Accounts payable represent an important area in the accounting realm of any organization. This article provides a list of accounts payable best practices.

1. A list of accounts payable best practices

W-9. Before paying any vendor bill, double check to make sure there is a W-9 on file.  One of the ways to accomplish that is to create new vendors in your system only when you have a W-9.  If you don’t, you don’t create a vendor and thus, can’t pay the bill.  Having a W-9 will reduce your headache at year-end when 1099s need to be prepared.

Duplicate vendor bills. Most systems will have a check to warn you if a duplicate vendor bill number is entered.  For this to work properly, all vendor bills are entered with their numbers.  In some situations, there is no bill number; for example, if expense reports are processed as vendor bills (instead of being processed as payroll payments), there are no numbers.  Your company should establish a policy to consistently apply expense report numbering when they are entered in the system.

Segregation of duties is key.  For example, don’t create a situation where the same person can create new vendors, enter vendor bills and/or print checks.  It creates temptation and real opportunity for asset misappropriation.

Bill or statement delivery. Direct all vendor bills or statements to Accounts Payable so their journey through your company approvals, etc. starts in one place.  This will ensure consistency, help eliminate “lost” bills, and save time on tracking bills sent somewhere else.  You can even have all bills or statements sent to a centralized email account created specifically for Accounts Payable.

Two- or three-way match.  Use this control to ensure your organization pays for goods or services actually ordered and received.

Positive pay.  Use positive pay with your bank to ensure no false checks are presented to the bank to be cashed against your bank accounts.

Reduce or eliminate manual check payments.  Instead, your company can use electronic payments which will speed up the process.  There may also be a way to have an approval workflow for such payments (either in your software or in your bank online software).

Take early payment discounts.  This can be helpful, but only take such discounts when it makes sense.  If your company has a low cash balance or needs to manage the timing of cash inflows and outflows, then it may not be beneficial to pay sooner.  Moreover, vendors may use a single early payment as an expectation for subsequent early payments even if that wasn’t your intention, so use early payments carefully.

Supplier portals.  These can provide your suppliers access to vital and timely information like new purchase orders, requested delivery dates, etc.  Such portals may also save your staff time by providing information about the status of bill payments directly to vendors (i.e., your staff won’t have to spend time on the phone with vendors).

Electronic approval workflows.  Using electronic means to approve vendor related documents may be a huge time saver.  This can be applied to new vendor approval forms, purchase orders, vendor bills, and so on.  There may be built-in options in your system for electronic approvals; you can also explore third-party applications.

Use KPIs.  Key performance indicators related to accounts payable may alarm you about unusual trends in your Accounts Payable department.

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