Mastering Accounts Payable for Better Cash Flow and Peace of Mind
Does managing supplier payments, invoice approvals, or payment cycles feel overwhelming as a small business owner or for your accounts payable department? Are you stressed about whether there’s enough working capital to cover your bills?
If so, you’re in the right place.
In just 5 minutes, I’ll show you how to automate, streamline, and optimize your accounts payable (AP) processes to boost cash flow, reduce Days Payable Outstanding (DPO), and improve your cash conversion cycle (CCC) fast.
I’m Shishir Khadka, a chartered certified accountant (ACCA) and cash flow specialist with over two decades of experience helping businesses grow and master their cash flow through automation and strategic AP management.
Why should you trust my expertise in optimizing accounts payable?
My insights into cash flow management have been featured in The Independent, where I’ve shared strategies to enhance financial management and improve cash inflows. I’ve also contributed thought leadership to platforms like Zoho, Floatapp, and Agicap, helping small business owners streamline their accounts payable workflows using AP automation tools. As the founder of Hungry Cash Flow software and Cashflowpedia, the world’s most comprehensive cash flow resource, I’m committed to offering practical, results-driven solutions to optimize your cash flow and working capital.
Leveraging My Proven Internal Records on Accounts Payable
Many small business owners underestimate the impact of optimizing their accounts payable (AP) on working capital and overall financial health. According to my internal records, after reviewing 927 small business cash flow issues over 20 years across sectors like retail, dental, art galleries, and marketing agencies, streamlining accounts payable (AP) processes can increase your available cash flow by an average of 19.25%. This is achieved through payment term negotiations, AP automation, and setting robust internal controls like invoice approval systems and fraud detection.
Key Takeaways
- Automate Your Accounts Payable to Save Time and Boost Cash Flow: Discover how automation can instantly improve your accounts payable (AP) processes and help you regain control of your cash outflows and cash inflows.
- Implement Best Practices: Learn proven strategies and internal controls that protect your working capital, improve efficiency and streamline processes to improve Vendor relationships.
- Unlock Actionable Solutions: Walk away with a step-by-step action plan, including a checklist and quiz to assess your accounts payable (AP) efficiency and optimize it for long-term success.
[QUIZ} TAKE MY AP PROCESS GAP ASSESSMENT QUIZ TO IMPROVE YOUR CASH FLOW
How Can Automating Accounts Payable Boost Your Cash Flow Fast?
Automating accounts payable processes boosts a business’s cash flow by streamlining invoice processing, generating purchase orders, acknowledging goods received, and posting supplier invoices directly into accounting software. This reduces manual data entry errors and ensures timely payments. By automating supplier invoice data, businesses gain real-time visibility into cash outflows, optimizing Days Payable Outstanding (DPO)—the average time it takes to pay suppliers. This efficiency improves the overall cash conversion cycle (CCC), which measures the time it takes to convert investments in inventory and resources into cash flow from sales.
In my experience as a CFO, automation also empowers businesses to manage payment terms strategically, allowing them to negotiate extended payment schedules or take advantage of early payment discounts.
What Are the Key Benefits of Automating Supplier Payment Processes?
The key benefits of automating supplier payment processes, based on my experience working closely with bookkeepers and admins as a CFO, include improved control over both cash inflows and outflows, resulting in more efficient cash flow management. Key benefits include:
- Faster Payment Cycles: Automation speeds up payments, reducing late fees and aligning cash outflows with cash inflows, avoiding cash flow shortages.
- Error-Free Workflows: Automation minimizes manual errors, ensuring smooth and predictable payment schedules, and reducing payment delays.
- Strategic Payment Terms: Automation helps businesses manage payment terms more effectively, letting them extend cash outflows or utilize early payment discounts, optimizing working capital and maintaining better liquidity.
Which AP Automation Tools Can Help Optimize Payment Processes?
Many AP automation tools are available, depending on your specific business’s needs:
- QuickBooks: Automates invoice approvals and payment scheduling, streamlining AP tasks for small businesses.
- Xero: Offers real-time visibility into cash inflows and outflows, helping businesses manage payment cycles efficiently.
- Bill.com: Simplifies invoice management and payment approvals, reducing manual errors.
- Tipalti: Built for businesses handling high-volume and international payments, Tipalti helps ensure compliance and prevent fraud.
- MineralTree: Automates key AP workflows, reducing payment cycle times and improving control over cash outflows.
- Stampli: Enhances collaboration on invoice approvals and integrates seamlessly with other accounting software.
- SAP Concur: Ideal for larger businesses needing comprehensive AP management, including integration with financial systems.
