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Armanino’s Financial Advisory blog is your source for thought leadership around cloud ERP and accounting solutions and integrations. Supported by the Cloud Accounting Institute and numerous experts in cloud, finance, reporting, integration, compliance, and technology, Armanino’s Financial Advisory blog features must-read content on what’s happening in the finance industry, case studies, white papers, and much more.

June 10, 2019

Paying the Bills: Why Every Business Needs an AP System

Posted by Jenn McCabe

Are you a small business or startup that needs help paying the bills?

That’s a trick question. Maybe you said yes because you need help managing your cash flow, but let’s start with the basics. You can’t manage cash flow until, and unless, you have a solid structure for managing accounts payable (AP).

Too often, entrepreneurs start out by paying the bills themselves:  They write manual checks in their spare time, or pay bills using an online banking platform. How hard can it be, right? If you’re doing this, stop it! 

A small company can’t graduate and become a big company until cash controls are nailed. All companies also need a professional, controlled AP system. So start early. Understand and build a scalable solution from the get-go, so you’re ready to grow from having a few vendor bills to having hundreds without a hiccup.

What is an AP system?

What exactly is AP and why is it a helpful management tool?  When you input AP, you don’t just write a check, and you don’t leave your bills in a pile on the kitchen table until you have cash and the time to pay them. Instead you: 

  1. Enter the vendor bill in the Payables module of an accounting system. 
  2. Let the bill sit there and “age” a bit. 
  3. Regularly run an AP aging report to see all the bills to pay in one place. Putting your bills into the AP bucket where they pause allows time to thoughtfully approve payment.
  4. Last, pay the bills. Preferably this is paperless.

Building a modern system

Ok, you’re using a basic AP system. Now what?  

Most companies that are early stage need to strengthen and modernize their bill-paying process.  Without strong controls, cash disappears too quickly and vendors are paid late.

Modernizing AP system means using technology to set up a process where workflow is (a) managed by people who know what bills should be paid, and (b) assisted by people who know when bills can be paid.

Use a system where invoices are sent electronically and which allows for easy integration with your accounting software (Bill.com is a common tool). This allows for transparent processing of payments, which vendors like, and simultaneously allows your company to establish an electronic filing system.  (Watch for some cool artificial intelligence tools coming out for this!)

Have invoices approved, also electronically, by someone who knows that the invoice is from a valid vendor who actually delivered a particular service. After invoices are approved, they should go into an AP system per the process above.

The accounting team—which in a controlled environment should not also approve invoices—can determine when bills should be paid based on available cash flow. Cash disbursements can be almost 100% electronically managed now, which allows for powerful control of disbursement timing.

Finally,  get a tool to manage your credit cards!  Credit cards are often an ugly pit where businesses lose their grip.  In the worst case, fraudulent spending is not noted until it’s much too late. In the best case, this delays your financial statements and erodes accuracy of your financials.

By establishing some basic AP structure now, you can scale and grow while managing your cash and your vendors professionally.

Need help starting or modernizing your AP system? Talk to our Finance and Accounting Services team.

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