The two most important goals of your Accounts Payable department are to pay your vendors and suppliers on time, and to pay them accurately. Even on a normal day, this requires a lot of precision and coordination. During an unexpected crisis, though, the AP department’s job becomes much more difficult. It may involve delays in payments, which can ripple through other aspects of the company’s finances. It can be difficult to stay abreast of changing deadlines or get a hold of customers and vendors, and staff may need to complete their work without coming in to the office. This can turn a detailed but manageable process into an overwhelming challenge.
In this article, we will cover a few tips that your business can follow to keep your AP process running as smoothly as possible during a disruption in normal business operations.
How to handle AP during a crisis
Emergencies have the potential to change everything about your work. You may find yourself needing to adapt to interruptions in your cash flow, risks to your vendor relationships, less time to complete your tasks, and employees unable to come in to the office. The key is to have a plan that will allow you to adjust to all of these disruptions as they come along.
1. Modify your normal AP process for remote work
Most businesses still build their operations around a physical office, but depending on the crisis, it may be necessary for employees to work from home or other remote locations. It’s important to coordinate everyone’s daily tasks if you want to come close to the same efficiency you would achieve when working at the office. This means that your employees will all need to be able to access their data remotely and share changes with their coworkers. You’ll also want to think about security—your employees will still be accessing sensitive financial data, so it needs to be restricted to authorized staff and protected from hacking and fraud.
If employees are working remotely, processes that are normally done on paper will need to move online. At a minimum, provide an online mechanism for essential tasks like approving invoices and initiating payments. To make sure that everything can be reconciled once employees are back in the office, you’ll also want to have a way of recording the transactions that employees are performing remotely. It’s possible to create your own systems for all of this, but adopting an online accounting system may be easier and less chaotic for your employees.
2. Prioritize vendor payments
If your cash flow is in crisis, you may need to decide which invoices you want to pay off first, rather than paying them off in the order they’re received. Start off by looking at all of your vendors’ payment terms. If you have suppliers who charge interest or late fees, make them a top priority and pay them on time to avoid penalties.
It’s also a good idea to look for vendors who will give you a discount if you pay them before the due date. Those early payments may save you enough money to help cover other expenses. If you owe a vendor a particularly large amount, find out if they allow deferred or partial payments or if they are willing to give you a grace period. Most of all, stay in contact with your vendors. The more you keep them informed about your payment plans, the more they can work with you.
3. Anything you can automate, automate
Once you’ve determined which invoices you need to pay, make it as easy as possible for your AP staff to pay them. If staff are working remotely or pitching in to cover unfamiliar tasks, they may be more prone to errors than usual. If you’re operating with reduced staff, there may simply be less time to get the work done.
One way to minimize mistakes and keep the work from piling up is to automate routine processes. Recording invoices and POs, requesting approvals, and flagging missing documents are all good places to think about automation, because they’re all essential, operate in predictable ways, and can take up a lot of time. For instance, if you set up a workflow that notifies the purchasing manager when there’s a PO to approve, you’re saving an AP specialist from sending the same email every time the situation comes up. If you’ve decided that the manager’s approval isn’t needed for small purchases, you might use an automated workflow just to verify that the purchase is below a certain amount and mark it as approved. Besides reducing the burden on your staff, you’re also processing transactions faster, which helps to keep you on good terms with your vendors.
4. Finance your AP
When your business isn’t receiving payments on time, it can put you in a difficult situation where you can neither push your customers for quick payments nor pay your vendors on time. However, you may be able to cover your accounts payable and avoid incurring debt by taking advantage of vendor financing or emergency government assistance.
Vendor financing is similar to invoice factoring, but instead of going through a third party, it is negotiated with the vendor directly. The vendor lends money to a customer based on creditworthiness, and the customer in turn uses this credit to make future purchases from the same vendor. These credits can take a number of forms, from loans or shares to discounts or extensions on pending payments. In a crisis situation, this financing may be a good way to maintain your inventory without incurring penalties for non-payment. So if you have a good relationship with a vendor, you can check whether they are willing to finance you and find out what kind of terms they will offer.
Depending on your location, your government may also have relief programs that apply to your business. For example, in the US, the Small Business Administration provides disaster assistance for small businesses, usually in the form of low-interest loans. These programs can have very specific eligibility requirements, and some of them operate on a first-come-first-served basis, so do your research and apply early.
It’s always a challenge to keep your vendors happy, and late payments can put your business relationship with them in jeopardy. During a crisis, that’s not a risk worth taking. A good plan for managing AP during an emergency should focus on allowing your employees to complete their work remotely, maintaining good financial relationships with your vendors, using the right tools to streamline your work, and finding resources that can help you cover any financial shortfalls. With the right systems in place, you’ll be set up to handle whatever challenges come your way.
NOTE: Visit our COVID-19 Resource Center for more guides, webinars, and other resources to help your teams navigate the challenges ahead.