Accounts payable is one of the essential tasks for managing any modern startup or business. After all, business owners need to maintain a good relationship with their suppliers. For this purpose, the startups or business firms need to ensure the availability of a good accounts payable system. Having a perfect accounts payable process and managing the invoices punctually reduces the risks of losing business confidence. In this article, we have got you covered with the accounts payable process and its management to run any business and startup efficiently.
What are accounts payable?
In simple words, the accounts payable process includes everything that a supplier or creditor owes from your business. The accounts payable process is the accounting procedure that deals with paying off the creditors or vendors within a timeline after your company has purchased products and services from there. In a company, the accounts payable department has the responsibility to make payments owed by the company to vendors and creditors.
Usually accounts payables refers to those things you need to pay off within to the supplier within a year. This process is a liability of your business. For a startup company, this is a high stake job to manage and it is very important because it helps in maintaining business confidence of your company to pay your company’s debts on time. This also increases your company’s reputation among the creditors and suppliers.
What exactly accounts payable process mean?
In any established company, the accounts payable team have a list of methods and procedures to follow for making creditor or supplier payments. Pre-planned guidelines are essential because of the volume of payments within a period. The accounts payable process includes:
Receiving the bill:
When you purchase goods and services, the invoice helps to track the quantity and description of the product received. You can know the validity of the bill during this time.
The accounts payable department must recheck that the bill received contains the supplier name, authorization, date of purchase matches with the purchase order description.
Update records in the database:
Update the financial accounts based on the bill amounts along with the company expenses. Usually, the data updates after the approval from the management team.
Making the payment:
As per previous deals with the suppliers the company should process all the payments before the due time. Before payments, the documents need to prepare and verified again. The accounts team needs to verify the details of payments entered on the cheque, bank account details of the suppliers, and payment vouchers. Proper scrutiny is needed for the original bill and the invoice details. Here, you need the approval of the management team again.
The accounts payable process should have access to some internal controls of the company to:
- Make sure the assets of the company are safe
- Avoid paying inaccurate invoices
- Prevent paying the supplier multiple times
- Reduce the risk of fraud invoice payment
- Make all the invoice details recorded in the database
To improve the internal controls, your company may consider seeking professional help.
The accounts payable process team of a company should also be efficient to make the financial statements accurate and precise. If any mistake arises due to the double-entry of a supplier invoice this will lead to incorrect amount calculations. In fact, for such a mistake, the accounts payable process is liable to
- Omit the balance sheet
- Omit the repair expense from the income statement
In other words, if the accounts payable process of the company is not up to date, the management team and other financial statements will receive wrong feedback about the company’s performance.
Other drawbacks of poor accounts payable process include:
- The company may miss discounts even after paying the bills earlier.
- The supplier-owner relationship is strained if the supplier invoices are not paid on time.
- If the company is already cash strapped, this could lead to bitter consequences.
- Vendors may demand cash on delivery.
The account payable process is one of the important tasks for any startup. Poorly processed accounts payable not only hampers the relationship with suppliers but also increases the risk of fraud. Finally, for the best shot at accounts payable process for your company, seek help from experts, and improve your system.