a bit different for us all, but regardless of who we are buying stuff from, we have to pay for that stuff.  And the businesses we are buying that stuff from want us to pay them in full, on time.  And selfishly, we want to make that process as easy and seamless as possible.  After all, paying bills is not fun, nor is watching that money leave your bank account, but it’s a part of life for us all.  The tricky part is ensuring that you have a sufficient inflow of cash to service the outflow. 

• We pay for our smartphones (thank goodness for these things). 
• We pay for software. 
• We pay rent. 

• We pay to keep the lights on. 
• We purchase materials and supplies from manufacturers, so we can work our magic and resell an amazing product. 
• You get the idea, it’s a simple one. 

As a business, you are likely extended terms by a fair number of your vendors, and you want to keep track of those terms to ensure you are paying your bills not only on time but perhaps early to take advantage of discounts, all while optimizing your cash flow and investable dollars. 

You can’t miss payroll or rent 

Some bills are must-haves, cannot be late in paying, as the consequences are too big.  Perhaps that is your payroll, power bill, rent, income taxes.  For other bills, you might want to always take advantage of the early payment discount option extended by the vendor, such as your property taxes.  You will definitely have to pay this invoice at some point, so why not save a few bucks and pay according to the early payment date?   

Can you stretch the payment for the office supplies purchase? 

And then there are some bills that are not as critical for early/exactly on-time payment; you will release payment only after a review of your forecasted cash position, which could result in timely, or slightly late, payment.  Maybe this is because the dollar amount of the invoice is high, the project you are paying for is incomplete, or you might be mid-contract negotiation with the vendor and desire some leverage. 

Too much manual work; where should I start? 

Let’s brainstorm on considerations that will impact your strategy to streamline the process of paying your bills in tandem with managing cash flow. 

Consider your volume of invoices.   

Do you have a high volume of small-dollar, recurring invoices that you pay per the payment terms 99.9% of the time?  Maybe these are your direct costs of goods sold because without sales, you would not be incurring those expenses.  It would be a time saver to automate the intake and execution process of actually paying these invoices. 

Do you have a low volume of invoices, which can vary significantly in dollar amount, and you would feel more comfortable having your thumb (so to speak) on these invoices before they are ‘manually’ paid? 

Consider your types of expenses. 

• Costs of goods sold 

• Labor, salaries, payroll taxes, and employee benefits 
• Software and telecommunications expenses 
• Facilities expenses 
• Business insurance premiums and professional dues and subscriptions 
• Meals and entertainment, and employee development 

• Marketing and advertising 
• Taxes 

You likely can segregate your vendors/types of expenses, and bucket them into several categories relative to your comfort level and cash position. 

1. Pay when due, under $XX threshold, without exception 

1. Pay according to early discount terms, under $XX threshold, without exception 

1. Pay only after manual review 

Consider your intake process; how many steps does it take to enter a vendor invoice? 

Your vendors are sending invoices to you (via regular mail, fax, email – likely a combination of all 3), and someone in accounting has to keep track of these invoices and then pay them when due, or at some point, as cash allows.   

Keeping track of these invoices in most scenarios involves an employee in accounting keying the invoice into the accounting system, to represent not only that there is a future outlay of cash needed, but also to reflect the expense and liability in the general ledger. 

How many steps and clicks are involved to get one invoice entered into the system? 

How long does it take to retrieve the invoice (open the mail, take it to accounting, open the email, forward it to accounting), review to ensure it is a legit invoice for your business (does a department head need to review and approve before accounting has the signoff to enter it into the system?), and then to key the necessary information in? 

Doing the math, how many invoices can one person enter in an 8-hour workday, and does that align with your volume of invoices? 

Consider the process of paying your bills. 

Now that (finally!) the invoices received over the past week are keyed into the accounting program, it’s time to pay those that are due.  You want to review a complete listing of payables due and approve those that should be paid.  Depending on several factors – your volume of invoices, the types of expenses underlying those invoices, and the dollar amount of the invoices – you may want to see three lists aligning with the buckets we previously identified. 

• One representing all invoices that are due this week, under a previously defined $XX threshold. 

• A second for those that are due per early payment terms, with information aggregated savings. 
• And a third list for those which are due this week over that $XX threshold that you want to ‘manually’ approve and pay.  This would also include those bills that are coming due in future weeks.  After all, you are monitoring cash flow, and knowing the cadence of outflows relative to inflows is a must.  Are you able to get this information (i.e. listing of outstanding payables) easily? 

And regardless of which bucket the invoice falls in, when that invoice is approved for payment, accounting will ‘cut a check’ (or even worse, handwrite one), place it in an envelope, run it through the postage machine, and take it to the post office.  Maybe you are paying some via ACH or wire, but you still have to then record that disbursement in your accounting program. 

That is a lot of work just to see money leave your bank account.  Wouldn’t you like to streamline all of those hands-on steps? 

Utopia: Achieving automation and improving visibility to your cash position 

Imagine a world where your vendors send your invoices to a central location – [email protected].  And this email address talks to your accounting program, and with the power of technology, the invoices are automatically captured in your general ledger; and, you have the image of the invoice captured along with the payable.   

No one in your accounting team had to do a thing.  No one had to go to the office or check the PO box to retrieve the vendor invoice.  It appeared via OCR technology.  Sure, there is a fee for this service, but in almost all (ok, all) scenarios, it is a fraction of the cost of an accounts payable clerk.  Now, not only have you saved money, but you’ve also gained insight into the ever-important cash flow by having vendor invoices captured in your accounting system when they are presented and you have the ability to generate reports to monitor AP aging, days payables outstanding metrics, etc. 

When it’s time to pay those invoices, let’s keep it going.  Perhaps automate the payment of bills that you’ve previously flagged for automatic payment based on your current level of cash management.  Instead of someone in accounting spending time actually paying each one of these invoices, review a list of those scheduled for automatic payment this week and pivot on any if needed.  For the larger dollar invoices, or those that you flagged for manual review, generate a report and select which bills should be paid this week. 

Be proactive versus reactive with your money. 

With automation, you are addressing the exceptions, e.g. 20% of your volume, versus manually processing 100% of your bills.  Stop wasting time manually processing transactions that are a necessary evil of doing business, and instead focus on improving visibility into your cash outflows. 

Managing cash flow can be tricky for some businesses, but having well thought out and efficient processes supporting the accounts payable function will lead to smarter and more informed spending and use of cash.