Accounts Payable – Accounting For Your Creditors

When a small business owner purchases stock or services from a provider, it is standard practice that the vendor will give them credit. This will then develop part of the businesses Accounts Payable. This is an advantage as you will not have to pay for any purchases and services you ask for until the credit period has lapsed. Your creditor forwards you an invoice which you file until it is due for payment. Accounting for your debtors and paying your bills on time are the duties of an Accounts Payable function. Your bookkeeper must handle a number of vital activities to ensure that your Accounts Payable is managed professionally.



What is a PO?



To launch the process of making a purchase you are required to issue a valid purchase order to your vendor. This is the initial step in identifying the items and products that you want for your business. It will contain itemized details of your purchase together with unit costs and the total payable for the order. When you place an order with your supplier, the prices quoted on the purchase order will usually equal the decided product price list that your provider has forwarded to you to aid ordering.



The PO (purchase order) is very important as it is a legal contract offer to buy the items or services from your supplier. When your wholesaler accepts this PO, it confirms the order and your supplier is then obliged to fulfill the order accordingly. In an outsourced Accounts Payable department, the bookkeeper raises the PO after checking that the business owner indisputably requires the items. This prevents any errors in ordering and prevents potential disputes between the business and the wholesaler.



Any mistakes in the PO could result in surplus stocks and insufficient or incorrect deliveries. If you urgently need items to wrap up a consumer order, then incorrect deliveries could be devastating for your business. That's where your business will gain from reliable and careful PO preparation.



Bills



Once your PO has been sent to your provider, you will obtain the supplies ordered in a short time followed by the provider's invoice. These bills have to be input into a computerized accounting system to update your business accounting records. The bills your business receives could come from trade or other creditors such as utilities and telephone invoices. The bookkeeper will properly identify the invoices and establish if they are trade invoices which unequivocally affect the cost of the goods that you sell to your customers and consequently your gross profit.



Paying Creditor invoices



The financial cycle of your business depends on a proper Accounts Payable process. Debts to suppliers and other debtors such as utility companies or tax authorities have to be paid when the invoice is due. When you reach agreement on credit terms with your suppliers, these form the basis of the payments prepared.



Sending funds to your creditors is a fundamental part of the Accounts Payable process. The credit terms govern when invoices are paid. These can be settled by your bookkeeper either by issuing your company cheques or electronically through an online banking system. It is an advantage to negotiate long credit periods. You have the prospect to collect monies from your client which you can then pay your debtors, as part of the working capital cycle.



By maintaining an official wholesaler list, you can be sure that the invoices entered into the accounting system are from real suppliers. The list will include pertinent information on the vendors and suppliers of your business. An outsourced Accounts Payable function will match the invoices with this catalog to make sure that the creditors are authentic. Before each payment is made, invoices will be checked against this agreed list. No payments will be released if the payment suspicious.



What are Expense Accounts?



Expenses incurred by your business must be charged to the correct expense accounts to retain an exact record of the numerous classes of expense. There are separate accounts to capture the cost of transportation, stationery, postage and motor vehicle maintenance. Accounting services that appropriately classify and charge expenses make sure that you are aware how your money is being spent in the business. It gives business owners the power to clarify whether they could better deal with their expenses by curtailing superfluous spending.



Reconciliation



An imperative feature of Accounts Payable is the reconciling of trade creditor accounts. This activity will be done by your bookkeeping service when it receives the monthly statement of accounts from debtors. The closing balance on the statement will show the amount your business owes to the wholesaler as recorded in the supplier's books. Your bookkeeper will reconcile this figure with the amount payable as reflected in your own accounting records. There may be timing differences that could explain the existence of invoices in the debtors Statement of Accounts which have not yet been received by your book keeper at the month end.



Creditor reconciliations should normally be performed on a frequent basis for trade creditors. This process can discover double invoicing or troubles in the creditor invoicing procedure. It will draw attention to charges which you have not picked up in your accounting records such as interest penalties for late payment of creditor invoices. There may be creditor invoices that have not been captured in your accounting system in which case your Accounts Payable displays an inaccurate balance and your liabilities are understated.



The Accounts Payable function is critical to accurately handle the cash flow of your business, recognize your risk exposure to unpaid invoices and provide an true statement of the liabilities of your business. Bookkeeping Central can present effective accounting for your debtors by fully managing your entire Accounts Payable procedure and lifting the load of paying your debtors and managing your cash flow from your shoulders. That leaves you free to concentrate on those activities that will drive up sales and bring in more takings for your enterprise. Outsourcing your accounting services is the greatest resolution for a busy small business owner.



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