A smooth accounts payable (AP) process is crucial to the proper function of any business, no matter its size. Whether you are a sole proprietor or have two dozen employees, your vendors and partners expect to get paid on time and on their own terms.
Juggling these requirements manually while maintaining a healthy cash flow can be tricky and time-consuming. This is especially true if, as is the case with many solopreneurs and small and medium-sized business owners, AP is just one of the many hats you wear.
The good news is that there are digital tools out there that can help relieve some of the most common pains of managing your accounts payable.
Accounts payable pain #1: late (and early) payments
When managing your bills, you need to maintain a delicate balance. Paying too late can hinder your relationship with vendors and incur late fees or, in some cases, even legal proceedings. On the other hand, paying too soon depletes your cash, which can have serious implications, especially for small businesses.
A digital bill pay solution lets you schedule all your payments in advance to ensure they go out just in time and not a minute too soon. This will be best for both your cash flow and your relationships with vendors.
Accounts payable pain #2: human error
To err is human but while to forgive is divine, tax authorities and vendors may not have gotten the memo. When it comes to bookkeeping, errors can cost businesses plenty in fines and fees. From miscalculations and misspelled addresses or bank details to duplicate payments that deplete your bank account, human error is a common side effect of manually managing payments and bills.
Digitally managing your accounts payable minimizes these types of mistakes. It eliminates the need for repetitive and error-prone manual typing or undecipherable handwriting by auto-saving your vendors’ information and bank details. It also automatically reconciles your invoices, so you never mistake the status of a particular bill again. Having a clear record of your transactions also makes your life easier come tax season.
Accounts payable pain #3: surprise payments
Not everyone likes surprises and when it comes to money leaving your bank account, being caught off guard is never pleasant. If you have more than one person on your team responsible for bills, things might get messy. Imagine, for example, a scenario when someone on your team decides to pay an abnormally high bill, without realizing you planned to use the balance to pay off a more urgent expense.
Digital accounts payable systems offer workflow tools that enable administrators to assign roles to team members and accountants and set approval thresholds. This way, admins can ensure funds don’t exit the account without them knowing about it.
Accounts payable pain #4: fraud
There’s no gentle way to say this: accounts payable processes are prone to fraud and theft. From a check stolen from the mail to fraudulent transfers, there is always someone out there looking for vulnerabilities that could cost your company a bundle.
Luckily, managing AP digitally is far safer than many traditional methods. Digital payments cannot get lost or stolen en route to their destination and you always have a clear record of when, where, and how they were sent, as well as their current status. Most importantly, online payment systems also have layers of added security protocols and encryptions that a small business cannot afford to develop on its own. State-of-the-art technology ensures the funds arrive safely to your vendors while mitigating any associated risk to the payments platform.
Accounts payable pain #5: so much busywork
If you’ve been handling your company’s accounts payable needs for a while, you probably realized by now how inefficient this process can be when done manually. Each vendor has its own accepted payment method, which means you find yourself alternating between making transfers on your bank’s website (or, worse, going to the branch in person), using a vendor’s dedicated platform to pay via credit card, and cutting and mailing out paper checks. All of these seemingly small tasks add up in the long run to a meaningful chunk of time that you could have spent developing your business or hanging out with loved ones.
Digital AP tools save time and effort by automating recurring payments (for example, rent and utilities), auto-saving your payment and vendor details, and scheduling all your transactions in advance. The best part is you can perform all of these actions in one session on a single platform, regardless of the payment method you choose or how your vendor wants to get paid.
Accounts payable pain #6: it’s expensive
In a 2018 study, accounting firm PayStream and consulting company Levvel found that the average cost of processing a single invoice for novice businesses is $15. So, if your business has 25 bills to pay each month, the cost of processing them alone amounts to $375 a month or $4,500 a year. This is, of course, on top of the total sum due. Earlier data collected by enterprise information management company Iron Mountain indicates the cost of the non-digital processing of a paper invoice could even be as high as $25.
Making smart payment management decisions can eliminate much of this cost. The most important of these decisions is following in the footsteps of small and medium-sized businesses (SMBs) across the country and switching to a digital AP tool. This shift will help you save on staff hours, avoid late fees and penalties, reduce the use of physical goods such as envelopes, printing paper, ink, and stamps, and eliminate most risks. Oh, and did we mention that Melio charges no subscription or sign-up fees and is absolutely free for most transactions?
So, why choose a digital accounts payable tool?
AP can create serious pains for any business, especially for SMBs that do not have CFOs or dedicated accounting and bookkeeping departments. The growing use of digital tools, previously reserved to large enterprises, helps level the playing field and remove some of the most pressing accounts payable challenges. This way, small businesses that are the backbone of the American economy can focus on what they love and do best instead of worrying about the bills.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.