Accounts Payable

What is Accounts Payable?

The term “Accounts Payable” is used to describe a company’s liability account, and it also refers to the debts and payments owed to suppliers, vendors, and creditors which are yet to be fulfilled. The total sum of outstanding payments is recorded as such in the Balance Sheet, and it is reflected as current liabilities.

When a vendor bill or invoice is credited in the Accounts Payable, the Expense account will be debited due to the requirements of double-entry accounting. Once the payment is made, Accounts Payable will be debited and the Cash account will be credited instead.

The Role of Accounts Payable

Accounts Payable may also refer to the person or department in charge of recording expenses according to the accrual method of accounting, and fulfilling outstanding payments to vendors and suppliers.

When a company receives goods or services on credit, the liability is to be recorded no later than the day of receipt and not when the payment is made, and the Accounts Payable is responsible for capturing all this data in the company’s accounting software, as well as ensuring all creditors are paid on time according to the respective credit terms.

Accounts-Receivables-Reconciliation-Services-Puchong

What is Accounts Payable?

The term “Accounts Payable” is used to describe a company’s liability account, and it also refers to the debts and payments owed to suppliers, vendors, and creditors which are yet to be fulfilled. The total sum of outstanding payments is recorded as such in the Balance Sheet, and it is reflected as current liabilities.

When a vendor bill or invoice is credited in the Accounts Payable, the Expense account will be debited due to the requirements of double-entry accounting. Once the payment is made, Accounts Payable will be debited and the Cash account will be credited instead.

The Role of Accounts Payable

Accounts Payable may also refer to the person or department in charge of recording expenses according to the accrual method of accounting, and fulfilling outstanding payments to vendors and suppliers.

When a company receives goods or services on credit, the liability is to be recorded no later than the day of receipt and not when the payment is made, and the Accounts Payable is responsible for capturing all this data in the company’s accounting software, as well as ensuring all creditors are paid on time according to the respective credit terms.

The Process

To ensure accuracy and minimise stress and error, it is essential to put in place a standard operating procedure when it comes to Accounts Payable, especially for companies or organisations with high volumes of transactions.

While smaller startups may not incur the same kind of expenses as corporate conglomerates, having a process in place will help ease the operational flow and save time and money for more important business planning activities.

Receiving the invoice: The process begins when the Accounts Payable department receives an invoice from the supplier. Appropriate filing will allow the future staff to easily identify and track invoices if a situation with such a need arises.

Reviewing invoice details: Verification of details such as the vendor name, date, quantity of goods, and amount payable, which should match the details in the approved and issued Purchase Order.

Records entry in the accounting software: Ledger accounts are then updated based on the received invoice as an expense entry is required. At InTune Outsourcing, we tag these expenses to assist in costing identification so different divisions or projects can easily refer when necessary.

Manage timely payment: The key step in the process is to pay creditors. All payments must be made before or at the due date based on the agreement between the purchaser and the vendor. Details such as vendor bank account number, payment vouchers, discounts, the original bill, and purchase order must be verified and matched. At InTune Outsourcing, we set up an easy and complete process with segregated duties and proper approval to ensure a smooth paying experience for our customers.

The accuracy and efficiency of an Accounts Payable process will determine a company’s cash flow, credit report, as well as its relationship with suppliers and creditors. Late payments may be viewed as problematic for all parties if the pattern persists.

To ensure accuracy and minimise stress and error, it is essential to put in place a standard operating procedure when it comes to Accounts Payable, especially for companies or organisations with high volumes of transactions.

While smaller startups may not incur the same kind of expenses as corporate conglomerates, having a process in place will help ease the operational flow and save time and money for more important business planning activities.

Receiving the invoice: The process begins when the Accounts Payable department receives an invoice from the supplier. Appropriate filing will allow the future staff to easily identify and track invoices if a situation with such a need arises.

Reviewing invoice details: Verification of details such as the vendor name, date, quantity of goods, and amount payable, which should match the details in the approved and issued Purchase Order.

Records entry in the accounting software: Ledger accounts are then updated based on the received invoice as an expense entry is required. At InTune Outsourcing, we tag these expenses to assist in costing identification so different divisions or projects can easily refer when necessary.

Manage timely payment: The key step in the process is to pay creditors. All payments must be made before or at the due date based on the agreement between the purchaser and the vendor. Details such as vendor bank account number, payment vouchers, discounts, the original bill, and purchase order must be verified and matched. At InTune Outsourcing, we set up an easy and complete process with segregated duties and proper approval to ensure a smooth paying experience for our customers.

The accuracy and efficiency of an Accounts Payable process will determine a company’s cash flow, credit report, as well as its relationship with suppliers and creditors. Late payments may be viewed as problematic for all parties if the pattern persists.

