Accounts payable refers to money owed to creditors and suppliers for purchasing goods and services on credit. Many companies rely on these practices to keep their operations running smoothly. The debit and credit cycle involves managing inflows and outflows and scheduling them accordingly. The accounts payable services include several activities, including invoice approval, evaluating the authenticity of invoices and online payment links, communicating with suppliers while maintaining favorable relations, conducting three-way matching, making payments, etc. The accountant must ensure no errors, duplicate payments, or potential wrongdoing in these activities.
The accounts payable services department provides organizations the necessary administrative and clerical support. It ensures proper expense tracking and timely payments to vendors. They fulfill payments, receive, and approve invoices, and record relevant entries. The accounts payable process workflow must be automated and match the roles with redefined responsibilities. Businesses restructure or prevent fraud in these activities by segregating the duties.
The accounts payable department gathers the tax information of suppliers, reimburses employees for business-related expenses, and prepares payable reports. In addition to bills payment, the AP department performs three primary functions:
Internal Payments:
The accounts payable department manages the reimbursement expenses to internal employees, controls and administers petty cash, and distributes sales tax exemption certificates. It is the employees' responsibility to provide proof for reimbursement. These include invoices and bills of the transactions. Similarly, the petty cash transactions include postage, out-of-pocket office supplies, company meeting lunch, etc. The sales tax exemption certificates get issued to managers ensuring the qualifying business purchases don't include the sales tax expense. The manual log report contains receipts and written reimbursement requests by employees.
Business Travel Expenses:
Many businesses have staff that travels from one place to another to advance the business course or perform activities in their interest. The expenses incurred in this regard are the responsibility of the AP department. The department pays advanced airline, car rentals, or hotel reservation expenses. The accounting outsourcing services ensure payments made in the name of 'travel expenses' are authentic and necessary.
Every company has a separate policy to account for these transactions. While some process requests, others distribute the funds to cover expenses. The accounts payable services department considers the reimbursement requests. They also settle the funds' distribution to the employees.
Vendor Payments:
The primary function of accounts payable services is to organize and maintain vendor contact information, clarify the payment terms, and complete the IRS requirement of the W-9 form manually or through software. The internal control policies of the firm govern their payment patterns- which may follow pre-approved purchase orders or verification after making purchases. These services also run aging reports at the month or period end to get insights into AP performance and efficiency.
Other Functions:
Other additional tasks the AP department performs include saving time and money through effective strategizing. These activities focus on strengthening suppliers' relations for favourable future terms. They ensure companies enjoy as many discounts from vendors for early payments as possible.
The accounts payable process of every business depends on several factors, including the transaction's value and volume. Its process involves executing the following steps:
- Receiving the bill and knowing the purchased quantity, rates charged, taxes applied, etc
- eviewing the bill details, names, addresses, authorization, due date, verification, and matching requirements with the purchase order
- Conducting entries and recording the updated bill in the ledger
- Making timely payment in the agreed manner to the vendor