Client Story – Luxury Furniture Retailer
A luxury furniture retailer based in Hammersmith, London, struggled with accounts payable in June 2020. Due to the Covid-19 lockdown, online shopping surged, and even in the slower months of June and July, their sales skyrocketed. As a consequence, purchase orders increased, leading to the need to tally more goods received notes to determine if supplier bills could be paid based on the status of the goods received. They were frequently late with supplier payments, incurring late penalties and damaging trust with vendors.
I set up Dext software for the admin and bookkeeper to work together online and automate the process of receiving and approving invoices for payment. Supplier bills were automatically uploaded into Dext from email, then reviewed by the admin and passed on to the bookkeeper for inclusion in the weekly supplier payment run.
Dext was also connected to QuickBooks Online, automating the posting of supplier invoices so payments could be allocated as they occurred, and remittances could be sent to suppliers automatically.
This automation process increased efficiency by 37%, reduced Days Payable Outstanding (DPO) by 20%, and shortened the cash conversion cycle (CCC) by 19 days. As a result, the workload of one admin employee was significantly reduced, allowing the business to reassign them to a marketing role, saving £26,500 annually in salary.
Video Walkthrough of Automating Your Supplier Payment Process
Watch the [Video Walkthrough] to learn how you can automate and set up the supplier payment process in QuickBooks Online, ensuring cash outflows are timed with cash inflow and maintaining working capital. The same principle can be applied when using other accounting software such as Xero, Zoho, Freshbook, and Freeagent.
How Can Tight Accounts Payable Internal Controls Protect Your Cash Flow?
Tight accounts payable internal controls protect your cash flow by minimizing fraud, maximizing forecasting accuracy, and magnifying payment efficiency.
From my experience as a chartered accountant, I’ve witnessed many small businesses overlook the importance of strong internal controls within their AP processes. The consequences of weak controls are evident—such as cash flow shortfalls, overlooked discrepancies, or missed payment opportunities—leading to avoidable financial strain.
I’ve developed a framework I term “The Three M’s of Accounts Payable Internal Cash Flow,” focusing on minimizing fraud, maximizing forecasting accuracy, and magnifying payment efficiency. This approach not only protects your cash flow but drives sustainable financial success, a methodology I’ve applied across various industries with proven results.
Minimizing Fraud and Errors
Enforcing strict approval workflows and maintaining detailed audit trails can significantly reduce the risk of unauthorized transactions and accounting errors. In my 20+ years of experience, I’ve often seen how effective internal controls safeguard businesses from financial oversights that can drain cash reserves.Maximizing Accounts Payable Cash Flow Forecasting
Real-time visibility over accounts payable ensures accurate tracking of each payment, enabling businesses to forecast their cash flow with greater precision. This reduces the risk of sudden cash flow disruptions caused by unanticipated liabilities, a common problem that I’ve seen derail even profitable businesses.Magnifying Payment Efficiency
Efficient payments ensure businesses not only pay on time but also optimize payment schedules. Strong internal controls help avoid costly late fees while leveraging early payment discounts. This approach consistently improves cash flow, freeing up resources to invest in growth—a strategy that has delivered measurable results for many of my clients.
What Key Internal Controls Should Be in Place?
Segregation of Duties: Separating responsibilities for approving, processing, and reviewing payments helps prevent errors and fraud. This structure creates checks and balances, ensuring that no single person has complete control over the entire payment process.
Multi-Level Approval System: A multi-level approval process requires authorization from multiple decision-makers for significant payments, reducing the risk of unauthorized transactions and protecting your cash outflows.
Automated Fraud Detection: Using automation tools with built-in fraud detection capabilities can flag unusual transactions and ensure that your cash outflows are monitored in real time, adding an extra layer of protection.
Client Story: Marketing Agency—How Internal Accounts Payable Control Caught Fraud and Saved the Business £7,325.37
In 2023, I worked with a creative marketing agency based in Kings Road, Chelsea, to streamline their accounting process.
During the audit of the accounts payable system, I discovered that the receptionist, who also worked as a PA to the owner, was misusing the company credit card and submitting false receipts and purchase justifications. Over the course of 8 months since she had joined, she had already spent £7,325.37.
To address this, I introduced a multi-level approval system requiring either the owner or the project manager overseeing the client’s specific project to approve any payment over a £50 threshold. This resulted in tighter internal controls and saved the business £7,325.37, as they were able to recover the funds from her and prevent future fraud.
What Are the Best Practices for Streamlining Accounts Payable to Boost Your Cash Flow?
There are several best practices for streamlining accounts payable (AP) to boost your cash flow, including automation, optimizing payment terms, regular reconciliation, maintaining strong supplier relationships, and strategically prioritizing payments.
Based on my experience working with clients across various sectors—from small businesses with £40,000 in revenue to enterprises reaching £53.8m annually—here are six best practices I recommend for effective accounts payable management:
Automate Where Possible: Leverage AP automation tools to reduce manual tasks, minimize errors, and speed up the payment process.