To ensure accuracy and minimise stress and error, it is essential to put in place a standard operating procedure when it comes to Accounts Payable, especially for companies or organisations with high volumes of transactions.

While smaller startups may not incur the same kind of expenses as corporate conglomerates, having a process in place will help ease the operational flow and save time and money for more important business planning activities.

Receiving the invoice: The process begins when the Accounts Payable department receives an invoice from the supplier. Appropriate filing will allow the future staff to easily identify and track invoices if a situation with such a need arises.

Reviewing invoice details: Verification of details such as the vendor name, date, quantity of goods, and amount payable, which should match the details in the approved and issued Purchase Order.

Records entry in the accounting software: Ledger accounts are then updated based on the received invoice as an expense entry is required. At InTune Outsourcing, we tag these expenses to assist in costing identification so different divisions or projects can easily refer when necessary.

Manage timely payment: The key step in the process is to pay creditors. All payments must be made before or at the due date based on the agreement between the purchaser and the vendor. Details such as vendor bank account number, payment vouchers, discounts, the original bill, and purchase order must be verified and matched. At InTune Outsourcing, we set up an easy and complete process with segregated duties and proper approval to ensure a smooth paying experience for our customers.

The accuracy and efficiency of an Accounts Payable process will determine a company’s cash flow, credit report, as well as its relationship with suppliers and creditors. Late payments may be viewed as problematic for all parties if the pattern persists.

Accounts Payable Reconciliation

The process of Accounts Payable Reconciliation refers to the process of matching between the company’s books to that of their suppliers and creditors. This is to make sure that any errors will be ironed out and all parties involved do not run into any misunderstandings down the line.

The Importance of Accounts Payable Reconciliation

Reconciling Accounts Payable ensures that the correct figure for payables has been posted in the general ledger, which means that the company has one less worry about how complete or relevant is the number in the balance sheet. If there is any variance, the accountant will need to make corrections, whether it means they have to look for any missing invoices, payments that have yet to be entered in the journal, or any other discrepancies before the month is closed.

An accurate and detailed Accounts Payable balance provides the company with several types of valuable information for the purposes of the following analysis:

The Importance of Accounts Payable Reconciliation

Reconciling Accounts Payable ensures that the correct figure for payables has been posted in the general ledger, which means that the company has one less worry about how complete or relevant is the number in the balance sheet. If there is any variance, the accountant will need to make corrections, whether it means they have to look for any missing invoices, payments that have yet to be entered in the journal, or any other discrepancies before the month is closed.

An accurate and detailed Accounts Payable balance provides the company with several types of valuable information for the purposes of the following analysis:

Early Payment Discounts: Discounts that effectively generate high gross profits when compounded.

Late Payment Fees: These are charges incurred when a company pays its supplier after the date the payment was due as stated in their agreement. It acts as a warning sign of potential weakness in their payment process which will need to be addressed.

Payable Turnover: This reflects the average number of days the company is taking to pay its creditors. If the turnover is reducing over time, it could mean that the company is wasting resources or mismanaging their cash flow. At InTune Outsourcing, we perform a review with our clients and negotiate payment terms with suppliers that will serve both parties, and ensure our clients do not make payments before they are due for better control over their business budget.

Double or Overpayments: Such an error is a possibility especially when a company has a high transaction volume. The reconciliation process detects these blunders and allows the business to perform corrective measures, like contacting the supplier to request a repayment of overpayments.

Fraudulent Activities: Details like addresses should also be matched to catch any form of fraud within the organisation. Check suppliers' billing addresses against employee addresses and report any suspicions to a manager. This practice may sound extra and ridiculous, but almost always better to be safe than sorry.

What is Accounts Payable?

The term “Accounts Payable” is used to describe a company’s liability account, and it also refers to the debts and payments owed to suppliers, vendors, and creditors which are yet to be fulfilled. The total sum of outstanding payments is recorded as such in the Balance Sheet, and it is reflected as current liabilities.

When a vendor bill or invoice is credited in the Accounts Payable, the Expense account will be debited due to the requirements of double-entry accounting. Once the payment is made, Accounts Payable will be debited and the Cash account will be credited instead.

Early Payment Discounts: Discounts that effectively generate high gross profits when compounded.

Late Payment Fees: These are charges incurred when a company pays its supplier after the date the payment was due as stated in their agreement. It acts as a warning sign of potential weakness in their payment process which will need to be addressed.

Payable Turnover: This reflects the average number of days the company is taking to pay its creditors. If the turnover is reducing over time, it could mean that the company is wasting resources or mismanaging their cash flow. At InTune Outsourcing, we perform a review with our clients and negotiate payment terms with suppliers that will serve both parties, and ensure our clients do not make payments before they are due for better control over their business budget.

