Businesses use an account payable process for better invoice management. Small business owners purchase things to manage their business; when a business owner acquires something from a vendor or distributor, they usually send an invoice to the business owners.
Failure to manage invoices could result in late payments, additional costs, and strained relationships. Business owners should take measures to strengthen the accounts payable process for better management of business bills.
Maintaining an excellent relationship with your suppliers as a business owner requires timely and accurate invoice management. A strong accounts payable system also guarantees that you don’t keep liabilities on your business books for long periods, minimizing the risk of losing business confidence.
Account Payable is one of the most important duties in every modern business. Businesses can’t afford to make a mistake here.
What is Account Payable?
What you owe for products purchased on credit is referred to as accounts payable. Accounts payable includes everything your company owes to creditors. The amount you owe for products and services you purchase is added to your accounts payable balance.
It usually refers to short-term debts, such as those that you want to pay off within a year. When goods and services are acquired on credit, with the balance due and payable within a set timeframe, a late fee or penalty may be assessed if the balance is not paid within the stipulated time frame.
Accounts payable is a company liability. As a result, managing effectively and appropriately to boost confidence in your capacity to pay up your debts is essential. It’s also a courteous thing you need to do for your creditors.
Accounts Payable Process
Paying distributors and vendors for products and services bought by the company is the responsibility of the accounts payable (AP) process. AP departments primarily manage incoming bills and invoices; depending on the nature and size of the company, they may also perform other tasks.
The accounts payable process is crucial for the firm since it covers all of the company’s payables amounts to all suppliers for all of the supplies.
Accounts payable is a high-stakes operation since so many individuals rely on quick and accurate invoice payments. A company needs to have a system that helps to handle all these payments.
A large department in a major corporation, several employees in a medium-sized company, or a bookkeeper or representative in a small business manage the accounts payables process.
The goal is to follow the procedure of paying the business’s bills, examining them, and then paying them, regardless of the company’s size.
Key Account Payable Processed You Should Know
A corporation must execute the steps below exactly and accurately for accounts payable.
#1. Completing Purchase Order
A purchase order is generated and processed as the first stage in the accounts payable process. The accounts payable department must compile a detailed document with an appropriate description to order supplies from its vendors.
Filling up a purchase order entails listing the things or services to be acquired as well as the price. A purchase order also includes any transaction terms and conditions, as well as delivery deadlines.
The purchase order will include the purchase order’s unique number, the date it was generated, the items ordered from the vendor, prices, quantity, shipping method, and other vital information.
#2. Processing a Goods Received Note
The document that contains information about the goods delivered to the company is known as a good received note. The company’s representatives have to define the physical and description of the goods on a note to the purchase order.
The goods will be supplied to the company by the vendor once the purchase order is prepared and handed to the vendor. The invoices from the vendor are matched after this information has been compared and reconciled. This is where the role of goods receiving a note ends.
#3. Receiving and Processing of the Vendor invoice
After the company receives the invoice, it is forwarded to the accounts payable department. The invoice will be verified and approved by the accounts payable department. The invoice’s amount will be paid to the business’s accounts payable account.
After receiving an invoice, the company processes it for payment. This entails going over each detail to confirm it corresponds to the goods or services obtained.
Try to check the following items before paying a vendor’s invoice:
- Is the invoice accurate in terms of what the company ordered?
- Has the company got the items or services for which it was billed?
- Are the computations and unit costs correct?
- What about the tax situation?
Getting these facts properly will ensure that your accounts payable procedure is accurate and reliable.
#4. Putting up the information on three document
It is possible to confirm what commodities the company has ordered and at what cost by comparing three documents: a purchase order, a report obtained from a third-party vendor’s company, and a vendor invoice.
This accounts payable procedure works best when the organization observes the division of duties for all of its many responsibilities.
#5. Documentation on Voucher
The final document created during the process is a voucher, which contains all of the paperwork about the purchase and the goods received.
Tips for Best Accounts Payable Process Practices
- Make the accounts payable process easier: Cut down the number of check runs and save all data in a single location. When the check run is completed, all invoices should also have corresponding paperwork and authorization signatures.
- Establish access restrictions and control: Create a separation of tasks and internal controls within your AP process. To better regulate which vendors are accepted, give only selected personnel access to the Master Vendor File. It also aids in keeping track of where transactions are going and detecting any errors in vendor data.
- Look for Discount: When your businesses owe very little money, the payable process flow becomes less stressful. Look for discounts on the materials, goods, and services you require.
Early payment discounts are available for some vendors.
Ask your vendors to see if they will deduct some amount from your bills if you make payment before the deadline. Also, find out which vendors charge interest or late penalties and avoid paying them late.
If you order a big quantity of a particular item regularly you may be able to get a discount for purchasing in bulk, you can get a discount for buying a larger quantity of things. In the long term, this may save you money. Before ordering in bulk, ensure you need what you’re purchasing.
- Archive your information: Trying to keep track of invoice data is one of the quality standards in accounts payable process management. Save billing paperwork in an online file as soon as possible after getting it. Purchase orders, receipts, invoices, and vendor notices are all examples of this.
You can pay invoices more precisely if you save these types of records. You understand when you need to pay bills, how much you need to pay, who you need to pay, and what you’re paying for. When addressing invoice questions and preparing your small business tax return, refer to these materials.
Summary
Accounts payable is one of the most vulnerable sections of a company that Is prone to fraud. The large amount of money that leaves a business through accounts payable makes it a tempting target for scammers.
The risks involved in accounts payable are too high to take chances with it. As a result, it’s very important to delegate responsibilities for the various steps involved in it. It’s far more difficult to scam the system when many people sign off on bills.
Accounts payable are just too critical to be handled incorrectly. If handled incorrectly might cut your supplier relationships while also putting you at risk of fraud.
