However, by honing your internal processes and automating certain AP functions, you can maintain smooth operations and ensure timely payments that support vendor relationships. According to the State of AP Report, digital payments continue to grow in prevalence, with most companies planning to further reduce check usage over the course of the year. However, even though many teams now rely on ACH and virtual cards, most companies need a streamlined process for delivering checks. Today, only 6.5% of companies are not using any checks in their payment process.
- Accounts receivable balances are considered an asset, as that number indicates how much money is owed to you by your customers.
- Implementing procedures and policies can safeguard your business and mitigate risk.
- It includes details such as the quantity of items, the price, and the delivery date.
- However, if you employ an accounting clerk, you’ll need to provide that person with general guidelines on invoice approval, as well as perhaps a dollar limit the clerk can approve themselves.
The AP check run involves the approval and issuance of checks for vendor and other stakeholder payments. These payments often include traditional, physical checks, which 36% of companies still use for more than half of their payments. Check runs are labor and time intensive, therefore they are typically done once a week, or even once every two weeks.
Improve the approval process
However, if you have multiple bills to pay, you’ll likely add them to accounts payable to be paid at a later date. As a small business owner, you will need to pay attention to the accounts payable cycle and learn the accounts payable process flow. MineralTree can help your team enhance efficiency, reduce fraud risks, and embrace the advantages of both traditional checks and modern digital payment methods. Proper documentation is essential for AP teams because it ensures all financial transactions are accurately recorded and accounted for. Many organizations struggle with outdated and inefficient documentation practices, resulting in costly errors and delays in processing payments.
You might decide to set up a weekly, bi-weekly or monthly schedule, depending on the number of invoices you receive and your business’ cash flow. Compare the invoice to the purchase order and the receipt to ensure everything matches up. This process is known as a three-way match, and it helps prevent errors and fraud. In this article, we’ll break down the accounts payable process step-by-step and offer some solutions to help streamline your workload. Again, if you only have a few vendors to pay, this may not be an issue, but even if you have to pay just five vendors monthly, your life will be much easier if you use accounting software.
Tips for streamlining the accounts payable process
You may have a designated accounts payable department that handles AP, it may fall under general bookkeeping and accounting duties, or you may opt for AP automation. The accounts payable process doesn’t have to be a dreaded task when you habitually review your invoices weekly and implement accounting automation opportunities. Before initiating payment, you’ll want to review your invoice for accuracy and ensure you’ve received the product or service requested.
Accounts Payable Process: A Business Owner’s Guide
Hence, small companies without sufficient staff to separate employees’ responsibilities will have a greater risk of theft. If you notice an error on an invoice, contact the supplier or vendor as soon as possible to address it. Resolving the issue can mean requesting a corrected invoice, disputing the charge, or requesting a credit. Check out our reviews of the best bookkeeping software for small businesses.
After the receiving report and purchase order information are reconciled, they need to be compared to the vendor invoice. Hence, the receiving report is the second of the three documents in the three-way match (which will be discussed shortly). You’re likely to get a call from your supplier, which could jeopardise your supplier relationships if you’re not careful. In fact, 90% of AP department workers said they regularly received calls from suppliers chasing payment. Let’s take a look at an example of the accounts payable process in action.
By this point, you probably know that implementing an accurate accounts payable process is key to keeping your finances in check and making sure payments don’t go missing. But it’s no lie that it can be a time-consuming process that needs streamlining. The first step of the accounts payable process is to create a chart of accounts, which is an organizational chart that summarizes where you record accounting transactions. You can also automate the accounts payable process by setting up approval workflows and payment schedules. Wave Accounting offers free accounting software with accounts payable features like invoice tracking, bill payment and automatic reminders.
However, if you employ an accounting clerk, you’ll need to provide that person with general guidelines on invoice approval, as well as perhaps a dollar limit the clerk can approve themselves. If a bill is for products ordered, be sure to verify that the products listed on the invoice have all been received. If the invoice is for services rendered, ensure the services were provided as described on the invoice. Another payment term commonly used, particularly among suppliers, is 2/10 Net 30. Using the same invoice date (December 15), this term means if you pay your invoice by December 24, you can take a 2% discount off of the total amount due.
Accounts payable, also known as AP, are the total debts that you owe to other businesses for goods or services that they invoiced you for. Assigning codes organizes accounts payable processing so you know when to expect payments. Using accounting software for this step allows you to automatically track payment terms and assign payment due dates. Inefficiencies and gaps in the AP check run can turn a straightforward process into a headache.
Make sure to have a system in place for each payment workflow step within your accounts payable process. Authorized approvers, customized workflows and added security such as top 4 red flags that trigger an irs audit positive pay will help reduce the risk of payment fraud. A “check run” or “cheque run” refers to the most important step of the accounts payable process where payments are approved and executed in order to pay invoices in a timely manner. Check runs can be processed either as a batch of payments, or as individual payments. Historically, they are defined as payments by paper check, however today, the term also applies to electronic payment processes. The supplier or vendor will send an invoice to the company that had received the goods and/or services on credit.
One copy of histories of economic life the purchase order will be used in the three-way match, which we will discuss later. With plans starting at $15 a month, FreshBooks is well-suited for freelancers, solopreneurs, and small-business owners alike. A purchase order gives both you and the seller a clear understanding of what is being bought and the terms of the transaction. Ready to make your AP check run a seamless and strategic part of your financial operations?
If you’ve just started your business, you’ll likely have to set up your vendors. Whether you’re tracking accounting transactions using spreadsheet software or accounting software, you’ll need to record vendor details. Platforms like MineralTree allow teams to schedule payments in advance, even for checks.
