Organizations have accounts payable departments to handle their immediate cash flow needs with customers and suppliers.
A company’s Accounts Payable (AP) is the sum it owes to its suppliers and other third parties for the goods and services it has received from them. Processing invoices and other payments to vendors and suppliers ensure they get paid on time. The purpose of the accounts payable process is to verify the validity and correctness of all payments made by the company to its vendors and suppliers.
To complete the accounts payable cycle, it is necessary to capture invoice data, assign proper general ledger (GL) coding, perform a 3-way match on invoices, approve or flag any discrepancies, and then process payments.
The accounts payable (AP) procedure is a subset of the broader procure to pay (P2P) process, which spans the whole range of steps between a purchase order and payment to the vendor.
In most organizations, the Accounts Payable department is dedicated only to processing payments to suppliers. On occasion, businesses may choose to outsource their accounts payable processes.
Invoices, purchase orders, and receipts must all be compared and matched.
Innovative methods, such as AP automation, can optimize and turbocharge entire AP workflows, freeing up resources for higher-value activities.
Are you interested in removing the human element from your existing AP processes? Schedule an appointment with Profit Jets to learn more about how our end-to-end AP automation solutions may benefit your company.
A Walkthrough of the Standard AP Procedures
In large part, the scope of a company’s accounts payable workflow is determined by:
- The range of suppliers and service providers it has access to
- the number and size of payments anticipated in a short period, the forms of proof needed to authenticate each purchase or transaction
When carrying out its duties, the AP department may coordinate with other divisions, such as the purchasing division.
Following are the basic phases involved in the AP procedure:
- Acquire Vendor’s Invoice/Bill
- Double-check the information on the bill or invoice.
- Accepting the invoice or pointing out problems
- Transaction Closure
If everything goes according to plan, by the end of it all, the “payable” amount from the beginning will no longer be a debt.
There may be steps in between, such as placing an order, checking it twice, and getting permission.
The accounts payable process begins with the receipt of a purchase order (PO) from the purchasing department and concludes with the authorization of payment to the vendor, after which the PO and the invoice have been matched and validated.
These measures are necessary to prevent wasteful spending and squandered funds.
In-House Records Linked
A company’s accounts payable processes may involve some or all of the following paperwork, depending on its size and scope of operations:
Submit a Buy Order (PO)
The purchase order (PO) is a formal, legally binding document that details the goods or services being purchased and the agreed-upon price and quantity for those goods or services from the company to the supplier. The requester of the products or services, the requesting department, the purchasing department, the accounts payable department, the receiving department, and the vendor are only some parties involved in a major business’ PO process.
After Studying the Report
Confirmation that you have received the ordered product or service from the supplier can be found in the receipt of goods/services report. The information on the receipt report must be consistent with that on the original purchase order.
Receipt From Supplier
The invoice or bill for the product would be sent to the company either simultaneously with the delivery of the ordered products or shortly after. In commercial parlance, this document is known as the vendor invoice. The Accounts Payable (AP) team is in charge of handling vendor invoices from start to finish, checking for accuracy by comparing the invoice to the purchase order (PO) and the receipt report (TR), and then scheduling payments once they’ve been approved.
The voucher is an index to the supporting papers (purchase order, receipt report, vendor invoice, etc.). It includes details about the approvals, case numbers, and other information linked to the transaction.
Once the payment has been processed, all the related paperwork is moved to a “closed” file.
The Value of Accounts Payable Workflow and AP Management
- Accounts payable administration is essential to a company’s smooth operation.
- Bills are paid on time, which is good for the company’s credit and supplier relationships.
- Late fees, penalties, and interest rates can be avoided with timely payments.
- Due to accounts payable procedures, spending limits and duplicate payments for the same good or service are avoided.
- Maintaining a record of the company’s wants and needs helps keep operations running smoothly.
- It compiles your shopping history into one place for quick access.
- Accounting payable processing detects and prevents fraud by using thorough follow-up and verification at each stage of the purchasing process.
- Additionally, the ability to pay suppliers on credit helps with cash flow management by delaying payment until it is due.
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