Why your small business should invest in accounts payable software
Accounts payable software is one of the most important tools your business can use to manage bill pay and maintain cash flow. As you grow and have more vendors to pay, manually paying your vendor bills becomes more time-consuming, cumbersome, and prone to errors, affecting business efficiency and stunting your financial growth.
The right AP software can help you stay on top of your vendor payments and track invoices and expenses without a single piece of paper. And if you do your research and choose wisely, accounts payable software doesn’t have to cost you anything at all.
What are accounts payable?
Accounts payable (sometimes referred to as “AP” or “A/P”) are the short-term debt your business owes to creditors and suppliers for services or goods you purchased but haven’t paid for yet.
For example: if you’re buying materials for your small business, leasing a van, or subcontracting a carpenter to build a desk for you, the payments for these goods and services are all called accounts payable.
To learn more about accounts payable, you can read our guide.
The benefits of using accounts payable software for your business bills
When you’re just starting out with your business, you can afford to pay vendors manually.
You get an invoice, fill out a check, sign it, put it in an envelope, stamp it, and send it by snail mail. Then, a week later, if you want to make sure that the check arrived, you go into your bank account and see whether it was deposited, or you call your vendor to find out.
Instead of a check, you can also set a reminder on your calendar for when your bill is due and remember to get into your bank account each time and make a money transfer.
You can do this if you have one vendor, two, or even three. But as your business grows and your transactional volume grows with it, you’ll find yourself struggling to manage all your bills manually. Soon you’ll find that the time you spend on sending payments, tracking them, contacting vendors, and registering it all comes at the expense of running your business. Here’s where AP software comes into play.
Save time, reduce workload and increase efficiency
Using AP software lets you take advantage of a centralized online platform that automates many of the tasks you’d typically waste precious time performing:
- Getting the invoice.
- Updating it in your books.
- Writing the check or getting into your bank website to make the payment.
- Updating the payment in your books – again.
When you move these tasks to an online platform, you streamline the process and reduce the manual actions to a minimum.
Here’s an example of a simplified payment workflow with accounts payable software:
Rachel runs a small coffee shop and buys the same amount of coffee from her supplier, “Carefree Coffee Inc.,” each week. For the coffee, she’s invoiced $400, due two weeks from delivery. The process looks like this:
- Rachel sets up her account and payment method in the software. She only needs to do it once when she starts working with it.
- She uploads the invoice, inputs it, or better yet – allows the software to sync with her accounting platform (like QuickBooks) and import the open invoices automatically.
- Then, all Rachel has to do is choose the invoice and schedule the payment to be delivered on the desired date. The payment to “Carefree Coffee” will go out on the scheduled date, without Rachel having to do anything else.
Now, here comes the real magic: many accounts payable software can automatically update the payment on the accounting software, so Rachel doesn’t even need to update her books.
Some AP software even allows setting up recurring payments, so if the orders to Carefree Coffee are always the same amount, Rachel can schedule all her future payments only once.
Businesses like Rachel’s can save up to 40% on bill pay time simply by using accounts payable software.
Minimize the risk of errors and fraud
Fraud is a significant concern for business owners. In 2020, a whopping 74% of businesses were targets of payment scams, with checks winning by a landslide (66%) as the payment method most susceptible to fraud.
Even if we set fraud aside, managing payments manually is a fertile ground for errors: paper documents get lost or misplaced. Writing numbers and dates manually leads to typos and mistakes. And sometimes, people simply forget to send a check or update the books.
Here’s how accounts payable software minimizes the risk for these potential errors:
- All your payment actions are documented automatically on one centralized platform and thereby, are traceable and trackable. So you won’t miss an invoice or accidentally pay the same invoice twice.
- You can eliminate errors that come from redundant data entry by syncing the software with your accounting platform.
- You can schedule online payments ahead of time and decide exactly when they go out to avoid the risk of late or missed payments.
- If your AP software has an approval workflow feature (and it should), you can use it to add another layer of security and control by letting an additional person approve the payment.
Better manage your cash flow
The principle for optimal cash flow management is simple. Hold onto your cash longer by getting paid as early as reasonably possible and paying as late as reasonably possible without risking late payment.
Here’s the problem with checks and snail mail – you know when you’re sending them. You don’t really know when they’ll arrive. So you have to send them earlier than you want to as a precaution, but even that’s not 100% foolproof.
An accounts payable software can assist you in improving your cash flow management by letting you “fire and forget” while hitting your marked date to the exact day you want it to arrive.
You just choose the date in advance when your payment should arrive, schedule it, and that’s it. The payment will be delivered to your vendor, and the funds will be deducted from your bank account right on time and not a moment too soon.
Cooperate better with your accountant or bookkeeper
Say you’re working with an accountant or a bookkeeper. In that case, your working relationship can sometimes be disorganized and ineffective – from sending paper invoices by email, through clumsy payment approval routines, to manual, time-wasting data entry.
When you’re working with a good accounts payable software, it can vastly improve the way you work with your accounting professional. It can also save you money by eliminating some of the grunt work you’re paying your accountant to do:
- Your accountant can have their own access to your software account, perform actions, and have better visibility over your financial data and bill pay status.
- You don’t need to send your accountant any invoices or documents; every invoice uploaded into the software is accessible to you and your accountant.
- There’s complete visibility and transparency between you and your accountant. You can review any action your accountant takes and implement approval workflows to gain even more control over what your accountant does for you.
- When you sync your accounts payable software with your accounting platform, your accountant doesn’t need to manually enter payment data into your books.
Congrats! You decided to use accounts payable software. Now it’s time for the next step – go on the web and research the software that works for you.