Best Practices for Managing Accounts Payable in New Zealand
As a New Zealand business owner or finance professional, effectively managing your accounts payable (AP) process is crucial for maintaining healthy cash flow, strong supplier relationships, and overall financial stability. This article explores best practices for managing accounts payable in the New Zealand context, drawing on local insights and upcoming regulatory changes.
Understanding Accounts Payable
Accounts payable refers to the short-term debts a business owes to its suppliers and vendors. As MYOB explains, these debts appear as current outstanding liabilities on the company’s balance sheet. Proper management of accounts payable is essential for accurate financial reporting, cash flow management, and maintaining good relationships with suppliers.
Best Practices for Managing Accounts Payable
1. Implement a Clear AP Process
Developing and documenting a clear accounts payable process is fundamental. As Admin Army suggests, even small businesses should have a systematic approach to handling bills. This process should outline steps from receiving an invoice to making payment, including:
- How invoices are received and recorded
- The approval workflow
- Coding and matching invoices to purchase orders
- Scheduling and executing payments
Having a well-defined process helps prevent missed payments, reduces errors, and improves overall efficiency.
2. Embrace Automation
Automation is a game-changer for accounts payable management. Many New Zealand businesses are turning to AP automation software to streamline their processes. As Xero points out, “Most banks will send your transaction data directly to online accounting software. Then you have both sets of records on the same screen and you can run through them really fast”.
Automation can help with:
- Invoice data capture and coding
- Three-way matching (invoice, purchase order, and receipt)
- Approval workflows
- Payment scheduling
- Reporting and analytics
By reducing manual data entry and streamlining processes, automation can significantly reduce processing costs and improve accuracy.
3. Standardise Payment Terms
Establishing standardised payment terms with suppliers can help improve cash flow management. While it’s important to pay suppliers on time, negotiating favourable terms can help optimise your working capital. As NZ BizBuySell advises, understanding the impact of your accounts payable on working capital requirements is crucial.
Consider:
- Negotiating longer payment terms where possible
- Taking advantage of early payment discounts when beneficial
- Aligning payment cycles with your accounts receivable to maintain healthy cash flow
4. Regular Reconciliation and Auditing
Regular reconciliation of accounts payable is essential for maintaining accurate financial records. As Coastal Accounting points out, “Regular bank reconciliations are an important part of managing your finances”. This practice helps identify discrepancies, prevent duplicate payments, and ensure all liabilities are accurately recorded.
Additionally, conducting periodic audits of your AP process can help identify areas for improvement and detect any potential fraud or errors.
5. Maintain Strong Supplier Relationships
Good supplier relationships are crucial for business success. Timely and accurate payments are key to nurturing these relationships. As eftsure notes, “Accounts payable enables it for every business by ensuring all payments are made on time. This results in superior supplier relations, priority access to goods or services, and even better discounts”.
Consider implementing supplier portals or regular communication channels to keep suppliers informed about payment statuses and address any issues promptly.
6. Stay Compliant with Upcoming Legislation
New Zealand businesses should be aware of the upcoming Business Payment Practices Act 2023, which will require large businesses to disclose their payment practices. As Deloitte reports, this legislation will come into force on 26 May 2024. While initially applying only to businesses with revenue exceeding $100 million, it’s a good practice for all businesses to:
- Maintain accurate records of payment times
- Regularly review and improve payment practices
- Be prepared for potential future expansion of the legislation
7. Leverage Technology for Reporting and Analytics
Utilise your accounting software’s reporting capabilities to gain insights into your AP process. Regular reports can help you:
- Track key performance indicators (KPIs) like average payment time and early payment discount capture rate
- Identify bottlenecks in the approval process
- Forecast cash flow more accurately
8. Invest in Team Training
Ensure your AP team is well-trained in your processes and systems. As MYOB advises, “Make sure your team has easy access to written guidelines and software tutorials for the training they need to do their jobs properly”. Regular training can help reduce errors, improve efficiency, and ensure compliance with internal controls and external regulations.
9. Separate Duties for Fraud Prevention
Implementing a separation of duties within your AP process is crucial for preventing fraud. Ensure that different team members are responsible for:
- Approving invoices
- Entering invoice data
- Authorising payments
This separation makes it more difficult for any single individual to commit fraud without detection.
10. Regularly Review and Optimise Your Process
The business environment is constantly changing, and so should your AP process. Regularly review your procedures to identify areas for improvement. Consider:
- Soliciting feedback from your AP team and suppliers
- Staying informed about new technologies and best practices
- Benchmarking your performance against industry standards
Effective management of accounts payable is crucial for the financial health and success of New Zealand businesses. By implementing these best practices, you can streamline your AP process, improve accuracy, strengthen supplier relationships, and optimise your working capital. Remember, the goal is to create a process that is efficient, accurate, and adaptable to your business’s changing needs.
As you work to improve your accounts payable management, consider leveraging local resources and expertise. Organisations like Xero, MYOB, and local accounting firms can provide valuable insights and tools tailored to the New Zealand business environment. By staying informed and proactive in your AP management, you’ll be well-positioned to support your business’s growth and success in the dynamic New Zealand market.