Accounts Reconciliation Blog

Getting a company to pay you sometimes feels like you’re pulling teeth. Payment to you gets caught up in red tape. You have to deal with purchase orders, sales invoices and delivery receipts. The only payable made that doesn’t require lots of paperwork is allowance. Accounts payable allowance is often fixed and doesn’t require an OR to back it up.

Accounts payable allowance also covers per diem. This mainly covers living expenses. Payment is based on company policy or as agreed upon my management. For example, your company might send you on a convention somewhere. You won’t need to collect official receipts every step of the way. What’s more your company will often advance payment to you to cover these expenses.

Credit makes the business world go around. You give credit to get customers and get credit to expand your inventory. It’s a game of balance. The credit you extend to your customers should not exceed your maximum credit from your supplier. Otherwise you’ll get in deep trouble. A 30 day credit doesn’t necessarily mean you’ll get paid on the 30th day. Often that’s when the paperwork begins. That’s why it’s important to know and understand accounts payable flowchart.

Here is the accounts payable flowchart that we follow in our company. First we look for the supply request followed by the cost estimates. Then we make sure that the purchase order match the cost estimates and supply request. After that comes the sales invoice along with the delivery and the delivery receipt. From the sales invoice we can see the payment terms. Only when the payment terms are verified will the payment process begins.

When in business, it is sometimes necessary to extend credit. The amount of credit and payment terms will depend on your cash flow. If you extend yourself too much you and your company will get into trouble. That’s why I have an accountant on board my organization. He will determine accounts payable payment terms.

Accounts payable payment terms can be short as 7 days credit to as long as 60 days. Some companies even extend credit for up to 4 months. You don’t want to extend long credit as much as possible. It might affect your cash flow. Study your expense sheet. Compute your overhead. From there you will get

It is always good to follow certain protocols in order to ensure a smooth flow of transactions especially when financial transaction is involved. Ensuring that your accounts payable are properly managed will allow your business to gain a good financial position. It is therefore important that accounts payable procedures are in place and strictly being implemented. These could help your business in establishing good relationships with your suppliers and creditors.
You can make use of effective strategies in drafting your accounts payable procedures:

~ERP (Enterprise Resource Planning) – automation of purchases and payables thus cutting on operating cost
~Take payment discounts – paying before the arranged due date usually entitles you to a certain percentage of discount
~Eliminate paper – try to maintain records in soft copy (like PO, invoices… ) can reduce handling cost by almost 90%
~Review purchases with regard to cost, changes in environment or changes in industry
~Communicate with suppliers your desire to improve the process like exchanging documents electronically
~Reduction of errors – focus on verification and authentication of documents and avoid overpayments
~Training of personnel – regular formal training can help them be more knowledgeable on frauds and they can improve their negotiation skills
~Increase payment terms – base this on the date of receipt of goods
~Elimination of disputes – thoroughly review purchasing procedures to eliminate disputes

When you have a strong financial position, you are assured of a sustainable business operation. It also reflects how good your system is in terms of managing your account receivable and payable. When all of your entries are well-accounted for then this is where the question “what is full cycle accounts payable” is dealt with. The accuracy and correctness of financial documents between the buyer and the seller are the main focus of this process.

What is full cycle accounts payable? This is the process wherein keen verification of documents like original invoice from the vendor takes place. Purchase orders and receiving slips are validated in this process as well. Once all documents have been proven authentic, then payments shall be made through issuance of check or checks to the vendor. Sending or mailing of checks is also part of this process and ends up in recording of the transaction for reference or for audit purposes.

To come up with a positive income statement, you have to make sure that all of your accounts are well managed. It is important that aging of accounts receivables are properly monitored and that accounts payable are duly accounted for. Your staff in charge should therefore be very knowledgeable on how to reconcile accounts payable. This can minimize penalties (for past due) and can help you establish a good relationship with your suppliers or creditors.
Here is a simple guide on how to reconcile accounts payable:

~Prepare a general ledger stating the sum of all accounts payable and a subsidiary ledger that contains details of each item. Balances of both should be equal.
~Reconcile accounts using a spreadsheet – Column A for the general ledger and Column B for the subsidiary ledger. Again, these two columns should be balance
~Items in subsidiary ledger should be reviewed and check if something was not registered in the general ledger
~Look for possible recording errors or mispostings
~Close the books by making adjusting entries depending on company policy. Some will not allow closure of the account if left unreconciled.

Much as an entrepreneur wants to stay away from debts, some acquisitions have to be made through credit. This will enable them to stay liquid and have ample funds for operation. The amount that a company owes to other entities like suppliers or creditors is called accounts payable. This accounting item plays a crucial role in the financial cycle of the business. It has to be well accounted for and well managed.

There are strategies in managing your accounts payable. Auto-charge or auto-debit system can be utilized to make sure that you will be able to pay your dues on time. It is also important that unpaid bills are organized sequentially to avoid past dues. If for some reasons you cannot settle your financial obligation on time, directly communicate to the vendor to keep the good relationship intact. And of course, it is best to be consistent on your payment dates so you could schedule and source out funding if necessary.

What could be better than having a business with sound financial status? This can be achieved if accounting entries are well managed. It is very important therefore to observe the accounts payable best practices. They may come with increased pressure but they will definitely strengthen controls, decrease cost and increase efficiencies.

Accounts payable best practices are being applied by most business entities because they have been proven to be very effective. Imaging and workflow solutions were used by departments in automation of AP processing. Paper-based invoices are converted to soft copies and routed automatically for faster approval and vendor payment. This automation was able to make the process flow more systematic, faster and yielded to reduced overall cost.

Most companies operate by credit to ensure that they could remain as liquid as they can. Good relationship with their creditors should therefore be established. Accounts payable voucher can serve as an assurance that you will be paying your creditor at a specific time frame. This is a very important accounting document that both parties can use to keep track of their existing payables and receivables.

Accounts payable voucher is normally issued after the receipt of a vendor invoice and after matching it to the purchase order. Generation of payments for unpaid invoice is called “payment run”. This can be executed at the discretion of the accounts payable officer of the said company. Every voucher contains important information such as name of payee, amount of payment, description of the said item or service, etc.

Standard operating procedure is very vital in any organization. This will make sure that whoever handles the task, specifically accounting; the process that they will follow is always aligned with the rules and regulations of the company. Accounts receivable and account payable flowchart is a clear presentation of the step-by-step procedure of recording, reconciling and tracking these two important accounting entries. This will keep a smooth and hassle-free flow of the company’s financial transactions.

Accounts receivable and account payable flowchart is made up of two columns:

~Accounts receivable column – total amount owed to the company or the total amount collectible
~Accounts payable column – amount that the company owes to other entities such as the government or financial institutions