Managing accounts payable (AP) is essential for all companies, big and small, particularly in India, where late payment penalties accumulate fast. Based on a report, 56% of Indian businesses are paying late and approximately 30% of those are over 90 days overdue. This means that so many businesses not only lose time and money but frequently suffer cash flow issues. However, there is something you can do to stay clear of these needless penalties for your business. Optimizing your accounts payable processes helps you develop great supplier relationships, save cash and keep your company running smoothly.
Practical Steps to Avoid Late Payment Penalties
Here are some practical ways to avoid late payments and penalties
1. Understand Why Late Payments Happen
Some typical issues within businesses might result in late payments. Knowing the reason they occur helps you stop them.
Human Error:
Human error is a leading reason for late payments. You or your team might miss an invoice or type in the incorrect payment date. Manual processes, particularly paper-based systems, might result in misplaced files, incorrect invoices or maybe even delayed mail deliveries triggering late payments.
Inefficient Processes:
Occasionally late payments are because of a slow or inefficient approval process. In case your small business needs more than one approval before processing an invoice, the extra time needed for several departments to sign off can drive payments past due.
Fast Growth:
Growth is great for business however it can also overwhelm your accounts payable division in case they’re not prepared for higher invoice volume. If your team lacks the resources to handle the added work, payments can slip behind.
2. Make Use of an Accounts Payable Ageing Report
An accounts payable ageing report is often a helpful tool to keep up with payments. This report lists outstanding invoices and also shows how long each one is overdue. It may be classified as 0-30 days overdue, 31-60 days overdue, etc.
Frequent review of your accounts payable ageing report can enable you to spot trends in late payments and identify which bills must be paid first. For instance, if some suppliers are always paid late, you might research why this is happening. Was it human error or is the approval process too slow? Having these problems corrected will save you from future penalties.
3. Automate Your Accounts Payable Processes
One way to stay away from late payments would be through automating your accounts payable procedures. AP automation manages invoice capture, approval workflows and payment scheduling to ensure timely payments.
An automatic system lets you set reminders for future payments, approve recurring invoices instantly, and send invoices before deadlines for optimum income. Automating the procedure also lowers human error and speeds up the entire procedure so you stay clear of penalties.
Many businesses in India are now utilizing Accounts Payable services to handle this process better. These services deal with your AP requirements from invoice capture to payment processing, all without your undertaking any manual work on your part.
4. Centralize Invoice Collection
A typical problem for companies is misplaced invoices, particularly when several departments or locations are involved. This may be solved by centralized invoice collection. By establishing a separate email for invoices or utilizing an invoice capture application, all invoices are kept in a single location and entered into your system promptly.
This helps stay away from the risk of invoices being lost or forgotten, triggering late payments. It also helps if you have hybrid or remote teams – because all invoices are accessible from anywhere.
5. Set Clear Payment Dates and Reminders
You can quickly lose track of payment due dates when working with several vendors. Having clear payment dates for each supplier and using AP software to remind you when payments are due could stop this. A number of companies make use of automated reminders just before payment deadlines so they do not miss a due date.
You can also stagger your payment schedule. Rather than paying all your invoices on the final day of the month, you could pay some in smaller batches every week. This method keeps your cash flow steady and lowers the danger of missed payments.
6. Simplify Your Invoice Approval Process
The largest invoice approval delays in accounts payable are in the invoice approval stage. In case your current procedure calls for a number of sign-offs, many invoices end up sitting on desks awaiting approval for more time than needed. Avoid this by making your approvals as easy as you possibly can.
With the right AP automation platform, you can set rules to approve invoices which match up certain criteria like recurring bills from trusted suppliers. Provide department heads the ability to approve invoices from their email as well, without having to distribute physical paperwork.
Final Thoughts
Late payment penalties tend to be a hefty price which may be avoided with a few preventive measures. Knowing the typical causes of late payments, utilizing tools like ageing reports, automating accounts payable and utilizing electronic payments can enable you to lessen the danger of overdue invoices. Simplifying your AP procedures, centralizing invoice collection and being transparent with suppliers will lead to timely payments and healthier business relationships.
For all your accounts payable and automation requirements, consult StartupFino today to keep your business on track.
Read also: Top Accounts Payable Practices to Improve Cash Flow in India
FAQs
1. How can you avoid late payment fees?
To avoid late payment fees, create automated reminders for due dates or automate the whole accounts payable process using software. This makes sure that you miss no deadlines and you avoid paying late fees to suppliers or banks.
2. How to prevent payment delay?
Avoid payment delays with an invoice approval process and centralized invoice collection. Automated payments and electronic payment methods including NEFT, RTGS or UPI also can facilitate the process and help payments reach suppliers on time.
3. How to lower overdue payments?
Monitor outstanding invoices with an accounts payable ageing report to help reduce overdue payments. Automate your payment procedures & schedule reminders for future payments to ensure timely payments and approvals. Electronic payment methods also prevent delays brought on by manual processes.
4. How can I improve my pay on time in accounts payable?
Automatic invoice capture, approval, and payment scheduling boost on-time payments. Set clear payment dates and reminders, use electronic payment methods and ensure that invoices aren’t delayed by human error or inefficient workflows.
