From the moment business owners’ feet hit the floor in the morning, the day is filled with tasks that demand their time. Some days, responsibilities they know are important simply don’t get the attention they deserve. It’s crucial that accounts payable is not one of them.

When a business owner loses touch with such a key process, the potential for error rises, threatening the business’s reputation and even its financial viability.

It’s for this reason that accounts payable remains a hot topic, says James Solomons CA, who is the head of accounting at Xero, an online accounting software provider, and director of Aptus Accounting & Advisory. He is also the CFO of Xref, a listed company offering employers a cloud-based software platform that automates the candidate reference process.

“Technology makes accounts payable a bit sexier,” says Solomons. “When you’re paying money out, the last thing you want to do is spend a lot of time on internal processes. You want to make it efficient, easy to track and the approvals process easy for a small to medium business.”

Tim Reed, CEO of accounting software firm MYOB, says that when many small businesses receive a bill from a supplier they either open it or not, and then just leave it in the in-tray.

"Technology makes accounts payable a bit sexier."

“Then when the time comes to pay it, when they think they have enough money in the bank, they go through and pay. It’s only at this point that they record it in their accounting system, which makes it hard for their accountant to develop an accurate picture of their cash flow,” Reed says.

MYOB is addressing this widespread behaviour – which, mea culpa, I’m also guilty of as a small business owner. The firm has introduced Smart Bills, a feature that extracts key information from an invoice, such as the supplier’s details, its ABN and the amount payable including GST. This data is added to the accounts payable ledger in MYOB, making it easier for an accountant or bookkeeper to get a better picture of the business’s financial position.

“This is an innovation that is aimed squarely at solving the data entry hurdle in respect to accounts payable,” says Reed. 

Accountants should endeavour to highlight to their clients the importance of a streamlined accounts payable process, advises Reed.

“The onus is on accountants to make their clients realise that without doing accounts payable well it’s impossible for them to make fully informed business decisions,” he says.

Prompt payments are good business

New research from MYOB has found that 77% of businesses had experienced some degree of business impact due to a customer not paying their bills on time.

Other effects of late payment include impacts on personal finances for 35% of businesses, and the ability to cover expenses such as rent and power for 32% of businesses. Late payment also takes an emotional toll on SMEs, with 52% confirming that it impacts their stress and anxiety levels. Reed says the results are a clear call for action.

“It’s unfair that many small business owners are being subjected to late payments on top of the day-to-day challenges of running their own business. The financial health of Australia’s small business owners should be a top priority, and the research indicates this also has a direct impact to their own personal wellbeing.

“Improving this situation to ensure all businesses are being paid on time should be a shared responsibility across federal government and businesses of all sizes,” says Reed.

A prompt payments protocol has been adopted in the United Kingdom and Reed believes the Small Business Ombudsman is considering similar conventions to protect Australian SMEs.

“Effectively, a prompt payments protocol is saying that businesses should be reasonable in the payment terms that they hold for their suppliers,” says Reed.

A case in point is Rio Tinto, which tried to extend payment terms in 2016 to 90 days, forcing suppliers to wait twice as long for accounts to be resolved. Thankfully the move failed after Rio Tinto was forced to contend with a massive backlash, which included a dressing down by the federal government.

The future of accounts payable

Some will say the future is already here for accounts payable - if you are an SME in New Zealand. KiwiBank and ASB Bank talk directly to business accounts connected to Xero, enabling a streamlined accounts payable process. An app that is integrated with Xero called Receipt Bank can capture images of receipts and extract all the relevant data.

“It spits the data into Xero and is approved to be paid,” says Solomons. “If you tick the box and say you want to pay a bill in Xero, the money is sent directly to your creditor’s KiwiBank or ASB Bank account.”

Solomons says Xero has no plans to seek a banking licence and is happy to leave financial services to the traditional banks and other fintech providers.

“There’s a whole lot of work involved and regulatory requirements in becoming a bank, and we have that open platform to enable business-to-business transactions,” he says.

Xero has no plans to seek a banking licence and is happy to leave financial services to the traditional banks.

In Australia, a New Payments Platform (NPP) is being built by the banks, under the watchful eye of the Reserve Bank of Australia. Due to launch in 2017, the NPP will be an open-access infrastructure for fast payments in Australia with near real-time-funds available to recipients, on a 24/7 basis.

“The NPP is going to make it much easier for accounting software providers to integrate automated payments between customers and suppliers,” says Reed. “Not only will the accounting software automatically record accounts payable data, you’ll be able to make the payments to the supplier from, for example, your MYOB account, and no longer need to open up your online banking to make a payment.”

Connecting creditors and debtors

Government organisations and big businesses are also moving their accounts payable to cloud-based accounting solutions. In New Zealand, some government utilities and companies such as the stationery firm Staples are managing their accounts payable functions through Xero, according to Solomons.

“A firm’s electricity bill is due and it’ll pop up to be paid in Xero, removing the need for manual entry,” he says. “New Zealand is a hotbed for testing as it’s such a small market, but this is a potential trend. Stationery firms, electricity, telephone, internet, courier companies and any big business that sends bills to small businesses will go down this path with its accounts payable in the future.”

Accountants and bookkeepers are likely to find they have more time for other tasks.

“The automation of manual processes will speed everything up,” says Solomons.

More trends

Some suppliers such as Energy Australia allow customers to pay invoices only by BPAY rather than by EFT. In these circumstances, when businesses need to make a payment they must access online banking and do it manually.

“Coming soon, if a supplier offers BPAY you can add their BPAY details to their account particulars in Xero and pay them via a BPAY batch payment,” says Solomons.

"It’s unfair that many small business owners are being subjected to late payments."

Some security issues arise as companies switch to streamlined, cloud-based accounts payable processes.

“In the old days, it was hard to commit a fraud with manual processes such as cheque requisitions. You’d need a systematised group of people working together to commit the fraud. With technology, it can be easier. You need tools and programs in place that suck out the invoice and depending on the dollar value and the supplier, it can send you a request to approve the payment,” says Solomons.

This article was first published in the Feb/Mar 2017 issue of Acuity magazine.