A healthy working capital is very essential to any business. This is especially true for small or medium sized businesses. You can free up and protect your working capital when you properly manage your accounts payable. There are some best practices that can help you manage your accounts payable properly.
Financial Planning policies and procedures document are very important to a business. When there is a written policy, it can facilitate employee training, help establish a consistent response to routine situations, and may create a framework for appropriate delegation of responsibilities.
You should be able to identify duties that are incompatible and the appropriate segregation of these duties should be implemented. As an example, an employee who authorizes payment invoices should not have the ability to edit vendor master files, and vice versa. The solution is to get someone to be appointed who is not involved with the process for accounts payables so that he can monitor changes to the files for master vendors.
Where possible, purchases should only be made from pre-approved vendors. The benefit of this is for the negotiation of terms with are more favorable.
Send a new vendor welcome letter when new vendors are added to the system. New vendors should be informed on where to send their invoices and other information needed to process vendor invoices like the completed w-9 form which is needed for the annual preparation of the 1099 form. You should comply with 1099 reporting since there is a hefty find for non-compliance.
All vendor invoices should be received by the accounts payable department at http://stbookkeeping.com/about/. There is proper recording made by the department before they are sent for approval. This minimizes the incidence of lost and missing invoices.
It is not good to enter vendor invoices as a batch. it is best to enter each invoice separately so in cases of variances, it facilities its easy resolution, and proves a better audit trail.
Specific procedures for processing vendor invoices should be established, and this includes assignment of invoice number (where vendor invoices are unnumbered or in case of internal documents such as employee expense reimbursement), and entering invoice numbers.
IT should show that an invoice amount is billed when it is entered. There should be a separate posting for debit memos and adjustments so that in case of variances it can facilitate account resolution and reconciliation.
As part of new vendor set up procedures, default general distribution codes should be defined. There should be codes to all vendor invoices before posting. With this, there will be reduction in the possibility of errors.
Vendor invoices should have timely payments and you should take advantage of any available discounts. If you get discounts you can save more money and if you pay invoices in a timely manner, you will avoid fees and have better negotiations with the vendor.