For most modern businesses out there, account payable is one of the top-stake tasks there is. After all, every business should be able to pay what it owes – you should not get this wrong.
It is no secret that managing invoices accurately is a vital key to maintaining good relationships with your suppliers. A proper accounts payable system ensures you don’t have any liabilities on your books for too long, avoiding the risk to your business confidence and status.
We will be looking at the basics when it comes to accounts payable, as well as exploring some essential tools and techniques to help manage and save time on account payable (AP) processes.
Before we go all in, let’s go over what account payable is.
What are accounts payable?
In simple words, accounts payable consists of everything a business owes to creditors. This can run the full spectrum of debts, from employers billing by the month through to leasing agencies invoicing for your work fleet.
Ideally, accounts payable refers to short-term debts, i.e., things you intend on paying off within the year – normally it should be well within the year.
In the case of Long-term debts – such as mortgages and other loans that take more than twelve months to pay off; those are typically grouped as separate liabilities and are not included in accounts payable.
Accounts payable is a liability for all businesses. This makes it very crucial to manage responsibly and appropriately, as doing so helps to maintain confidence in your ability to pay off your business debts. Plus, it’s the right and respectful thing to do for your creditors.
Let’s look over two key distinctions: Accounts payable and Accounts receivable.
Accounts Payable and Accounts Receivable
It would be more helpful to see accounts payable and accounts receivable as two sides of the same coin. Accounts payable talks about the processing of payments owed to debtors by your business.
On the other hand, Accounts receivable points to the exact opposite – money that is owed to your business by debtors, i.e., people who haven’t paid for your goods or services.
Hope you’re still with me? Perfect.
Now we’ve got the definition out of the way, let’s dive into some of the crucial considerations when managing accounts payable.
Managing the Accounts Payable Process
In our modern world, most businesses have to pay a lot of money to creditors on a constant basis.
This includes software providers, professional services like accountants, HR advisors, and any other agency you might have on your books.
The number of people relying on the prompt and accurate payment of invoices makes accounts payable a top-stakes task. This is something you don’t want to get wrong. If you don’t have a system in place to help you manage these payments effectively, you’re asking for trouble, and you don’t want that.
The Most Crucial Element: Accuracy
When it comes down to accounts payable, the most important thing is to pay out company invoices that are only legitimate and accurate.
This might seem obvious, but it’s very crucial. Before you process any vendor’s invoice for payment, you should remember to check for the following:
- Does the invoice showing exactly what the company ordered?
- Has the company received the goods or services they were billed for?
- Are the unit costs and calculations correct? What about the tax?
Getting these details right will help ensure the precision and integrity of your accounts payable process.
Let’s break this down into a few key steps.
What are the Key Steps in the AP process flow?
For most businesses, the accounts payable process normally comes down to three key steps:
- Completing a purchase order
- Processing a receiving report
- Receiving and processing the supplier invoice
Simple, right? Well, not true.
Unfortunately, accounts payable is one of the areas that are easily prone to fraud. The huge amount of money exiting a business through accounts payable makes it a sweet spot for fraudsters to target.
There is always the risk of making simple mistakes along the way. Even if everyone involved might mean well, small errors can creep in without being noticed.
Because of this, it’s crucial to break up the responsibility into separate steps. Having multiple people sign off on invoices makes it a lot harder to game the system.
Here are 4 Tips to Save Time on Accounts Payable…
Centralize your Invoice Payments
When processing supplier invoices, it’s important to centralize all payments. When all company payments come from a single account, it’s a lot easier to get a clear and full view of the money heading out the door.
One thing you definitely want to avoid is paying invoices with multiple accounts. The stress is just too much.
Track all due Payment clearly
For the purposes of cash flow, budgeting, and decision-making, it’s crucial that you know exactly what you owe, who you owe, and when payment is due.
To achieve this, you need to make sure every due payment is duly tracked in your accounting management software.
Know whom exactly Authorizes Payments
A lot of mistakes are bound to occur because people aren’t sure who authorizes the payment of supplier invoices.
For every client invoice that arrives, you need to know who oversees authorizing payment.
Due – Maintain good vendor relationships
If you use the same suppliers over again, you expect them to come through for you. Thus, you need to prioritize their best interests yourself:
Cultivating relationships with your vendors may pay off over time as well for your accounts payable.
It is also worth noting that you should also monitor this avenue well because when you start getting those discounts, the person in charge of purchasing from the suppliers might use that window to make away with some change.
At Core-accounting we help with every accounting need for your business. We are specialized in helping condos make financial decisions that will keep the business. Need our services? Please reach out to us.