Double or Overpayments: Such an error is a possibility especially when a company has a high transaction volume. The reconciliation process detects these blunders and allows the business to perform corrective measures, like contacting the supplier to request a repayment of overpayments.

Fraudulent Activities: Details like addresses should also be matched to catch any form of fraud within the organisation. Check suppliers' billing addresses against employee addresses and report any suspicions to a manager. This practice may sound extra and ridiculous, but almost always better to be safe than sorry.

Early Payment Discounts: Discounts that effectively generate high gross profits when compounded.

Late Payment Fees: These are charges incurred when a company pays its supplier after the date the payment was due as stated in their agreement. It acts as a warning sign of potential weakness in their payment process which will need to be addressed.

Payable Turnover: This reflects the average number of days the company is taking to pay its creditors. If the turnover is reducing over time, it could mean that the company is wasting resources or mismanaging their cash flow. At InTune Outsourcing, we perform a review with our clients and negotiate payment terms with suppliers that will serve both parties, and ensure our clients do not make payments before they are due for better control over their business budget.

Double or Overpayments: Such an error is a possibility especially when a company has a high transaction volume. The reconciliation process detects these blunders and allows the business to perform corrective measures, like contacting the supplier to request a repayment of overpayments.

Fraudulent Activities: Details like addresses should also be matched to catch any form of fraud within the organisation. Check suppliers' billing addresses against employee addresses and report any suspicions to a manager. This practice may sound extra and ridiculous, but almost always better to be safe than sorry.

Accounts Payable Aging Report

The Accounts Payables department is also responsible for preparing the Accounts Payable Aging Report, which is a document that lists the due dates of outstanding payments, amounts owed to suppliers, and names of new and regular creditors based on time buckets. In most businesses, the categories for the time period setup typically used are:

0 to 30 days
31 to 60 days
61 to 90 days
91 days and more

The purpose of the aging report is to provide a company's management with a quick assessment of financial payments they owe in the current month or the immediate future, which in turn helps with cash flow planning and budgeting. The time buckets are usually set up in 30-day periods, but there may be the odd supplier whose payment terms is 10 days from the date the goods or services are received.

Accounts Payable Aging Report

The Accounts Payables department is also responsible for preparing the Accounts Payable Aging Report, which is a document that lists the due dates of outstanding payments, amounts owed to suppliers, and names of new and regular creditors based on time buckets. In most businesses, the categories for the time period setup typically used are:

0 to 30 days
31 to 60 days
61 to 90 days
91 days and more

The purpose of the aging report is to provide a company's management with a quick assessment of financial payments they owe in the current month or the immediate future, which in turn helps with cash flow planning and budgeting. The time buckets are usually set up in 30-day periods, but there may be the odd supplier whose payment terms is 10 days from the date the goods or services are received.

The Common Problem

In such circumstances, the company may run into a very common issue with traditional Accounts Payable Aging Reports. As invoices are listed in 30-day time buckets, the individual due dates are not accounted for. As such, there may be unpaid invoices in the "0 to 30 days" column which are already overdue, and bills in the 60-day category which are not yet payable because of extended allowance. To counter this, business owners may need to find ways to regularly review the aging report's accuracy in order to keep it effective for many more months.

Fortunately, at InTune Outsourcing, we navigate this conundrum with the use of high-end accounting tools and software, which take into account specific due dates on each invoice, and prepare an accurate aging report and payment schedule so our clients have an eagle’s eye view of upcoming payments and balances. With an approval process in place, our team also work closely with our clients’ staff so no one makes a bad payment again, which may put great business relationships at risk of going sour.

Are you looking for an outsource partner to handle your company’s Accounts Payable department or bookkeeping? Call us or email us today to find out how we can help your business grow.

In such circumstances, the company may run into a very common issue with traditional Accounts Payable Aging Reports. As invoices are listed in 30-day time buckets, the individual due dates are not accounted for. As such, there may be unpaid invoices in the "0 to 30 days" column which are already overdue, and bills in the 60-day category which are not yet payable because of extended allowance. To counter this, business owners may need to find ways to regularly review the aging report's accuracy in order to keep it effective for many more months.

Fortunately, at InTune Outsourcing, we navigate this conundrum with the use of high-end accounting tools and software, which take into account specific due dates on each invoice, and prepare an accurate aging report and payment schedule so our clients have an eagle’s eye view of upcoming payments and balances. With an approval process in place, our team also work closely with our clients’ staff so no one makes a bad payment again, which may put great business relationships at risk of going sour.

Are you looking for an outsource partner to handle your company’s Accounts Payable department or bookkeeping? Call us or email us today to find out how we can help your business grow.

Every SME Can Become Large

InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.

Show Me How

Every SME Can Become Large

InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.

Show Me How