As your business grows, the efficiency and accuracy of your accounts payable (AP) department becomes ever more important to your company's financial health. How can you structure your AP department for maximum productivity? Let's dive in.
What is an accounts payable department?
The accounts payable department is responsible for tracking what a company owes to suppliers and vendors and ensuring that payments are made in a timely manner. This department plays a vital role in managing the short-term liabilities of a company, known as accounts payable—or AP.
What does an AP department do?
The AP department has several key functions—among other things, they process invoices, reconcile financial statements, solve invoice discrepancies, make payments, store and match invoices, and maintain good relations with vendors.
1. Review and record
The most basic function of accounts payable is reviewing invoices for pertinent details like vendor name, invoice date, and invoice number—checking for discrepancies or obvious errors along the way. Then recording them via a repeatable process so they can be easily found and referenced later.
2. Route for approval
The next key function is to route invoices for approval. This involves making sure controls are in place so the right invoice reaches the right approver and is approved quickly. As well as making sure to catch any mistakes or issues.
3. Send payment
Once approved, payments need to be sent to the appropriate parties. This is usually done either by check, wire transfer, or ACH payment, depending on the location, amount, and previously agreed upon payment terms.
4. Control expenses
Tracking payments owed to vendors—in real-time, ideally—allows accounts payable to control expenses and avoid duplicate payments, cost creep, rogue charges and fees, or other common issues.
5. Create and analyze reports
Developing and analyzing multiple reports—usually monthly—ensures your team has the most accurate, up-to-date financial data at their disposal. And can use said data to see issues before they become problems and adjust accordingly. Common types of accounts payable reports include aging reports, reconciliation reports, history of payment reports, and voucher activity reports.
6. Establish and maintain vendor relationships
Maintaining reliable, professional relationships with vendors is a huge part of an accounts payable department's purpose. Assisting them with system onboarding, keeping their data accurate and up-to-date, and regularly monitoring their accounts can all help make sure nothing goes wrong that could damage your reputation and negatively impact your business (or theirs).
Why accounts payable departments are important
The AP department ensures that suppliers and vendors are paid on time, maintaining positive relationships with these external partners. It also applies internal controls to prevent accounting mistakes and guard the company against fraud.
Given the recent rise in check fraud and business email compromise (BEC), effective AP processes are essential for the financial stability and reputation of a business.
How to structure (or restructure) your accounts payable department
While every accounts payable team is unique, there's a common approach to structuring just about any AP department for optimized efficiency that involves evaluating the needs of both the team and the company and streamlining your AP processes.
Let's walk through it step by step.
Step 1: Measure your current KPIs
Before you make any changes to your accounts payable department structure, start by measuring the efficiency of your accounts payable system today. KPIs like average payment processing time and number of early discounts captured are strong indicators of AP performance. Having these benchmarks in place can help you evaluate any changes you decide to make.
As you start measuring and tracking KPIs, remember to assure your team that you're evaluating processes, not people. In fact, it's a great practice to ask your team about their experiences, adding qualitative feedback to your quantitative measurements.
For more information on monitoring AP efficiency, read our post on the 11 accounts payable metrics that savvy finance leaders track.
Step 2: Improve your processes—and your tech stack
Once you have your benchmarks in place, it's time to look for places where you can streamline your processes—that includes processing payments as well as invoices.
If you're thinking about growing or restructuring your AP team, you might not need more people. You might just need a better system.
Is every invoice going through the same workflow? Or does your accounts payable process feel more like the Wild West—with a handful of talented people trying to wrangle a mess of paper?
What about invoice discrepancies? Is there a set workflow for handling issues? Or do billing problems tend to remain unresolved?
Accounts payable automation software like BILL Accounts Payable can help your team streamline and standardize these processes while reducing manual work at every step along the way, from data entry to approvals to payments.
Adding a spend management system like BILL Spend & Expense can help your team even more, making it far easier to manage budgets while eliminating manual expense reports.
Step 3: Assess the volume of invoices & transactions
Each time you make system improvements—whether by adding new tech or simply improving your manual processes—be sure to evaluate the system for a few weeks to see how the new KPIs stack up.
Also, keep those communication lines open. Talk to your team to get qualitative input, not just quantitative data. How are they feeling about the new systems? Do they still think they need a few extra hands? Or did the process improvements release the stress they've been feeling?
