In the name of goodwill to customers, business owners will sometimes offer to deliver goods or provide service even without receiving payment immediately. By doing so he is extending an accounts payable allowance to the customer. The customer is in effect promising to pay the supplier at some future date. The prudent supplier will only offer this benefit to customers who have a good credit standing or have proven their ability to meet their commitments in the past.

An accounts payable flowchart will demonstrate the process flow of the accounts payable process from start to finish. It is a visual way of displaying the sequence of accounts payable activities.
Here’s a sample of a typical accounts payable flowchart:

1. Purchase order to the vendor
2. Receipt of bill
3. Bill recorded to accounts payable
4. Alphabetical filing of bills
5. Payment of bills
6. Issuance of check/ check cutting
7. Staple check stub to the bill
8. File bill with check stub in the paid bills file

I first thought that accounting was a simple procedure. We bought the beans, the napkins, the paper cups and the equipment and we paid them. It turns out that our company like most companies had accounts payable payment terms. The products and supplies were delivered and billed but payments were done much later. I asked the accountant why we couldn’t pay them as soon as they were delivered. She said the finance officer managed the flow of funds in the company, sometimes the company’s funds are made to earn a few interest first before it is used for payment.

Every good business should employ proper accounts payable procedures. An accountant should always be present to mind the books. Once a service is used or a product is bought, the company can pay the supplier right away. This is the ideal scenario. In the simplest terms this is how accounts payable procedures should be done.

So what is full cycle accounts payable? A full cycle accounts payable ends when the payment is done. The cycle begins when the company avails of a service or buys a product. The payment for these products and services had not been paid yet. The supplier gives the client or the company an invoice or a quotation for the product sold or the service rendered. That invoice is the basis for the payment. The company then issues the check payment and the supplier presents the company with an official receipt.

Figuring out how to reconcile accounts payable is relatively easy. If the details of the secondary ledger match the entries in the general ledger then the jobs is done. If the entries don’t match then adjustments will have to be made. The details have to be double checked and adjusting entries could be made. When the final amount on both columns matches then the accounts payable is deemed reconciled.

The accounts payable column covers all products or services which the company had availed of but had not yet been paid for. Payments to suppliers, payments for products and raw materials fall under accounts payable. Rent, overhead cost, fees and other expenses also fall under accounts payable. I have to take a total of four accounting subjects and two finance subjects. I am sure that this knowledge will help me someday when I open my own business.

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.

In accounts payable systems, there is a process called “payment run”. This is executed to generate payments that correspond to unpaid vouchers. The payments can be released or held at the discretion of an accounts payable supervisor or the company controller.

A flowchart furthers helps managers and subordinates to review their workflow. Remember that an accounts receivable and account payable flowchart will begin with organizing the company’s payables which have to end with payments. Begin by identifying your sales and receivables as well as the deposits of received payments.