Everything You Should Know About Accounts Payable
Most businesses have cash flow involving expenses and revenue. It could be a single individual or an entire department taking care of these transactions. No matter how large or small, accounts payable is an important part of a company's financial system. There are several aspects of accounts payable you should know about.
What is Accounts Payable?
Accounts payable is generally defined as a current financial liability. It is usually money that a company owes to one or more of its vendors or suppliers. According to Less Accounting, how efficient the accounts payable system is in any organization affects the company's reputation and financial stability. Accounts payable is sometimes thought of as short-term debt payments.
It's important to understand the difference between accounts payable and accounts receivable. Accounts receivable is an asset that the business can collect from their customers. The accounts payable process begins by recording all bills and invoices. You'll need to record everything in the company ledger in an accurate manner. You can do this in an actual book, online or both. Checks are then written and sent to vendors. The records are again updated to reflect this.
What are the Duties in Accounts Payable?
There are several duties that a person is responsible for in the area of accounts payable. Instead of one individual, larger companies will normally have an entire department that is responsible for taking care of specific accounting duties. The following are the primary jobs and duties in accounts payable.
Vendor Payments - This may include pre-approved purchases or verifying purchases. You should pay vendors in a timely manner and immediately record all transactions. Deloitte says that other responsibilities in this category include vendor selection and negotiation. This might mean negotiating for better prices and extending payments.
Employee Payments - This will involve verifying any employee expense reports. You'll pay employees after verifying the reports. You'll then record these transactions in a separate ledger.
Travel Expenses - Accounts payable are usually involved in handling travel related transactions. A company may keep this account and information with employee payments. A large business might have a separate account and ledger for travel.
Internal Payments - Handling petty cash or paying for office supplies are examples of internal payments. These may also include small payments that don't occur on a regular basis.
What Qualifications Do Employees Need to Perform this Job?
Exact qualifications needed to fulfill a position in accounts payable would vary depending on the specific duties and the type of business. While a high school diploma and on the job training may be enough for some positions, most companies would probably want an employee to have a post high school degree in accounting, finance or business. Discover Accounting lists several general qualifications needed to work in accounts payable.
Math Skills - An accounts payable position would require employees to have excellent mathematical and problem solving skills. Managing large amounts of data is another necessary skill.
Computer Skills - It would be necessary to be proficient with accounting software and spreadsheets. Understanding and working with electronic invoices is also important. Software that is currently popular includes Quickbooks, Freshbooks and Wave. Knowing how to use technology can help you bypass tasks done manually.
Detailed Oriented - Even the slightest discrepancy could produce disastrous results in any accounting or bookkeeping position. Keeping numbers straight isn't the only aspect that requires attention to detail. Maintaining accurate information and data for vendors is crucial. It's also necessary to keep all vouchers, invoices and other types of paperwork organized.
Good Character - You should conduct a background check for every accounts payable position. Those in this department would have access to an organization's finances. It's important that whoever holds this position keep all information confidential. These are a few of the reasons to conduct background checks on employees.
What are Some Tips to Manage Accounts Payable?
There are lots of moving parts when it comes to managing all the accounts in a business. Keeping everything running as smooth as possible isn't always easy. There are a few tips and strategies to follow that can make accounts payable run in an efficient manner.
Simplify the Process - Keeping everything as simple as possible will minimize the chance for errors. One important way to do this is to limit check runs. This includes paying invoices, printing checks and then posting them to your ledger. Even for larger companies twice a month is enough.
Make the Most of Technology - This means more than just using accounting software. It's important to not follow the crowd when it comes to choosing a type or brand. Employees in accounts payable should receive education and training on a regular basis. This will enable those leading the department to make the best technology decisions.
Review Regularly - GrowthForce states that a regular review is essential. This would include using analytics and advanced reporting. Reviewing more often can help improve cash flow and reduce compliance issues. It can also keep better track of all payments and invoices.
Reduce Fraud - The larger the company, the greater the chance of an employee being able to skim off the top. Watch out for "dummy vendors." A dishonest employee creates a fake company and then charges for services that were never provided. Due suggests creating a "separation of powers" in a company. This means no single individual can establish new vendor obligations and make the payments.
Start Early - Paying late fees is not only a waste of money, but can make a bad impression. The last thing a company needs is a reputation for not paying bills on time. It's important to note that a company doesn't want to pay too early either. This is especially true for a small business. It's important to have cash available for unexpected expenses.
It's important to make sure all accounts are closely monitored whether there is one person in this position or an entire department. A strong accounts payable department is crucial to the success of any business.