Effective and Efficient Management of the Accounts Payable Process
Management of the accounts payable process is one of the most important activities in business. You should pay what you owe to others, but ensure that this is done effectively and efficiently. Accounting and finance practices give out the concepts of what should be the most favourable accounts payable process.
This article will guide you on how to effectively and efficiently manage the accounts payable process. This is to help you achieve optimal operations.
How the Accounts Payable Process Works
The accounts payable process starts upon the purchase of items needed by user departments. It is primarily triggered by the receipt of an invoice from the vendor. The accounts payable custodian must ensure that the company only pays true and approved bills and invoices.
The accounts payable process is thus an internal control mechanism. It is put in place to prevent errors and fraud in paying company dues. The accounts payable custodian accounts for and verifies payment transactions.
Moreover, proper management of the accounts payable process will also help the business take advantage of benefits like discounts and cost savings. For example, if the company has no benefit in paying early, they can pay on the due date. This way, the company can put cash to good use while waiting for the due date. If the management can strategically plan the timing of paying their payables, they can optimize their cash use.
Therefore, every company should properly manage their accounts payable process. Here is a guide on how to properly manage your company’s accounts payables.
Create the Company’s Chart of Accounts
If you are starting a company and want to have a good accounts payable process, start with creating the company’s chart of accounts. The chart of accounts is the index of all the financial accounts your company will use. In simpler terms, this is the list of all transactions your company does.
There are lots of examples available online and in books. You can start by adopting the chart of accounts of a company under the same industry as yours. Having a proper chart of accounts will ensure that all transactions are posted to proper accounts.
The accounts payable account should be on your chart of accounts. It is, after all, one of the major accounts and is common in every business. When you are using software for your accounting, the accounts chart will help ease the accounts payable process.
Set Up Accurate Vendor Details
In setting up a business, having a list of vendors is one of the top priorities. This is most especially for retailers and merchandisers. You would want to have a reliable source of your supplies and inventory.
Setting up a record for vendor details is important to ensure that all vendors truly exist and not fictitious. Many fraud schemes have taken advantage of weak accounts payable processes that the company ends up paying fictitious transactions to fictitious vendors.
Moreover, setting up vendors will make the accounts payable process very convenient. If you use an automated system, payment will automatically apply to the vendor’s credit terms upon payment.
Examine and Enter Invoice Details
The invoice is a document containing details of the purchase transaction. The invoice will serve as the proof of the vendor billing the company for the purchase transaction. Additionally, it will show what items were ordered, including the quantity and amounts of each. Further, it will also show the total of the purchase transaction.
The accounts payable custodian must critically review every invoice. He must examine the accuracy of the total of the amount due. Further, he must check whether items in the invoice are received.
The most important tip companies should remember is to make timely payments of their payables. However, this does not immediately mean paying any time before its due date. Companies should always pay at optimal dates.
The primary rule about accounts payable management is to delay the payment as much as possible. This is because we want to delay the outflow of resources from the company. Furthermore, the cash you will use can still be put to other beneficial use. Therefore, it is much preferable to pay at a later date.
However, the company must also consider discounts gained when paying earlier. For example, some vendors give a 5% discount if you pay within ten days from the invoice date. If you have no other urgent operating expenses, you can pay on the 15th day to take advantage of the discount. In any case, you should always consider which actions will lead the business to more favourable circumstances.
Professional Bookkeeping in Malaysia
Every company aims to make business operations effective and efficient. And this goal takes time, effort, and experience to achieve.
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