Accounts Payable
For any modern business, accounts payable is one of the highest-stakes tasks there is. After all, every business needs to pay what it owes – you can not afford to get this wrong. In this post, we will look at the basics when it comes to accounts payable, as well as exploring some critical tools and techniques. Let us start with the fundamentals – what is it, exactly?
WHAT IS ACCOUNTS PAYABLE?
Put simply, AP consists of everything your business owes to creditors. This can run the full spectrum of debts, from freelancers billing by the month through to car leasing agencies invoicing for your work fleet. Usually, AP refers to short-term debts, i.e., things you plan to pay off within the year – ideally within the year. Long-term debts – such as mortgages and other loans taking more than twelve months to pay off – are typically itemized as separate liabilities and aren’t included in accounts payable.
Accounts payable is a liability for businesses. This makes it very important to manage effectively and responsibly, as doing so helps maintain confidence in your ability to pay your debts.
As well it’s also the respectful thing to do for your creditors.
MANAGING THE ACCOUNTS PAYABLE PROCESS
In the modern world, businesses must pay a lot of creditors on a constant basis. This includes software providers, professional services such as accountants or HR advisors, and any freelancers you might have on the books. The number of people relying on the prompt and accurate payment of invoices makes accounts payable a high-stakes task. If you don’t have a system in place to help you manage these payments, you’re asking for trouble.
THE MOST IMPORTANT THING: ACCURACY
When it comes to accounts payable, the most important thing is to pay only company invoices that are legitimate and accurate.
This might sound obvious, but it is crucial. Before you process a vendor’s invoice for payment, remember to check the following:
1) Does the invoice reflect exactly what the company ordered?
2) Has the company received the goods or services billed?
3) Are the unit costs and calculations, correct? What about tax?
Getting these details right will help ensure the accuracy and integrity of your accounts payable process.
So let us break this down into a few key steps.
Key steps in the AP process flow.
1) Completing a purchase order:
2) Processing a receiving report:
Simple, right? Well, not necessarily.
ACCOUNTS PAYABLE IS ONE OF THE AREAS MOST PRONE TO BUSINESS FRAUD
The sheer amount of money exiting a business through AP makes it an attractive process for fraudsters to target.
Another important step in your AP process is flow? Using a centralized payment system.
CENTRALISE YOUR INVOICE PAYMENTS
When processing If all company payments come from a single account, it’s a lot easier to get a clear overview of the money heading out the door.
If you use bookkeeping software like Sage or QuickBooks you have this in place already. One thing you really want to avoid is paying invoices on an ad hoc basis, or with multiple accounts or credit cards. Track every due payment clearly. Know exactly who authorizes payments. Due – Maintain good vendor relationships. Track and process invoices with a good spend management tool