Four Tips to Master Construction Accounts Payable

Every time a construction company purchases materials, receives an invoice, or signs a contract with a new vendor, the transaction is returned to the accounts payable (AP) department. 

The AP team isn't on job sites doing the construction work, but their efforts are crucial to ensuring projects are completed on time and that the company has the resources to make payments and continue to grow. Without a strong AP team, many other critical functions can't happen.  

But in the busy world of construction accounts payable, it's easy to be overwhelmed by the paperwork and transactions. Fine-tuning your systems (especially taking advantage of technology) can help AP processes run more smoothly and boost the entire company.  

Here are four ways to master construction accounts payable: 

1. Streamline Invoice Processing 

When you purchase a variety of materials and have contracts with numerous vendors (like most construction companies do), you’re likely faced with a large number of invoices. Adding those paper invoices to a physical inbox and sorting through them manually is how most AP teams have processed invoices for decades, but the process can be streamlined to be faster, more efficient, and less error-prone. 

The more efficiently you can process invoices, the faster you can make payments, and the more accurate your financial records will be. To streamline the process, start by moving from physical invoices to digital. Vendors can email you a copy or upload it to a drop box designated for invoices only. AP software can then digitally scan the invoice for the correct information and enter it into your systems to start processing and approval. 

You can also set internal procedures to streamline invoices, such as only uploading or processing them on certain days of the week or month. Keep employees and vendors updated on any process changes, especially those that impact payments. By limiting when and how you process invoices, you can be more efficient and strategic in starting the AP process. 

2. Leverage Technology 

You aren’t alone in the accounts payable process. Make technology your best friend as you lean into its capabilities to process faster, look for errors and missing documents, and automate many AP-related tasks. 

An integrated AP system with your accounting software can provide an accurate view of your company’s finances and make it easier to process payments without having to work through multiple siloed systems. 

 Technology can help in many other ways, including the following: 

• Data entry: Manually entering payment and vendor information can be time-consuming and open the door for potential errors. Automating the data entry process with integrated systems means you can get the AP information you need faster and more accurately. 
• Automated Approvals: Instead of tracking down a manager to approve a payment or reimbursement with a physical signature, automated approvals easily send a digital alert to the right parties to quickly approve a transaction without any bottlenecks. 
• Faster payments: Digital payments are faster than paper checks and can be integrated into your accounting system for accurate financial records. 
• Tax compliance: Digital tools can automatically calculate and file taxes and determine the amount of tax due for various payments, saving you the time and headache of figuring it out yourself. 
• Document storage: AP transactions require numerous records, but storing physical copies can be overwhelming, especially if you need to search for an old receipt or invoice. Digital document storage is secure, easily searchable, and ensures your AP team is ready for an audit. 

As technology advances, its capability to assist in AP transactions will also grow. Keep looking for ways to automate processes and leverage technology.  

3. Improve Communication 

While accounts payable may seem like a small part of the construction company, the work that happens in that team impacts every employee and project. Because of that, it’s important that everyone knows the processes and expectations so they can do their part to ensure payments are made quickly and vendor and client relationships stay strong. 

 The AP team should regularly communicate with leaders about the financial state of the company and any outstanding invoices or issues. Communication also needs to go to employees at all levels of the company, from managers to field construction crews. If they make purchases or handle receipts, they need to be aware of what happens in the accounts payable team. 

 Make communication as easy as possible for busy employees, such as through a regular email, team meeting, or printed newsletter. Share processes multiple times and give people a chance to ask questions. The goal is to make communication natural so everyone understands what is expected of them and why their input and work matters. 

4. Audit Regularly 

Stay on track of your processes and records with regular internal audits. Most AP teams perform audits every year, typically around year-end financial reporting. The audit process can seem grueling, but it helps ensure your processes are working and can help detect any errors or fraud that could be costing your company money. 

Many AP automation platforms can streamline the auditing process. But whether or not you rely on technology or do it yourself, an AP audit should look for: 

• Accuracy: if AP transactions were recorded correctly
• Compliance: if the AP department followed accounting regulations
• Completeness: if every detail of a transaction was recorded
• Validity: if transactions covered business expenses

Before conducting your audit, gather financial records for the previous year, including expense reports, bank statements, vendor invoices, and the ledger of payable transactions. You’ll also want a balance sheet and cash flow statement to compare against. 

From there, match up every transaction from your bank statements and ensure you have the correct records and that the transactions were valid and recorded correctly. You should flag transactions with missing documentation or those that didn’t cover a legitimate business expense. 

During the audit, you can also analyze internal AP processes and controls, such as recording transactions, approving payments, and giving access to AP software. 

An AP audit takes time and can reveal some uncomfortable truths. However, in the long run, it sets your AP team up for greater success and strengthens the financial future of your company. To help you master construction AP, turn to hh2, a leader in cloud-based construction management software.

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