MEANING ACCOUNTS PAYABLE BEST PRACTICES

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The accounts payable function is the most labor-intensive of all accounting functions and is therefore a great source of labor savings if the proper best practices can be implemented. The fundamental process in many companies is to receive three kinds of information from three sources—an invoice from the supplier, a purchase order from the purchasing department, and a proof receipt from the receiving department. The accounts payable staff then matches all three documents to ensure that a prospective payment is authorized and that the underlying goods have now been received, and then pays the bill. The method is labor-intensive partially since there is this kind of wide range of matching to complete, but in addition since the three documents hardly ever match. Either the purchase order quantities or prices don’t match what the supplier is charging, otherwise the quantity received does not match the quantities on one other two documents.

Because of those inaccuracies, the quantity of labor required to issue a payment can be extraordinarily high. The very best practices in this chapter belong to several main categories, many of them designed to reduce the matching work. One category attempts to consolidate the number of invoices arriving from suppliers, thereby shrinking the paperwork out of this source—typical best practices of this type are utilizing procurement cards and shrinking how many suppliers. Another category tries to lessen or eliminate the number of receiving documents. Typical best practices in this region are substituting occasional audits for ongoing matching of receiving documents, along with directly entering receipts in to the computer system. Finally, another category reduces the number of purchase orders that must be matched. Typical best practices of this type include using blanket purchase orders and automating threeway matching. Other answers to the matching problem involve going away from the standard matching process entirely, by utilizing payments based solely on proof of receipt. It is extremely hard to utilize most of these best practices together, since some are mutually exclusive—one should be careful in choosing the proper best practices. Lastly, numerous best practices concentrate on the entire accounts payable process, attempting to either shrink or automate the number of steps required before a business issues payment to a supplier. Samples of best practices in this region include using a signature stamp and switching to wire transfers. The amount of best practices in the accounts payable area indicates this function is ripe for improvements. However, some best practices need a large investment of money or time, as noted in the chart in the next section, so the person doing the improving should verify that resources can be found before embarking on an implementation.

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