How to effectively and efficiently process accounts payable
Accounts Payable
Accounts payable is one of the important liability components in the financial statement. It is an amount that you owe to others that needs to be paid within a specific period. Despite being the amount that you owe to your supplier, with a good management of accounts payable, accounts payable allows you to help the business grow. It needs to be done effectively and efficiently by the company. The principles of the ideal accounts payable process aids in accounting and finance practices.
This article will help you to know how to effectively and efficiently manage and process the company’s accounts payable. It allows your business operate in the optimal condition.
Accounts Payable Process
The accounts payable process starts when the particular departments initiate the purchase of the items . It is triggered when the company receives the invoice from the supplier. The accounts payable custodian needs to ensure that the company only pays the bill or invoice which is approved and true to prevent any wrong payment.
The accounts payable process is an internal control mechanism. It prevents any errors or fraud that may happen during the payment process. The accounts payable custodian accounts for and verifies payment transactions.
Then, a proper management of the accounts payable process allows businesses to improve the cash flow of the company. This is because they take advantage of benefits such as discounts and cost savings. If there is no benefit to pay early for the amount that is due, it is better for the company to hold the payment and pay on the due date. Companies can utilize the additional cash to use in other operating activities to improve the sales of the company. If the management can strategically plan the timing of paying the payables, they can maximize the cash flow of the company.
Thus, a good management in the accounts payable process is essential and every company should adopt this practice. Here are some guidelines on what a company should do to properly manage your company’s accounts payable.
Ways to manage company’s accounts payable
1. Create the Company’s Chart of Accounts
First and foremost, companies should create their chart of accounts in order to have a good accounting process by practicing a good accounts payable process. Chart of accounts is the names of the accounts that a business has designated and made available for recording transactions in its general ledger as listed in a chart of accounts. A business is free to modify its chart of accounts to best meet its requirements, by adding or eliminating accounts where necessary. By having a chart of accounts, it ensures the company’s transactions are posted to proper accounts which smoothen the accounting process. Accounts payable is one of the charts of accounts, and one of the major accounts which is common in every business including small businesses. When using the accounting software, accounts chart will improve and ease the accounts payable process
2. Establish Accurate Vendor Details
Other than creating a chart of accounts, companies should have a list of suppliers. It is a priority to have a list of suppliers especially for the retailer and merchandisers to ensure the reliability of the supplies and inventory of the company.
Why should a company establish accurate vendor details? It is to ensure that all the vendors are true, not fake and the information provided is correct. It also can reduce the possibility of the company to face fraud schemes that frequently happen. Most of the fraud schemes work out successfully due to the weak accounts payable processes of the company, resulting in the company paying for fraudulent transactions to a fake vendor.
Furthermore, accounts payable processes will become very convenient if they have a complete vendor list. If a company uses an automated system, they will process the payment to the vendors automatically upon the credit term provided by vendors. It supersedes the manual payment that should be made by the company which improves the efficiency of the accounting process.
3. Check and Enter Invoice Details
Invoice is a document that records a transaction between buyer and seller which contains details of the purchase transaction. It is very important for the accounting process because it serve as the evidence for the purchase transaction. It consists of the information of which items being ordered, quantity, amount of each and the total purchase transaction needed to be paid to the vendor.
The accounts payable custodian needs to ensure the accuracy of the invoice details. He/She needs to critically review every invoice and check whether the correct items in the invoice are received and in exact quantity. This is to ensure the transaction between vendor and the payment recorded in the correct amount.
The most important part of the accounts payable management for the companies is to make timely payment of their payables. Companies should not immediately pay the payable in any time before its due date, companies should always pay at the due date or optimal date which is beneficial to your company.
The first important rule about a good accounts payable management is to delay the payments to the vendor as much as possible. The reason why we should delay is we wish to delay the outflow of the cash or resources from the company. The delayed payment will help the company to have additional cash or resources to do other operating activities which will be beneficial to the company. So, it is more preferable to pay at a later date.
Only if there are any discounts or other benefits to the company when earlier payment is made. For example, some vendors may give a 10% discount if your company pays within 15 days from the invoice date. If your company does not have any urgent expenses or payment needed to be made during that period, it is a good choice to pay earlier which is pay on the 15th day to take advantage of the discount. However, it is better for you to always consider which action or decision will be more preferable and beneficial to your business.
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