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What is Accounts Payable?

Accounts Payable

Accounts Payable (A/P) can be roughly defined as a file or ledger account that records amounts owed to suppliers, contractors or individuals. An accounts payable clerk is responsible for the weekly or monthly payment processing within a company. This includes such payments as; payroll, office supplies, merchandise and utilities.

The major portion of the job involves validating and processing invoices for payments, however; it does involve a few other processes.

Accounts Payable works closely with the shipping and purchasing departments in order to validate the supplier invoices to be paid. When a purchase is made by a company, a purchase order is created with a unique identifier such as a purchase order (PO) number. This purchase order records the date on which the initial order was made, expected arrival date of shipment, number of units purchased, cost per item and any shipping charges indicated by the supplier.

This is an extremely useful tracking method for shipments coming into the company. If a shipment is not received by the expected date, you will be reminded to follow up with the supplier. Once the goods have arrived, they usually come with a packing slip or (bill of lading) attached to each box. This is what is used by the shipper to verify what has actually been received. Any discrepancies are noted and this packing slip is attached to the original purchase order. This is done is to verify that all goods on the original purchase order have been received and if there is a back order, the purchaser will be able to update his/her purchase orders accordingly. He or she will then follow up with the supplier on expected date of arrival of the missing goods.

Once this process is complete, the signed purchase order and bill of lading is sent to the Accounts Payable department for final payment. If an invoice is received, the clerk will verify that the invoice amounts equals the purchased amount. If it is verified and all is correct, the invoice will be paid and all cheque numbers or other tracing information will be added to the front of the invoice. It will then be filed for future reference. If there is a discrepancy, the A/P clerk will have to contact purchasing and/or shipping to verify the correct amounts.

Suppliers will sometimes raise costs of items or ship less quantities without informing the purchasing department of their intention to do so. Any changes to an original purchase order should normally have the purchasing departments authorization. This invoice will need to be sent to the purchaser in order for the purchaser to authorize the changes, or contact the supplier if need be. Once approved, the invoice will be paid. Other company payments, such as payroll and utilities are verified by the Accounts Payable clerk for accuracy. This includes verification of all deductions, taxes and totals. Checks are processed once these are validated and approved. Accounts Payable is a vital part of any organization because it involves being organized and making payments in a timely fashion to avoid penalties. Essentially their aim is to receive discounts or credits on invoices whenever possible. Many companies offer incentives if you pay invoices quickly.

Each invoice has a maximum deadline for payment and these are called terms of payment. Most often the term of payment is 30 days. If the invoice is paid within thirty days, no penalty will be incurred. Some companies also offer a 2% discount if the invoice is paid within ten days. An experienced Accounts Payable clerk should be knowledgeable about terms of payments, validation of invoices and shipments. They should also be organized and be able to calculate things like taxes, discounts and deductions.

Payments should always be made on time because failure to do so could result in suppliers withholding shipments. If you have a shipping deadline and no goods to ship to your buyers, you may find yourself being penalized for late shipments. Accounting is a well oiled machine and when done consistently it operates well. Constantly waiting on shipments and chasing payments or files is not a pleasant experience.

It slows down the entire operation and can easily be avoided. A/P is the one department that should run smoothly because the job is not difficult, it is simply about being vigilant.

All of our outsourced bookkeepers are experts in Accounts Payable and payroll and we understand the importance of doing things in a timely and accurate fashion. Accounts Payable for small business is a part time job. Why would you pay a full time salary when you can outsource for so much less? Contact one of our experienced outsourcing bookkeeping companies today for all your accounting needs.