With new efficiencies, the current volume of invoices and transactions might not feel so overwhelming.
Step 4: Evaluate your growth
Next, evaluate your projected business growth. Will upcoming expansions mean more bills? Are departmental budgets being expanded as well, with more expense transactions to oversee?
In a growing company, manual processes have to give way to automation eventually—manual processes just don't scale.
This is just another reason that tracking KPIs is so important. They can help you project your upcoming staffing needs to keep up with growth in invoice volume and departmental budgets.
Step 5: Consider the roles & skill sets required
With your staff breathing easier and those invoices under control, you can finally start to focus on specialties. On a small team, you might want one or two people to focus on vendor invoices, one to manage your corporate cards, one to set and oversee budgets, and one to handle financial analysis & reports.
By letting people focus on specific areas, you can drive even more efficiency on your team. It also tends to improve vendor relationships, giving your vendors just one or two people they deal with all the time and can get to know.
As your department grows, each of those individuals can become a team leader, hiring people as needed to fill out your roster. And with the right tech stack, your team can even work remotely, which can widen your applicant pool significantly.
"Leveraging your professional network can be a goldmine of insights when it comes to structuring your accounts payable department. Not only does it help you understand the critical functions of AP, but it also provides a clearer picture of how a well-organized AP department can streamline operations and improve financial health. Engage with peers, attend industry forums, and don't shy away from seeking advice. The knowledge you gain will be invaluable in enhancing your business processes." - Mariah McCarty, Senior Staff Recruiter at BILL
Step 6: Allocate responsibilities
Once you've determined the roles and skill sets required, you can divvy up those jobs and responsibilities—just remember that not every AP task actually falls on the AP team.
Department heads who are responsible for invoice approval also need to be trained on the new approval system. And any employee with an expense account and a corporate card needs to be trained on your card policies and procedures.
If you're thinking about adding an automation platform, be sure to choose one that's easy for everyone to use, with a mobile app for accounts payable management that lets them approve bills, categorize expenses, and upload receipts from anywhere.
Step 7: Monitor and adjust staffing as needed
Finally, monitor the performance and workload of your accounts payable department regularly and adjust staffing levels as needed.
As your company grows and that workload expands, consider hiring additional staff or reallocating responsibilities to make sure your invoices and expenses are processed accurately and efficiently.
"In my years of recruiting for BILL and witnessing numerous organizational transformations, I've seen firsthand how valuable a robust professional network is. It's not just about filling positions; it's about understanding the evolving landscape of accounts payable and how it fits into your broader business strategy. Drawing on the experiences and knowledge of your network can illuminate best practices and innovative solutions that you might not discover in isolation." - Mariah McCarty, Senior Staff Recruiter at BILL
How AP automation can improve your AP department efficiency
Implementing AP automation software like BILL Accounts Payable and BILL Spend & Expense can significantly enhance the efficiency of your AP department.
Adding these solutions to your tech stack can streamline workflows, reduce human error, and speed up your invoice processing, including your payment process.
How many hours could you save every month on AP? Learn more here.
Accounts payable department FAQs
Still have questions? Here are some quick, high-level answers to frequently asked questions about AP departments.
What is the primary goal of an accounts payable department?
The primary goal of a company's accounts payable department is to ensure that all of the company's bills and invoice data are properly recorded, screened for fraudulent invoices, checked for validity and accuracy, and paid according to the money owed and the contracted payment terms.
What's the difference between accounts payable and accounts receivable?
Accounts payable include amounts that have come due and the company needs to pay—in other words, bills. So the accounts payable department is responsible for paying a company's bills.
Accounts receivable are amounts that the company has earned and expects to receive. The accounts receivable department is responsible for creating and sending invoices and receiving those payments.
What are the roles in an AP department?
Accounts payable job titles may include:
- Accounts payable officer
- Accounts payable manager
- Invoice to pay manager
- Accounts payable coordinator
- Accounting assistant
- Accounts payable specialist
- Accounts payable clerk
"Organizations like SCORE are instrumental in defining the roadmap for structuring an efficient accounts payable department. They offer a wealth of resources that detail job responsibilities, essential tech skills, and the experience needed to thrive in these roles. By tapping into such consortia, businesses can better align their AP department's structure with industry standards and ensure their team is equipped to handle the demands of the modern financial landscape." - Mariah McCarty, Senior Staff Recruiter at BILL