Actions done to accounts payable have a great impact on the trust between a company and its creditors. Whenever a company honors agreed-upon payment terms and pays its bills on time, it helps strengthen the business relationship. A company that has a streamlined accounts payable operation also saves money through the efficient processing of invoices with a minimum of staff and low cost of materials.

The IRS and accounts payable may seem unrelated. However, we all know that the IRS is an agency we shouldn’t be playing around with. As dutiful citizens we must all pay our taxes les the IRS catch us. As companies, all accounts payable should be settled lest you be questioned by the IRS. If you don’t pay your debts or file your taxes you’re going to be in trouble.

With some research, I could easily define accounts payable. Accounts payable is what the company owes to suppliers, individuals and other companies for the purchase of their product or service on credit. When I opened my business, my contractor gave me 15 days to pay him after he had finished constructing my store. That amount I owe him is part of my accounts payable. It is my duty to settle all accounts payable. When the accounts payable are all paid, my cash on hand will naturally decrease.

Here are a few simple ways to improve accounts payable:

First of all you need to take care of your accounts receivables. You need to collect all your accounts receivables because you will use this to pay your accounts payable. Make sure you collect payments from your customers and clients right away. Make sure you pay your suppliers on time. If they give you 30 days to pay them then use the 30 days. However if they give discount for early payment, you should take advantage of this as well.

In an accounting period, an accounts payable turnover measures the company’s efficiency of paying bills. This is measured using the average duration an item remains in accounts payable, equal to total purchases, divided by average accounts payable. A change over time in the accounts payable turnover means your company is paying off its suppliers either faster or slower than you were previously doing.

Be sure to know what you are doing or find a professional to perform the accounts payable reconciliation. This is usually done by comparing the listings on general ledger and subsidiary ledger. General ledger takes the total amount or sum of accounts payable while subsidiary ledger contains the detailed information of the account. Their values should match all the time. Should there be discrepancies, thoroughly review items and try to spot if possible recording errors were made.

Usually there is negotiation about the accounts payable payment terms. The business relationship becomes strong over time with the accounts payable payment terms becoming for relaxed. An example would be that if payment is due on the 30th day but a friendly phone call by the buyer can make it a week longer. It is also wise to take payment discounts wherein suppliers offer certain reduction on price if you pay within their specified period of time, say 10 days. This will bring back a portion to your working capital.

By making accounts payable procedures it you will have down on paper the procedure to follow no matter what situation. You can get professional help to write up the procedures for you. You can then also ask questions and clear up any confusion you might have.

~ Verifying the vendor’s original invoice
~ Checking the purchasing companies’ purchase order and receiving slip
~ Preparing, running and mailing the check for the vendor
~ Keeping proper record of the transaction

Payables are not limited to companies, however. In households, people are also obligated to pay bills for goods or services. Some examples of these are phone, gas, cable, and electric bills provided by creditors. Each of these services are usually provided first and the creditors bill the customers after the goods or services are delivered.