Implement Three-Way Matching: Verify purchase orders, invoices, and receipts to prevent discrepancies and ensure accurate payments.
Optimize Payment Terms: Negotiate favorable payment terms with suppliers to align outgoing payments with cash flow cycles, improving liquidity.
Reconcile Accounts Payable Regularly: Conduct regular reconciliations to identify discrepancies early, ensuring accurate financial reporting and avoiding late payments.
Maintain Strong Supplier Relationships: Foster good communication with suppliers to negotiate better terms and maintain flexibility during cash flow fluctuations.
Prioritize Payments Strategically: Categorize and prioritize payments based on importance and due dates to avoid late fees and take advantage of early payment discounts.
Example: How a Furniture Retailer Reduced Costs by £68,275.39 through Implementing AP Best Practices
One of my clients, a furniture retailer with £5.4m in annual revenue based in Wandsworth, London, UK, saved £68,275.39 in one year by implementing AP best practices. In 2023, I advised them to follow the six best practices I outlined earlier for their AP team.
Upon reviewing their supplier ledgers, I discovered that the business had five core suppliers providing the bulk of goods, around 10-12 suppliers delivering accessories or shipping services, and a few others responsible for overheads such as rent, rates, IT maintenance, and accounting services.
I also noticed several random supplier payments that were disrupting the smooth running of operations. To address this, I introduced a process called D.A.D.—Deletion, Automation, and Delegation—to streamline their AP process.
- Deletion: Tasks like manually updating workbooks when receiving goods from vendors were eliminated. Instead, I added a tick box in the system, allowing the admin to mark invoices as good to go for payment once goods were received, removing unnecessary steps.
- Automation: Supplier invoices no longer needed manual posting in QuickBooks, as the process was automated using Dext, reducing manual effort and minimizing errors.
- Delegation: Invoice checking for core suppliers was delegated to the admin team, allowing senior staff to focus on higher-value tasks.
We also took advantage of early payment discounts, earning a 2.75% discount for payments made within 7 days of invoice receipt. By consistently paying within this time frame, the company saved £68,275.39 in one financial year.
To further enhance efficiency, I introduced a tiered payment schedule:
- Weekly payment runs for core suppliers
- Bi-weekly payment runs for mid-tier suppliers
- Monthly payment runs (on the 17th) for smaller suppliers and overheads
As a result of these best practices, the business not only reduced costs by £68,275.39 but also streamlined the entire accounts payable function. This led to improved cash flow visibility, better liquidity, and stronger working capital management.
TAKE MY AP PROCESS GAP ASSESSMENT QUIZ TO IMPROVE YOUR CASH FLOW
How Are Accounts Payable and Accounts Receivable Different, and Why Does It Matter?
Accounts payable and accounts receivable are both integral to your business’s cash flow, but they represent opposite sides of your financial operations. Managing accounts payable focuses on controlling cash outflows, ensuring timely payments to suppliers, while accounts receivable involves managing cash inflows, ensuring that payments from customers are collected promptly.
For a deeper dive into how accounts receivable can affect your cash flow, explore the full guide here to unlock more insights on balancing your cash inflows.
Expert Discussion: What Do Fellow Cash Flow Professionals Say About Accounts Payable Optimization?
Ananda Sharma, a chartered accountant, emphasizes that automation is essential for removing payment bottlenecks:
“Automation reduces manual errors and ensures effective management of cash outflows, stabilizing cash flow.”
Sharma recommends automation to all clients, aligning with the best practices we implement to enhance working capital management.
Roshan Giri, another chartered accountant, highlights the role of strategic payment terms in maintaining liquidity:
“Managing payment terms prevents cash shortages and improves liquidity.”
Giri has seen this approach successfully implemented by Shishir, reinforcing its importance for a strong financial foundation.
Both Sharma and Giri also stress the significance of regular supplier balance reconciliation as a key factor in maintaining smooth cash flow operations.
Your Next Steps for Streamlining Accounts Payable and Boosting Cash Flow
Now that you’re familiar with the key practices for optimizing accounts payable and improving cash flow, it’s time to take action. By implementing the right strategies, you can achieve faster payment cycles, improved liquidity, and greater financial efficiency. Here’s how to get started:
Implement My Best Practices Checklist
I’ve created a comprehensive Best Practices Checklist covering automation, payment term optimization, and regular reconciliation. Use this guide to streamline your accounts payable and boost your cash flow.
Assess Your Current AP Process Using My Quiz
Discover how optimized your AP processes are by taking my AP Process Gap Assessment Quiz. In just minutes, you’ll pinpoint areas for improvement.
Book a Call with My Team
For personalized support, book a call with my team, and we’ll help you implement these strategies, automate your AP processes, and unlock immediate cash flow improvements.
