In the world of vendor management, if there’s anything that comes next after establishing strong relationships with different vendors, it is setting strong accounts payable systems.
What is an account payable?
In simple terms, when an organization receives goods or services on credit from vendors or suppliers, it registers as a liability on the company’s balance sheet. The money that the business owes to its suppliers is termed an account payable.
Not all liabilities are counted under accounts payable. On that note, it’s not unusual for new business owners to feel confused about what things they can put under the account payable. This blog provides some clarity on that.
Starting with the things that can be registered under account payables:
1. Basic vendor details: Vendor information should go into the account payables section. This includes:
- Vendor names: The name could be the name of individuals or companies. Maintaining accurate and consistent vendor names is essential to avoid confusion and duplicate entries in your records.
- Addresses and contact details: It’s essential to record your vendors’ physical addresses and contact details for seamless communication, shipping, and billing.
- Payment terms: Alongside the basic vendor information, keeping track of agreed-upon payment terms is beneficial to avoid future disputes.
- Tax identification numbers: These numbers are essential while issuing invoices and reporting payments to the tax authorities.
- Vendor categories: categorize your vendors depending on the type of goods or services they provide to your business.
2. Invoice details: Apart from tracking invoice amounts, numbers, and payment terms, businesses should track additional information specific to the invoices issued, such as:
- Invoice dates and due dates: This information helps to track the turnaround times and select the best vendors for the future.
- Payment status: Besides the invoice details, keep track of the payment status to avoid discrepancies in outstanding invoices and maintain a positive relationship with the vendors through timely payments.
3. Discounts: If you receive any discounts from your vendors, tracking that in your account payables would be a good idea. Additionally, things that you could follow include:
- Early payment discounts: Some vendors offer incentives for organizations that send payments promptly. Keeping track of this can help your business cut expenses by selecting vendors that offer this incentive.
- Discount terms: If you’re receiving any discount, it’s a good practice to note down the terms to avoid disputes in the future.
4. Payment history: When dealing with multiple vendors, it can help if you keep track of the payment history for future reference. Additionally, you could record:
- Payment method: create a record for the type of payment method preferred by each vendor.
- Inquiries: If there are any questions raised by the vendors regarding their payment, keeping track of their inquiries’ history would help you resolve disputes faster.
- Payment contacts: For large corporations, the vendors can have specific departments dedicated solely to collecting payments. Having a record of that will help you streamline the payment process.
What to not track in account payables:
1. Low-value purchases: These refer to items or expenses that have a relatively small monetary value. While some firms choose to track them, they can be omitted if they fall under these categories:
- Small and infrequent purchases: Items purchased on a one-time basis may only require extensive tracking if the price owed to the vendors is significant for the business.
- Miscellaneous office supplies: Small supplies, like a cake for a colleague’s birthday celebration in the office, might not need extensive tracking either.
2. Salaries: While salaries don’t involve paying any vendor, they come under liabilities until paid to the employees. It can include:
- Benefits and withholdings: Any bonuses, deductions, or reimbursements should be accounted for to ensure smoother payments.
- Accruals: Money set aside to pay employees for their work should be considered here.
Account payable pertains to the debts accumulated by a company throughout its activities that remain unpaid and must be settled shortly. Accounts payable typically don’t include long-term obligations. While many payments can come under accounts payable, it is a good idea to omit miscellaneous expenses. A robust account payable system is crucial for a business’s success because it streamlines the payment procedure. Additionally, it helps a company store valuable vendor information, which can come in handy when the company needs more supplies in the future.