Best Practices in Payable Management to Reduce Mistakes

December 17, 2017 by  Filed under: Computer 
 

Managing proper time of payment according to cash flow of the organization is the best practice for payable management. Read this article to know more about payable management best practices.

Payable management is a tough process to handle because it involves many activities which consume time and manpower and without following best practices chances of mistakes is always high which can be costly for the company. Large part of time is wasted in covering up for the errors or confusions created by the suppliers which make payable management even more tedious to handle.Managing proper time of payment according to cash flow of the company is the best practice for payable management. This practice not only improves the profitability of the company but also improves cash flow. Some companies workout the date of payment of invoices after a particular period and this period is calculated as per company’s sale and total payouts made in one financial year. Obtaining discounts on payments made before or on due date, segmenting the suppliers according to the goods they supply helps in working out suitable terms of payment for better payable management.Repetitive tasks not only consume valuable time but also chances of errors in those works are high. Automating repetitive tasks like invoice feeding, matching the invoice with receipt of payment, real time access to pending invoices for payments and prior information about the near due date invoices can be automated by the use of technology.¬†OCR with accounting or ERP software is adopted by many large organizations for automating such processes. Making regular or recurring purchases with cards and making payments with electronic fund transfer also helps in reducing work load which eventually reduces the chances of mistakes in payments and wrong entries. Other practice adopted with use of technology for payable management is use of web based catalogs which is a very simple way of keeping track of all the purchases made by the employees and payment is made for bulk purchases made in a period as mutually decided between buying company and supplier. Usually this practice suits best for MRO purchases and other recurring purchases.Strict rules and their compliance shall be followed to avoid frauds and illegal transactions. With the use of technology in payable management training and making employees aware about payment ethics of the company, maintaining proper security measures in the software and identification of the person before allowing access to the data and disallowing authority of one person to make the payments are few best practices to avoid fraud payments and transactions. Maintaining two way communication with the vendors, maintenance of vendor master file with all the details to access them, conducting random checkups about vendor status and keeping the number of active vendors to minimum are also best practices in payable management.Different payment terms can be worked out with vendors differentiated by the type of commodity they supply. Some vendors supply commodities which are low value and low risk as they are not costly and easily available, some have commodities of high value and low risk. Payment terms with such vendors can be strictly bargained if purchases are frequent and of decent quantity. Whereas vendors supplying high value and high risk commodities which are important due to short supplies and strategic commodities which are compulsory for production can be given more favorable payment terms to ensure smooth supplies and comfortable relationship.

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