One of the most high-stakes tasks for a modern business is accounts payable process. This is because a business has to pay its debt. To maintain a good relationship with your suppliers, you have to manage the invoices meticulously and instantly. If you have a good accounts payable system, you will not have liabilities on the books for a long time.
If you need any help regarding this, you should continue reading this blog. We are going to discuss accounts payable step by step process, tips, and every other thing that you need to know about this.
What is in Accounts Payable?
- In simple words, accounts payable is everything that a business owes to its creditors. It can be a full range of debt starting from billing of freelancers to invoice of car leasing agencies providing your work fleet.
- Generally, the accounts payable is applicable to any short term debt. These are the things that you have to pay off in the same year.
- Any long-term debt like mortgages or loans, which takes more than 12 months to pay is itemized like separate liabilities. Thus, they are not a part of the account payable.
- Your accounts payable is actually a liability for the business. Thus, it is important to manage it efficiently and sensibly. If you do so, creditors will have trust and confidence in you that you are going to repay your debt. Moreover, it is a respectful thing that you can do for the creditors.
What is Accounts Payable & Accounts Receivable?
- Basically, accounts payable and accounts receivable are opposite to each other. The former one is related to the processing of the payment of debts to the creditors by the business. while the latter is the exact opposite. It is the money that debtors owe to your business. For example, people who haven’t yet paid for your goods and services.
How to Manage the Process of Accounts Payable?
Almost every business has several creditors constantly. These are professional services, software provider, HR advisors, and freelancers. Since many people depend on accurate and instant invoice payment, it makes a high-stakes task. In case you do not have a system that will help with the payment process, you are just inviting trouble for yourself.
For accounts payable, it is necessary to pay the company invoices that are accurate and legitimate. It might appear like an obvious point, but many people tend to miss out on this.
When you process the invoice of a vendor for payment, you will have to check the pointers given below.
- Have you received the goods and services that have been billed?
- Does the invoice show what your company ordered?
- Are the calculations and unit cost correct? Is tax included?
If you are able to get these details right, it will ensure the integrity and accuracy of the process of accounts payable.
Primary Steps for Account Payable Process
For the majority of the business, the process of account payable comes down to three main steps.
- Concluding Purchase Order: This is the step where you decide the services or items that you will buy and consider its costs. A purchase order always consists of terms and conditions for the transaction process along with the delivery timeline.
- Processing the Received Report: In this step, the supplier is going to record the services or goods which have been provided and will list the payment which the business owes to the supplier. The receiving report will contain much important detail. Thus, take time to go through them.
- Acquiring and Process Supplier Invoice: When you receive the invoice, the business is going to process it for payment. This includes checking through the details to make sure that it aligns with the goods and services that you have received.
These might sound simple, but they are not. Accounts payable is one of the aspects of the business that runs the maximum risk of fraud. The amount of money that exits this business through these makes it enticing for a fraudster to aim for. Also, there is a risk of making a mistake.
Thus, it is necessary to break up responsibility for different steps. Another thing that you should use with accounts payable is a centralized system.
Centralizing Invoice Payment
For processing the invoice of the supplier, it is better to centralize the payments. This will give a clear picture of the money which heads out of the door. However, make sure that you do not pay invoices on a provisional basis or with several credit cards or accounts. This will make it difficult to fathom how much your company is paying every month. Also, it will increase the risk of fraud.
It is better to handle every company expense from a single place.
Track All Due Payments
It is necessary to know what you owe, to whom, and the time for making the payment for cash flow, decision making, and budgeting. In order to do this, you will have to make sure that accounts payable invoice tracking is being done clearly by the expense or account management software.
If you have recurring or regular payment, it is better to set up a recurring payment. Doing this will keep you away from repeating payments. Make sure you maintain visibility across payments.
Find Out Who Authorizes Payments
Mistakes might happen when you don’t know about any critical details like who are signing up on the invoices. When you get an invoice from a client, you need to find out who is authorizing the payment. The answer to this question is going to depend on the structure of the company. This will reduce the risk of your invoices going unpaid.
Accounts Payable Tips
There are many ways to improve your accounts payable process.
- Better to keep the invoice batch size small and manageable.
- Payout invoices in a large amount.
- Set reminders
- Maintain a good relationship with the vendors
- Get a good management tool to track and process invoices
Accounts payable is that part of a business that you cannot afford to get it wrong. If you have a poor process, it can destroy your relationship with the suppliers. To get the best shot, consider what has been said in this post, and find out how you can improve the system. You can also consider accounts payable outsourcing.