Managing Your Accounts Payable Properly

 

A healthy working capital is very essential to any business.  Small and medium sized businesses should see how important this is.  You can free up and protect your working capital when you properly manage your accounts payable.  To properly manage your accounts payable, here are some of the best practices you can consider.

 

Account payable policies and procedures document are very important to a business.  Facilitating employee training, helping establish a consistent response to routine situations, and creating a framework for appropriate delegation of responsibilities are the benefits of having a written policy. 

 

You should be able to identify duties that are incompatible and the appropriate segregation of these duties should be implemented.  For example, if an employee authorizes invoices for payment, he should not have the ability to edit vendor master files, and those who can edit vendor master files, should not be allowed to process vendor invoices.  Someone else should be appointed where possible, who is not involved in the accounts payable process in order to monitor changes to vendor master files.

 

You should only make purchases from pre-approved vendors, where possible.  The reason for this is to be able to negotiate more favorable terms.

 

there should be a new vendor welcome letter send to new vendors that are added to your system.  You should inform the new vendors where to send invoices and any information that is needed to process vendor invoices such as the completed w-9 forms, which are needed for the annual preparation of form1099.  There are hefty penalties for those who do not comply with 1099 reporting.

 

All vendor invoices should be received by the accounts payable department from Bookkeeping Petaluma.  Before they are sent for approval the department logs them.  With this, invoices will no longer get lost or missing.

 

 Doing a batch logging in for vendor invoices is not a good practice.  it is best to enter each invoice separately so in cases of variances, it facilities its easy resolution, and proves a better audit trail.

 

Specific procedures for processing vendor invoices should be established, and this includes assignment of invoice number (where vendor invoices are unnumbered or in case of internal documents such as employee expense reimbursement), and entering invoice numbers.

 

When the invoice amount is entered is should be entered as billed.  To facilitate account reconciliation and resolution of variances, debit memos and adjustments should be posted as separate transactions.

 

The default general distribution codes should be defined as part of a new vendor set up procedures.  There should be codes to all vendor invoices before posting.  With this, there will be reduction in the possibility of errors.

 

Vendor invoices should have timely payments and you should take advantage of any available discounts.   You can add up to significant cash savings with discounts, and if you make timely, consistent payment to invoices, it can help you avoid the outlay of cash for late fees and interest, and set the basis for the negotiations of better vendor terms. Know more here!