Accounts payable is one of the most challenging areas to manage. Accounts payable is responsible for all financial transactions related to inventory purchases, vendor invoices, and vendor payments. If you have an effective AP team and are applying best practices, you are on the right track. However, many businesses struggle with AP processes because they do not know where their weaknesses are or how to fix them. Here are 4 common challenges that may indicate your AP department needs some improvements: 

 

  1. AP process is too long- It is no secret that a significant portion of business problems result from poor communication. This is especially true with accounts payable. It does not matter how good your team is if the process is slowing everything down. If your AP process is taking too long, then this indicates that you need to make some changes. There are two ways to speed up your AP process: Improve the way you handle each step and reduce the overall number of steps. The first step is to determine exactly how long each step in the process takes. Next, break down each step to determine if there are any unnecessary delays. If you find unnecessary delays, you must determine how to fix them. If your AP process is too long, you need to look at each step and break it down into smaller pieces. 
  2. No central repository for inventory information- Another challenge many businesses face in AP is a lack of inventory information. A single location where you store all inventory information is essential to the smooth running of your AP process. Without it, your accounts payable team will have to look through multiple systems to get the inventory information they need to complete their tasks. You can use one of two common inventory management systems to centralise inventory data: data management software or a warehouse management system.
  3. Unauthorised purchases- Purchases made without proper authorisations or purchases from non-preferred suppliers can affect the efficiency of the AP department. The AP process is hectic and time-consuming and involves multiple steps in between. The assigned individuals often make unauthorised purchases to save time and avoid multiple approvals. In order to overcome such issues, organisations must create a robust system for purchase orders. A robust purchase order system will help ensure compliance, effective budget management, easy online entry of all purchase requests, etc. In this way, organisations can avoid unnecessary purchases, reduce delivery costs, reduce the cost of Purchase Order (PO) handling, etc. Since the AP process involves numerous stages, which can be challenging, business owners outsource the entire AP process to an outsourced service provider. For instance, organisations can opt for accounts payable outsourcing firms to manage the purchases or payroll outsourcing companies to streamline their payroll function. 
  4. No reconciliation process- A reconciliation process is used to correct any mistakes in your accounts payable (AP) data. It is also used to correct any data in your supply chain management system. If you do not have a reconciliation process in place, you will be unable to catch and correct errors in your AP process. A typical reconciliation process includes three steps: data correction, data verification, and data verification review. The first step is to correct any mistakes in the data. The second step is to conduct a second review to ensure the corrections are done correctly. The third step is conducting a third review to ensure the corrections were done correctly. 

Wrapping up 

AP departments are probably the most important departments in your company. If they are not optimised, they can easily cause your business to go bankrupt. With proper planning and management, it is possible to control that risk. For this to happen, businesses must clearly understand what AP is and how it operates. Once this is done, businesses must follow simple tips to keep their AP department running smoothly. Not only AP but also business processes like AR and payroll need close attention. Business owners can either hire an in-house team or go for accounts receivable and payroll outsourcing companies.