Best practices for A/P, A/R that your company needs to implement now

Forward-thinking companies like yours are always looking for ways to optimize A/P and A/R processes to keep your business’s cash flow well-balanced.

But outside of using automation technology to reduce errors, streamline vendor invoice approvals and process customer payments, what else can be done?

A/P best practices

Here are six steps you can take immediately in A/P to save money and headaches:

1. Prioritize vendor invoices. Paying all invoices as they come in can hurt your firm’s cash flow. So your check runs have a cash disbursement ceiling for easier budgeting, try scheduling invoice payments according to due dates and payment terms.
2. Reconcile accounts at the end of every day. Weekly reconciliation is probably not enough. If something happens where you need to make an additional payment to a vendor, and it’s not recorded, your books and banking records won’t match.
3. Renegotiate payment terms, where possible. Regardless of the terms you’re given, you can almost always renegotiate. Typically, invoices come in at a net 30, 60 or 90 days. Even if a vendor says no, always let them know if a payment’s going to be late. If you’re proactive, some vendors may excuse the late fee.
4. Be on the lookout for A/P fraud. Bogus vendor accounts are often how internal fraud happens. Have your system set up so your staffers who cut checks aren’t allowed to create new vendors in the system.
5. Restrict file access and establish controls. Only allow specific employees to access the master vendor file for better control over which vendors are approved. This also helps with tracking where payments are going and identifying vendor data mistakes.
6. Streamline your workflow. Especially because check fraud is on the rise, limit your check runs to twice a month, and make sure all invoices have approval signatures along with the appropriate paperwork.

A/R best practices

To reduce delayed payments and non-payment of customer invoices, experts recommend:

• Keeping accessible notes for any unusual client billing or payment details. To keep customer relationships healthy, being aware of their special needs can be a competitive advantage.
• Evaluating whether your credit policies need to be updated. It may seem very risky to extend credit right now. Clear credit policies make it easy for staffers to determine whether to extend credit when a client requests it.
• Staying proactive about A/R collections. One strategy is prompting A/R to contact a client the first day a payment is late to give a gentle reminder about payment terms and options to pay, such as electronic payments. Then set a schedule to follow up – weekly, for example – until the account is settled. Consider sending thank-you emails upon payment.
• Ensuring your electronic invoicing system sends links in emails to customers. It reduces the chance of an important invoice email getting caught in a spam filter because it has an attachment.
• Tracking key performance indicators (KPIs). Key A/R metrics are days sales outstanding (which should be below 30 days), average days delinquent, collection effectiveness index (the percentage of accounts you collect revenue on) and revised invoices. (If your metrics get worse, it means you may need to revise billing policies or re-evaluate A/R staffing needs.)