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3 Services Tips from Someone With Experience

Managing Your Accounts Payable Properly

All types of businesses would do well to have a healthy working capital. Small and medium sized businesses should see how important this is. When you properly manage your accounts payable, it can be an effective strategy to free up and protect your working capital. To properly manage your accounts payable, here are some of the best practices you can consider.

You business needs a written accounts payable policy and procedures document. The benefits of having a written policy is that it can facilitate employee training, help establish a consistent response to routine situations, and create a framework for appropriate delegation of responsibilities.

There should be an identification of incompatible duties and the implementation of the appropriate segregation of these duties. As an example, an employee who authorizes payment invoices should not have the ability to edit vendor master files, and vice versa. Where possible, someone else should be appointed who is not involved in the accounts payable process so that he can monitor changes to vendor master files.
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There should not be any purchases unless it is from pre-approved vendors, only where possible. The benefit of this is for the negotiation of terms with are more favorable.
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When new vendors are added to your system, you should send them a welcome letter. New vendors should be told where to send their invoices and any information needed to process vendor invoices such as the completed w-9 form which is needed for the preparation of form 1099 annually. If there is non-compliance with 1099 reporting, there are hefty fines for it.

The accounts payable department should receive all vendor invoices. Before they are sent for approval the department logs them. With this, invoices will no longer get lost or missing.

It is not good to enter vendor invoices as a batch. What you should do is to enter each invoice separately as this facilitates the resolution of variances and provide a better audit trail.

Specific procedures for processing vendor invoices should be established and followed like assignment of invoice number and entering them, even where the vendor invoices are unnumbered or in case of internal documents such as employee expense reimbursement.

Invoice amount should be entered as billed. There should be a separate posting for debit memos and adjustments so that in case of variances it can facilitate account resolution and reconciliation.

The default general distribution codes should be defined as part of a new vendor set up procedures. Before posting, all vendor invoices with applicable general ledger codes should be coded. The possibility of errors will be greatly reduced.

It is important to pay vendor invoices in a timely manner and discounts should be taken advantage of. Discounts can give you money savings, and paying invoices in a timely manner can free you from having late fees and makes way for better negotiations with the vendor.