If running a growing business is your top priority then finer details around accounts may not be your core focus. Yet it is a very important part of any successful business. If you’re unsure whether your accounts payable are being handled efficiently, our team of Outsourced Accountants can help. We can help you manage the tedious tasks you’re ready to hand over.
Having constant cash flow ensures operational efficiency, in which accounts payable (AP) plays a significant role in building a company’s credibility and success. For understanding, an apprehensible accounts payable definition is money owed to suppliers for goods or services on trade credit. In business law, it is a short-term debt your company may owe for products received or a separate business department of accounting.
Some accounts payable examples include bulk office supplies purchased on a trade credit with a vendor, weekly services along with the likes of sanitation services, etc. Suppose your business falls behind on monthly payments because you have insufficient cash flow, it will affect your credibility. Suppliers, creditors, and even investors will consider non-payments as delinquent which may affect your credibility in the analysis process. Evaluating your financial position is essential for investors and creditors when considering investing or opening a line of credit.
While paying your bills is an account payable process, it is also a financing source with incentives if offered by your suppliers. If your company is not paying its bills promptly, you become a risk, and a supplier may stop extending credit to allow you to purchase products and services. Keeping payments current has the benefit of potentially building a successful business and attracting investors when you want to expand. Learn the impact accounts payable has on your business and why an accounts payable manager can be key to improving cash flow within your business and maintaining healthy vendor relationships.
Handling the responsibilities of AP for a startup business is complex, especially in knowing is accounts payable a debit or credit. When an AP manager records AP transactions, the asset or expense account regarding the purchase is a debit. Once paying the accounts payable, the manager will debit AP and credit the cash account, using accounts payable software such as
Bill.com is one of the reliable accounting tools that give businesses an easy way to get a handle on AP, and keep things ticking over smoothly in this regard. Bill.com allows you to pay bills, get paid, and send invoices with minimal effort. The best part is that it is designed to integrate with various accounting software platforms such as QuickBooks or NetSuite. This means that making use of Bill.com not only allows you to manage payments due by automating the process, it also links with your accounting software, allowing the transaction recording process to be automated.
Business owners may not be aware that AP and AR can affect balance sheet entries and the account payable turnover ratio level. Measuring how quickly you make payments to vendors or creditors through trade credit is the accounts payable turnover ratio for calculations. To calculate the turnover ratio, the manager will need to determine the average AP by adding the opening and closing balances, then dividing the result by two.
The computation of the AP turnover ratio is the net credit purchases divided by the average accounts payable total. Investors and lenders may use ratios to determine your creditworthiness as part of the evaluation process before an investment or extending credit to you. If there is a high ratio, it could mean you make timely payments, but a low ratio may reveal untimely or delinquent payments.
1. Establish AP internal controls that will limit access to your accounting software and help identify inefficient processes.
2. Utilize paperless automated technology to eliminate excessive paper waste with manual invoicing.
3. Keep your suppliers’ information updated to make they receive payments on time.
4. Create safe protocols that will automatically detect payment duplication.
5. Invoices organization and prioritization for easily tracking payments scheduled for payment by the due dates.
6. Set up fraud detection in the accounts payable management system for flagging AP transactions.
7. Establish standard payment terms for each vendor account to optimize AP processing and control your cash flow.
An accounts payable manager’s job description comprises a variety of responsibilities, including tracking all your expenditures, payments, invoice statements, and purchase orders. Managing all AP activities, including prompt payments to your vendors, would form part of the duties of an accounts payable manager. Other responsibilities include verifying data and journal entries, comparing the AP management system reports, preparing accounts analysis, and producing monthly reports.
At Fusion CPA, our accounting professionals understand how AP affects your company, and are equipped to handle accounts payable transactions. We can help you create an efficient AP management system that would allow you to keep track of transactions to be able to easily detect fraud or suspicious billing and transactions. Outsourcing this service can help you reduce costs and ensure payment promptness to help keep your records accurate and up to date.
We also have CFOs on our team to assist you with business growth when you’re ready to make the most of your business’ potential.
We are outsourced bookkeepers, CFOs, and entrepreneurs who are passionate about offering our clients a lasting relationship to help their business grow.
After our accounting services stabilized your finances, we can use your company’s accounting data to determine your profitability, as well as business forecasting.