When starting a small business, oftentimes all payments are done by one person or manually–either by check or bank transfer. After paying a bill or an invoice, you need to update your accounting software—if you have one—and things tend to pile up or get lost.
An accounts payable software can make the whole process much easier, saving you both time and money. But how do you choose the right tool for your business? Let’s take a look.
What's accounts payable software?
Accounts payable (AP) software is one of the most important tools your business can use to manage bill pay and maintain cash flow.It automates your bill pay process and lets you do everything digitally, and from one place.
Why use AP software?
There are many benefits to using AP software, also known as digital payment tools or bill pay solutions. Before choosing the tool for you, let’s go over a few of those benefits which will help you understand what to look for.
Traditional ways of managing AP include a lot of manual work that involves collecting invoices, writing checks, and updating the books. Even for a small business with just a few vendors, it can consume up to several hours a week. Automating your bill pay process can lead to an 80% reduction in time handling.
Accurate accounting is crucial for the health of business financials and growth. If you want to save money, increase profits, and identify where budget cuts are needed–you need your accounting to be meticulous. Yet for small business owners who do everything on their own, errors are very common r.
Accounting mistakes usually are the result of human error and can be avoided by automating your accounting, including your bill pay process.
Accessible from anywhere
Every business owner is familiar with the annoying moment when a vendor comes in with inventory but you’re not there or you don’t have checks available, and so they don’t want to leave you the inventory. But what if you can pay them from afar, using your phone? That’s exactly what AP software enables you to do. Not only will it save you time, but it will also strengthen your vendor relationships because you no longer have to deal with being physically present or having checks on you.
Unlike cash or paper checks, digital payments leave a clear trail and can’t get lost or stolen on the way. When using most AP software to pay, both you and your vendors get payment confirmations as soon as the money leaves your account. And, you can always check the payment’s details or status and make changes if needed.
What’s more, online payment services use state-of-the-art security protocols and encryption tools a small business typically can’t afford to develop independently. These technologies ensure your information stays private and help minimize risk of fraud and abuse.
How to choose the right tool?
1. Map your current AP process
Before you do your research and look for the differences between different AP software on the market, start by mapping out your process of bill pay. Think about when you send payments—is it always at the same time? Who’s in charge of keeping track of everything? When do you put the info into the accounting software?
2. Find your dependencies
Now that your process is mapped out, try to locate the issues. Are you facing late payments often? Are you paying more than cash that you actually have? Are your books a mess?
3. Look for a tool that solves your problems
Now that you know what your process is lacking, you can start looking for a tool that fits your needs.
Things to look for in an AP tool
- Flexibility for you and your vendors: Some bill pay tools, like Melio, let you pay however you want while your vendors choose how they get paid. Let’s say you have one vendor who insists on receiving paper checks and another one that prefers a bank transfer. You, on the other hand, want to pay with your credit card, in order to extend your float. Look for an AP software that gives both you and your vendors what you want.
- Easy to use: Updating your process and using new tools can be hard, especially the part where you have to learn how to use this new system. Choose an AP software that’s easy to use and intuitive so you can get the hang of it quickly.
- Trackability: One of the most important things when running a business is keeping the books in check at all times. One easy way to do so is by using online tools. Choose an AP software that syncs with your accounting software so that every time you make a payment, it’s updated in both systems.
- Cost-effectiveness: An AP software can save you money in two different ways. There are subscription fees and transaction fees. Melio, for example, has no subscription fees and ACH to ACH bank transfers are also free. Check what your most common transactions are and compare the fees in different software.
- Approval workflows: If you’re not the only one handling the bills for your business, a lack of communication or a simple misunderstanding could mean a bill is paid too early, draining your account. Some digital accounts payable tools can prevent such scenarios if you implement payment approval workflows. You can assign roles to different people in your operation and set thresholds for payments requiring your authorization.
Make sure all your needs are met
There are many accounts payable softwares out there that offer great solutions to your bill pay process. When choosing the tool you want to use, make sure you know your needs and choose a tool that works best for you so you never have to compromise.
*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.