Accounts Payable Process: What Business Owners Should Know
Accounts payable (AP) is an accounting term used to describe the money owed to vendors or supplies for goods or services purchased on credit. The process includes receiving vendor invoices, reviewing, approving, and determining the timing to process the invoice for payment. Paying close attention to expenses and maintaining internal controls protects your cash and assets and is very important to avoid paying inaccurate invoices.
Review accounts payable process
Cash management plays an important role in the accounts payable process and maintaining an organized AP process is key. As businesses grow, the number of vendors they pay for increases, as does the workload of the staff that processes them. If the AP process is not handled correctly, it can damage reputations with vendors, consume unnecessary amounts of time, and even be susceptible to fraud. Many times, small businesses hire additional staff to process the invoices and pay bills. However, this might not be the best choice.
Businesses should review the existing process, looking for ways to simplify and execute the bill management, approval, and payment process. They should evaluate the level of internal controls, the best payment options, all the while looking for something that will easily integrate into the existing general ledger software, and ultimately save them time and money.”
Learn more about AP/expense automation.
Automating accounts payable process
Small businesses should consider leveraging the power of software automation. Using automated accounts payable software will help simplify bill paying duties, enhance internal controls, and save time in a cost-efficient platform while eliminating many of the burdens associated with a manual AP process.
Some examples of benefits this type of software can provide are:
- There is no longer a need to keep paper invoices. Invoice images are securely stored by the vendor electronically and are regularly backed up and safe from fire, flooding, and theft. There is no shuffling through boxes or file cabinets to find an important document or invoices. The software also stores important vendor information such as W-9s and ACH/wire details within the vendor account. Vendors can email invoices directly to the accounting software rather than someone manually having to check the mail, then open and distribute invoices to the correct person. Though, if you do receive a paper invoice, it can easily be scanned and uploaded into the AP software.
- Automated AP software also recognizes duplicate invoice numbers, thus avoiding duplicate payments. There is no need to manually review invoices against prior invoice numbers—that can save both time and money.
- Approval policies can be automated reducing paper being delegated and passed around throughout an organization. Because cloud accounting is becoming more common and the demand for teleworking is growing, the need to remove the manual invoice approval is critical. Accounts payable software has built-in approval policy workflows that can be managed from a mobile device, tablet, or computer to align with this ever-changing need.
- Payment processing is done electronically, and payments are sent directly from the AP software. Copies of check images, invoices, and payments are available to your vendors. Vendors can even decide if they would prefer paper checks or ACH payments. This helps improve vendor relationships, allowing them to have direct insight into invoice status and payments details.
- Integration with the general ledger software avoids requiring double entry of bills from one system to another. The accounts payable software syncs automatically daily, or you can manually sync as many times as you need throughout a day providing real-time updates.
- The risk of fraud is reduced by segregating duties between processing, approving, and paying bills. Because this is done in the cloud, small businesses also do not need to keep check stock on hand, thereby reducing the risk of check theft.
If you have any questions or need assistance, please reach out to a professional at FORVIS or submit the Contact Us form below.
This article is a selected piece from By the Books: FORVIS' Complete Guide to Small Business Accounting & Finance, which we are excited to release in April 2023. Subscribe to our Small Business list to get future updates and articles and be the first to receive the full guide.