Guide to Best Practices for Accounts Payable
A healthy working capital is very essential to any business. Small and medium sized businesses should see how important this is. Properly managing your accounts payable can help free up and protect your working capital. There are some best practices that can help you manage your accounts payable properly.
Account payable policies and procedures document are very important to a business. When there is a written policy, it can facilitate employee training, help establish a consistent response to routine situations, and may create a framework for appropriate delegation of responsibilities.
Incompatible duties should be identified and segregated. As an example, an employee who authorizes payment invoices should not have the ability to edit vendor master files, and vice versa. The solution is to get someone to be appointed who is not involved with the process for accounts payables so that he can monitor changes to the files for master vendors.
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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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there should be a new vendor welcome letter send to new vendors that are added to your system. New vendors should be informed on where to send their invoices and other information needed to process vendor invoices like the completed w-9 form which is needed for the annual preparation of the 1099 form. You should comply with 1099 reporting since there is a hefty find for non-compliance.
All vendor invoices should be received by the accounts payable department. Before they are sent for approval the department logs them. This procedure reduces the incidence of lost and missing invoices.
Do not enter vendor invoices as a batch. If you want to facilitate the resolution of variances and provide a better audit trail, then you should enter each invoice separately.
There should be specific procedures for processing vendor invoices and this includes the assignment of invoice numbers even to those invoices which are not numbered or for internal documents such as employee expense reimbursement, and these numbers should be entered.
When the invoice amount is entered is should be entered as billed. To facilitate account reconciliation and resolution of variances, debit memos and adjustments should be posted as separate transactions.
As part of new vendor set up procedures, default general distribution codes should be defined. Before posting, all vendor invoices with applicable general ledger codes should be coded. This will reduce the possibility of errors.
Vendor invoices should have timely payments and you should take advantage of any available discounts. You can add up to significant cash savings with discounts, and if you make timely, consistent payment to invoices, it can help you avoid the outlay of cash for late fees and interest, and set the basis for the negotiations of better vendor terms.