Let us first make it clear what does Account Payable mean. It is an account that is found within the general ledger of a company. It represents the company’s obligation and liability to pay-off the short term creditors to the suppliers.
Most of the time, the term is used to coin the department that is related to the payment systems. Here the payments mainly represent the amount that is to be paid by the company to its creditors or the suppliers. Now the whole thing must be clear before the people or the readers.
Difference between Account payables and Trade payables:
Often people gets confused with both the terms, despite a lot of difference is bridged between them. The demand for Account Payable Services is increasing and getting good popularity n due course of time.
- Firstly, trade payables mainly include the money that a company owes to its vendors for inventory-related matters like materials for the business or similar other ones. On the other side, account payable means the amount that should be paid by the company to its creditors. It is more or less like an obligation.
- It is very simple that can be understood through some example. Just for an example, a food serving business namely a restaurant needs to charge for the beverage and food that they serve; these products are an essential part of their inventory stock and hence are included in trade payables. Meanwhile, obligations to other companies, such as a third party company dealing with cleaning service like restaurant’s staff uniforms, comes under the accounts payable category.
Both of these categories are under the broader accounts payable category. It is noticed in a widespread manner that numerous companies combine both the categories under the category of accounts payable.
Process of account payables:
It will be an interesting subject and matter to gather good information about Account Payable Services. This process is carried out by the accounts department in the case of a large company or business house. No matter what is the size and capacity of the company, the only motto of this service is to pay the company’ s bill and dues that are legitimate and correct in true sense.
By the time the vendor’s invoice is entered into the accounts record the invoice must show that:-
- What are the items or the products that have been ordered by the company?
- What else has the company received?
- Proper calculation of the unit cost including the other things.
To check that the Account Payable Services is smooth the company should check and control the internal issues. There are some reasons for this type of internal controls. Let us try to find them out.
- It will prevent payment of fraudulent invoice.
- It will also prevent payment of inaccurate invoice.
- It will stop the vendors to be paid twice.
- It will make it clear that all the invoice of the vendors has been properly accounted for. This is a very serious matter that should be noted.
- It is also important to see that the company’s financial side and matters are clear and transparent at any point.
The other advantage of using Account Payable Services is to see that the vendor’s invoice is not recorded twice. If recorded it can create a lot of serious issues. `The most common problem is that there will be an overstatement of the company’s liability and secondly all the repairs expenses will be overstated to a great extent. This should be immediately stopped and checked for the convenience of the smooth functioning of the company.
Importance of purchase order and receive report:
Well, when we are talking about Account Payable Services we should know the exact meaning of these two terms. It is the document that is prepared by the company on what they are purchasing from the vendor. However, the paper version will keep everything clear and easier in case of transaction. The person or the department that will receive a copy of the PO or purchasing order includes,
- The accounts department of the company.
- The person who is engaged in preparing the order etc.
On the other side, the PO should mandatorily include the company’s name, product name, vendor name and phone number. It is also a vital part of AccountPayable Services.
Apart from all this, receiving report is the company’s documentation of the good that has been received. It may be in the form of a paper or sometimes it can be documented in the computer. On receiving all the above two things, the company should prepare the vendors invoice.
Now it can be easily assumed from the above-discussion that Account Payable Services plays a crucial role in the business. It is important to make everything clear for the smooth functioning of the company’s business.