Accounts payable (AP) is a process that entails the handling of a business’s finances and can be seen as a direct counterpart to accounts receivable. It simply refers to the invoices or accounts that a business needs to pay money into. How could you use it, and how do you avoid making errors or mistakes?
What is the AP process
The accounts payable process is dependent on a business’s finances and size. Larger businesses have the ability to run accounts payable through their financial departments or a dedicated team, smaller businesses don’t have this, they might not even have finance departments, let alone dedicated teams. Because of this, they need a streamlined process that allows for autonomy.
Small businesses should start by creating a sheet that details their vendors and payment terms. There should also be any extra details, such as discounts for paying early, so that you can best take advantage of this. Once you then have a detailed sheet that highlights the information for all accounts payable, you can start engaging the process. Doing this is an important part of bookkeeping, which you can read more about here.
From this point on, paying invoices is simple and quick. However, though you have the basic process set up, you can do much to improve and secure it.
Prioritise certain invoices
When paying a potentially large list of invoices, it’s important to prioritise them. You need to decide which ones are more important in order to be efficient and to lower the risk of mistakes such as late payment.
Start by targeting invoices that have the least amount of time left. Unpaid invoices are unprofessional and can accrue interest. From this, you can start to move onto invoices that offer discounts for paying early, then the most costly invoices. By following this, you can keep a consistent AP flow that allows for autonomy and simple admin.
Protect your finances
The first step in protecting your finances is to create fraud protection. Start by implementing basic security such as complex passwords and backup spreadsheets. It also helps to have someone that takes responsibility for the AP process as their dedicated role.
On that note, always limit access to the sheet. There should never be more than a handful of individuals who can access the AP process at once. This prevents fraud and keeps finances as secure as possible
Accounts payable is a simple process when managed correctly. By doing the initial admin and putting normalised systems in place, it becomes simple to manage incoming invoices. Always be sure to prioritise invoices based on a list of factors and keep security paramount.