Tips for Better Accounts Payable Management for Your Toronto Business

Accounts payable (AP) is a vital component of your Toronto-area business’s overall financial well-being. It involves tracking what is owed to your suppliers as well as ensuring that the payments are made successfully. Poor management of your accounts payable can lead to cash flow issues, missed payments, and, ultimately, business failure.

Virtuous Accounting & Bookkeeping is a leading provider of accounts payable and receivable services for businesses in Toronto and across the country. In this post, we discuss important tips to improve your accounts payable process.

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Ways to Boost Your Toronto Business’s Accounts Payable Procedures

Generating big profits does not ensure effective business growth. You need to spend money effectively so your company has proper cash flow, plus you must properly manage your accounts payable. Not doing so can damage your company’s odds of survival and growth.

Secure Your Accounts Payable Department

Your accounts payable department is a key target for both internal and external fraud. Without proper controls, the risk of unauthorized payments, duplicate payments, and errors increases. Here’s how to secure your AP department:

• Establish Clear Policies and Procedures: Define and document procedures for invoice approval, payment processing, and account reconciliation. Ensure that these procedures are adhered to strictly.
• Limit Access to Payment Processes: Not everyone in your organization should have access to payment functions. Use a principle of segregation of duties where individuals responsible for approving payments are different from those who reconcile accounts. This separation reduces the risk of fraud and errors.
• Implement Checks and Balances: Introduce checks at different stages of the payment process. For example, dual approval for payments above a certain threshold and regular audits are required to detect discrepancies.

Transition to a Paperless System

Moving away from paper-based processes to digital ones can enhance the efficiency and security of your AP department.

• Adopt Digital Invoices: Ask your suppliers to send electronic invoices. Digital invoices are easier to track, reduce the risk of lost or misplaced documents, and streamline the workflow by automating the receipt and entry process.
• Use Electronic Payment Methods: Adopt electronic payment options like credit card payments to reduce the risk of fraud and eliminate the handling of physical checks.
• Store Documents Digitally: Implement a document management system to store and as organize all invoices, receipts, and payment records electronically. This not only reduces physical storage needs but also makes it easier to retrieve documents when needed.

Streamline and Automate Processes

Automation and streamlined processes can decrease the workload of your AP department, minimize errors, and ensure timely payments.

• Vendor Selection and Management: Maintain a list of approved vendors with their necessary documentation, such as insurance, licences, and tax details.
• Automate Invoice Processing: Use accounting software like Xero and Sage to automatically capture and enter invoice details into your accounting system. This reduces manual data entry and the potential for human error.

Ensure Timely Payments with Reminders

Timely payments are important for maintaining good vendor relationships and avoiding late fees. Implementing payment reminders can help you stay on track.

• Set Up Automatic Reminders: Use your accounting or payment software to set up automatic reminders for upcoming payment due dates. This can help prevent late payments and the associated penalties.
• Schedule Regular Review Sessions: Periodically review your upcoming payments to ensure you’re aware of any approaching deadlines and can plan accordingly.
• Prioritize Based on Due Dates and Discounts: Prioritize payments not only based on due dates but also by considering any early payment discounts you can take advantage of.

Negotiate Early Payment Discounts

Many vendors offer discounts for early payments, which can lead to savings over time. Here’s how to leverage these opportunities:

• Identify Vendors Offering Discounts: Review your vendor agreements to identify those who offer early payment discounts. Make a note of the specific terms and conditions associated with these discounts.
• Assess Cash Flow Feasibility: Ensure your cash flow allows for early payments without causing liquidity issues. While taking advantage of discounts is beneficial, it shouldn’t come at the expense of your overall cash flow health.
• Negotiate Favourable Terms: Reach out to your vendors to negotiate early payment discounts. Building a track record of timely payments can strengthen your negotiating position.

Create and Revisit Your Budget Regularly

A well-defined budget is important for managing your accounts payable effectively. It provides a roadmap for spending and ensures that funds are available to meet your financial obligations:

• Develop a Comprehensive Budget: Create a detailed budget that outlines expected revenues and expenses. Include provisions for all recurring and anticipated payments to give a clear picture of your financial commitments.
• Compare Actual Spending Against Budget: Regularly compare your actual spending against your budgeted figures. This helps identify variances and areas where adjustments may be needed.

Build a Cash Reserve

Having a cash reserve is important for financial stability. It acts as a safety net during cash flow shortages and unexpected expenses, helping you handle tough times without major disruptions.

• Determine Appropriate Reserve Levels: Assess your business needs and determine an adequate cash reserve amount. This should be sufficient to cover several months of operating expenses.
• Allocate Surplus Funds Wisely: Whenever you have surplus funds, consider setting them aside to build your cash reserve rather than distributing them as dividends or reinvesting immediately.
• Maintain the Reserve for Emergencies: Use the cash reserve strictly for emergencies or unforeseen cash flow shortages. Regularly review and replenish the reserve as needed.

Regularly Reconcile Accounts

Regular account reconciliation is important to ensure accuracy in your financial records and to prevent discrepancies between your ledgers and bank statements.

• Record Expenses in a Timely Manner: Ensure that each expense is recorded in your ledger as it is paid. Keeping a running balance helps maintain accurate financial records.
• Match Payments to Bank Statements: Regularly check that payment amounts and account balances align with your bank statements. This helps identify discrepancies early.
• Reconcile Regularly: Schedule frequent reconciliations to keep your accounts up to date and to catch any issues before they escalate.

Consider Outsourcing Accounts Payable Services

Outsourcing your accounts payable services can be a strategic move, especially if managing accounts payable is becoming complex for your business.

• Evaluate Outsourced Services: Look into outsourced accounting services like ours that offer scalable and cost-effective solutions. These services can provide access to experienced professionals at a fraction of the cost of in-house staff.
• Benefit from Expert Insights: Our outsourced accounting professionals can help establish sound policies, streamline processes, as well as protect your company from fraud. They can also provide valuable insights into your financial data.
• Improve Operational Efficiency: With an outsourced accounting partner, you can ensure that your AP processes are managed efficiently, payments are made on time, and you have access to accurate financial data for strategic decision-making.
• Boost Security and Controls: Outsourced services often come with robust security protocols and the latest technology tools, ensuring that your AP processes are not only efficient but also secure.

 
Enhancing your accounts payable process requires ongoing attention and strategic planning. By implementing these tips, you can ensure timely payments, reduce errors, and boost your business’s financial stability. A well-managed AP process not only supports your financial health but also positions you for sustainable growth and long-term success. To learn more, contact Virtuous Accounting & Bookkeeping. With our expertise in accounting software like QuickBooks, Xero, FreshBooks, Sage, and Wave, we ensure your business benefits from the best accounts payable services in Toronto and beyond.