How to improve accounts payable
What is accounts payable?
Accounts payable (AP) refers to short-term debts a business owes to vendors or suppliers. These debts, also called payables, appear as current outstanding liabilities on the payer’s balance sheet. It’s essentially a short-term obligation between two businesses.
What’s the difference between accounts payable vs accounts receivable?
The main difference between accounts payable and accounts receivable (AR) is the direction of the money. Generally, payables are what a company owes and pays to vendors, while receivables are money the company receives, usually from their customers. The former is an expense, and the latter is income. Accordingly, accounts payable shows as a debit on the balance sheet, and accounts receivable as a credit.
It's essential to manage both meticulously in your financial ledger to watch cashflow and maintain the accuracy of the business's financial records.
What is the accounts payable process?
The accounts payable process may differ from one business to another, and according to whether the company processes purchase order versus non-purchase order invoices. For non-purchase order invoices, the following steps typically apply:
Receive the invoice.
Review invoice details, such as due date and outstanding balance.
Approve the invoice, potentially needing sign-offs from other departments.
Assign the GL account code.
Create a record of the invoice in your accounting system.
Schedule payment of the invoice to the supplier.
Update the financial ledger to reflect the payment.
Maintain records of all invoices for tax and auditing purposes.
Some businesses manage accounts payable manually, while others use specialised automation software to make the process more efficient and reliable.
Accounts payable best practices
Following accounts payable best practices can help your company process payments faster, reduce errors and create stronger relationships with suppliers and vendors. Here are some best practices to consider:
Document the accounts payable process
Whether using manual methods or automated tools, a strong process is critical. Team members should clearly understand their roles and responsibilities. This clarity avoids long processing times, accidental duplicate payments or making payments without necessary approvals.
Make sure your team has easy access to written guidelines and software tutorials for the training they need to do their jobs properly.
Track all accounts carefully
Neglecting to track outstanding balances can have serious consequences. Missed payments could lead to late fees, supply disruption or damaged supplier relationships. They can also throw your books out, undermining your financial standing.
For this reason, a structured process for receiving, recording and tracking invoices is essential. Many businesses use accounts payable software to automate these tasks, removing human error from the process and maintaining a digital audit trail.
Communicate with suppliers
While approving, recording and paying incoming invoices is the core focus of the AP process, maintaining strong client relationships is also critical.
Establish payment terms during initial negotiations, such as when you'll be invoiced, acceptable payment methods and any early-bird payment discounts on offer. If a payment delay occurs, it’s important to resolve the issue quickly and repair the supplier relationship. In this scenario, prompt and transparent communication is key to maintaining good business relationships.
Audit accounts payable regularly
Mistakes do happen, especially when processing invoices manually. Auditing your accounts payable regularly is crucial for identifying over-payments, duplicate payments, missed payments and safeguarding against invoice fraud.
AP automation software maintains complete and up-to-date records and gives you visibility across your accounts payable, helping you make timely payments and manage your cashflow effectively. It saves time by running the invoice approval process while identifying any invoice exceptions or discrepancies that you need to attend to. The software maintains a digital audit trail of the invoice approval process, which means it’s easy to see exactly where things are at all times.
Automate your accounts payable with MYOB
If you’re processing a heavy volume of invoices, you may benefit from AP automation software to manage your accounts payable process accurately and efficiently.
With MYOB Advanced Business - an enterprise resource planning system built for the Australian and New Zealand mid-market - you can access a full suite of accounting functions that covers accounts payable, cash management and more. The software also provides comprehensive reporting tools to help you analyse, budget and plan for each reporting period.
As an open platform, you can also integrate additional specialist third-party applications with MYOB Advanced Business, so you get the business management platform that’s right for you.
Find out more. Contact an Enterprise solution specialist today.