Accounts Payables

Accounts payable is one aspect of a company's financial system that takes charge of cash flowing out of the company, owed to others. When purchasing for the business, an owner will find goods or services supplied on credit and paid for with the promise to pay at a later date, generally within an agreed period. The amount owed by the company is recorded as accounts payable.

For example, accounts payable would include all money a firm owes a vendor for supplies the firm ordered and promised to pay for in 30 days. Once recorded, it is now a debt that should be tracked by a company and managed appropriately for the latter to pay its bills on time.

Accounts payable are very important because they allow a company to track its short-term debts against the amount paid. It helps the company maintain good relationships with the suppliers. Good accounts payable management by a business helps it avoid late fees and maintain a healthy credit score. In other words, it is where a company maintains a record of all those bills that it will pay back in the near future.

Key Components of Accounts Payable

• Invoices: These are documents acquired from a supplier that outline the amount owed from a business for some goods or services supplied.
• Purchase Order: A company's orders, which include the items ordered, their respective quantities, prices, and terms.
• Vendor Management: Process of managing the record of suppliers, maintaining accounts, and paying them on time.
• Invoice Payment Processing: The processing includes invoice payment processing procedures for verification of its accuracy, matching with PO and receiving records, and then approving it for payment.
• Expense Reporting: This involves management regarding employee expenses and their reimbursement while making sure those expenses are by the company's policy.
• General Ledger Entries: The entries in general ledger books are recorded to get precise financial statements and balance sheets.
• Approval Workflow: Approvals mainly comprise invoices and payment checks. Approval workflow has been designed to avoid slips of errors and fraudulent activities; hence, multiple steps of authorization are involved in it.
• Cash Flow Management: This involves the management of payment timing to maintain healthy cash flows, optimize working capital, and where possible, take advantage of early payment discounts.
• Reconciliation: This is a periodic matching of the accounts payable records against statements obtained from suppliers and also general ledger accounts for accuracy and differences.
• Compliance and Reporting: Follow all legal requirements about accounting and tax matters and produce reports for both internal and external parties.
• Technology and Automation: Software and tool usage in AP processing for less human intervention to derive higher efficiencies.

• Timely Payments

Accounts payable major function is making the payment to vendors and suppliers on time. Timely payments avoid late fees and interest charges, even disruptions in the supply of material. Meeting the schedules of payments also keeps AP in good relations with vendors and sustains the reputation of the company regarding its reliability and financial responsibilities.

• Accurate Record-Keeping

AP has to keep all the records of all the financial transactions occurring in accounts payable with a lot of precision and in very much detail. For this, it will keep a track record of invoices, such as the date and amount with the dates of payment. This record-keeping needs to be correct as it will help make financial statements quite accurately, conduct audits, and see that no transaction is left unaccounted for.

• Cash Flow Management

Other key objectives of AP include the efficient management of cash flow. In this respect, through strategies like optimum scheduling of payments and equally efficient timing of outflows, AP helps bring forth an optimized liquidity position for the company. It would ensure that adequate liquidity would be available to meet operational requirements and respond to contingencies for overall financial stability.

• Compliance and Controls

Accounting Policy sets internal policies, as well as external regulations, including accounting standards and taxation laws. Robust Internal Controls prevent errors and theft/ fraud. This in turn ensures that the company pays for the goods or services following the Company's policy and within the legal limit. This also keeps the company safe from any financial misstatements and possible cases of litigation.

• Vendor Relationship Management 

Maintaining good relations with the vendors will always remain an important ingredient of an AP function. The AP function creates trust and dependability with suppliers through timely and correct payment, which may facilitate improving terms, discounts, and credit conditions for the good of the company's procurement strategy and, consequently, operational efficiency.

• Smarter cash flow management: A business can maintain better cash positions with effective tracking and due-date scheduling. It will be easier this way to ensure that one's operational needs are met without any interest or late fees.
• Better relationships with vendors: On-time, correct payments go a long way in building good relationships with vendors and suppliers. In turn, this can help them get better terms and discounts, and favorable credit conditions.
• Cost Savings: Effective accounts payable management allows the company to benefit from early payment discounts and avoid late payment penalties, adding to the cost savings.
• Financial Accuracy and Reporting: Proper AP processes mean that the financial records and reporting are accurate. This helps in financial planning, and analysis, and provides a base for accounting standards.
• Operational Efficiency: Seamlessly automating AP processes such as automation and electronic invoicing reduces labor, limits errors, and quickens the velocity of processing to improve operational efficiency.
• Improved Budgeting and Forecasting: Precise tracking of payables enables enhancement in budgeting and forecasting. It provides a view into future cash outflows and helps in financial planning.
• Compliance with Regulation: Accounts payable management allows for tax compliance and others that deal with financial reporting. It helps in reducing the possibility of facing problems with the law, litigation cases, or fines.
• Fraud prevention: Strong AP controls and processes ensure the realization of fraud activities and assist in mitigating such circumstances, thus protecting the company's assets.
• Informed Decision Making: Valid and timely accounts payable information aids in making prudent financial decisions owing to clear visibility of the company's total liabilities and cash position.
• Smoother Auditing: Organized AP records assure a less painful and time-consuming auditing process; it prepares the company for internal and external audits.

• Invoice Receipt and Processing

Accounts payable processing usually initiates an accounts payable cycle, starting from receipt of the invoice by a supplier or service provider. Invoices are usually received via three common methods: email, postal mail, and electronic receipt via the Vendor Management System. The incoming invoices will be entered into the system, sorted, and grouped into various categories, such as the nature of the expense, departments involved, or terms of payment.

• Invoice Verification

Once the invoice is received, verification of its correctness must be made. In this regard, verification refers to checking against purchase orders and receiving reports that prove that the goods or services have been delivered by these documents. These are the essential items to be verified: the invoice date, amounts charged, and those accountable for discounts or taxes.

• Approval Workflow

After verification, usually, an approval workflow is conducted on the invoice. That is, seeking authorization from the department heads or managers of concern. The approval workflow ensures that the expenditure is justified and budgeted for and is in line with company policy. Workflows of approval can be as simple or as complex based on organization size and the nature of expenditure.

• Scheduling of Payment

These invoices, upon approval, are scheduled for payment. Payment terms could be net 30, net 60, or such, depending upon the agreement that dictates when the payment falls due. The AP team needs to manage cash flow to meet the acquired terms agreed upon during the placement of an order so that good supplier relations can be maintained while at the same time optimizing financial resources.

• Execution of Payments

Payment can be done by different modes, such as checks, EFTs, or wire transfers. Each has a different time for processing and different requirements for processing. Each company may have its policies, its suppliers' preferences, or urgencies for transactions that determine the usage of a particular payment method.

• Record Keeping and Reconciliation

Bookkeeping has to be accurate and detailed to keep track of the various payments made against each invoice and update the financial records. All transactions, including details of invoices, confirmation of payments, and correspondence with suppliers, are recorded in the AP team records. Reconciliation of AP records, done periodically, is carried out with bank statements to check if all lots are accounted for. Discrepancies are traced and resolved without wasting time.

At Corpseed, every step of your Accounts Payable, right from Invoice Processing to accuracy and efficiency, will get automated. This comes with digital document management, automated workflow for approvals, and an integrated system for payments, helping minimize manual errors, and enhancing the speed of the transaction cycle.