Accounts Payable is the amount owed by a business to its suppliers for goods and services purchased and are reported on the balance sheet as a liability. Procedures are required to process invoicing for payment to ensure invoices are not double entered or double paid and they are coded to the correct expense account. Regardless of the size of business an orderly process ensures fewer issues.
An accounts payable process could be as simple as paying an invoice upon receipt and filing the invoice in a file folder for annual tax accounting. Some businesses have entire departments to deal with their accounts payable. Generally you don’t enter a vendor invoice into an accounting system unless someone with authority in the company has approved the invoice.
For companies that receive goods a packing slip comes with the items, the items are verified, signed off on, and the packing slip goes to the accounts payable department to be matched to the incoming vendor invoice. The AP person then attaches the packing slip to the invoice and enters the vendor invoice into the accounting system. When an invoice has be paid at the time of purchase the invoice is given to the Accounts Payable person to be entered into the accounting system.
Procedures for Payments for accounts payable invoices is required to help the AP department pay your vendors in a timely fashion. As calls come into the AP department from suppliers looking for payment your department needs to be clear as to how your company pays their bills. Some companies pay at the end of the month, some pay on demand, some pay weekly, how you pay will be determined by many factors like – cash flow, work environment, efficiency, and vendor terms.
Payment terms that you have set up with your suppliers will have a big impact on your payment schedule. If you do not pay within the terms you agreed to you may not be extended credit by your suppliers. Cash Flow will determine what monies you have available to pay your bills. Setting your vendor terms to match your cash flow will help you to succeed in paying your bills on time. If you receive monies from your clients at the end of each month it would be smart to set up vendor payments sometime after these cash payments have been received.
Work flow and time commitments will also impact your payment schedule. If you have the cash flow to pay but don’t have the time due to conflicting work demands you need to set up a more efficient time to process payments. Setting up procedures for Accounts Payable will keep you organized, efficient, and in good standing with your suppliers.