A Key Element to Managing Your Cash Flow, Accounts Payable Doesn’t Just Cut Cheques Anymore
Accounts Payable Module
The accounts payable (AP) module of an ERP solution records invoices received from vendors for purchases of products and services. The AP system helps you schedule payments of those bills including issuing checks or other forms of payment.
What Does Accounts Payable do for You?
Accounts payable is much more than simply writing checks.
Accounts payable holds the key to your companies cash. There really are only two ways for your company to increase the bottom line: increase revenue through sales OR reduce expenses (or both). The accounts payable area is your last chance to control expenses prior to money going out the door. Proactive management of accounts payable can save you significant amounts of money.
The accounts payable component helps you drive down costs, increase productivity, improve cash management and improve vendor relations. Understanding your component options is critical to finding the best component program for your use.
AP Modules Helps Drive Down Cost
Reports built into the AP module provides you with information on how much your firm is buying and from whom. This provides you with the information needed to negotiate with vendors for better payment terms and purchase price. This also helps you decide whether to consolidate purchases to fewer vendors and gain price breaks or move purchases to alternate vendors if better pricing or terms are available.
Accounts Payable Can Increase Productivity
A strong accounts payable component improves your staff efficiency by reducing the time needed to issue checks and prepare month/year end reports. It also reduces payment errors including duplicate payments and eliminates vendor late fees. Reduced errors means less time spent making corrections.
Accounts Payable Improves Cash Management
The accounts payable component improves your cash management by helping decide when you should pay an invoice. Some vendors offer discounts for early payment and the accounts payable component tells you if it’s better to make the payment now and take the discount or hold the payment for a later time. A favorite target of scam artists are companies with weak AP components, since a good accounts payable component can help determine the legitimacy of vendor invoices. And during hard times, accounts payable component helps you to negotiate with vendors so you can pay bills on a schedule that is more in sync with your incoming cash.
AP Can Improve Vendor Relations
Many accounts payable solutions now include support for ACH (Automated Clearing House) payments. ACH payment processing reduces the time spent and the cost of physically printing and mailing checks. Companies also use ACH or other forms of electronic payment to reduce instances of fraud and error. ACH and electronic payment options are another example of how an accounts payable component can reduce your costs.
Key Benefits of Accounts Payable
- Eliminate manual payments of repetitive loan, rent, and utility bills
- Bypass the manual matching process of issuing checks and posting payments for customers who are also your vendors
- Avoid entering the same information multiple times by integrating your data fields within your system
- Advance the tracking of credit card purchases and employee advances through detailed reporting
- Cut back costs by strategically managing your payables to avoid late-payment penalties
- Take advantage of vendor early payment discounts
- Save time by automating the approval of routine invoices and prioritize work according to business rules
- Reduce end of year tasks by continually tracking which tax forms companies need to receive
Key Features of Accounts Payable
Entering Records and Check Printing
The most fundamental part of the payables process is recording the entry and cutting the check. The level of automation at this stage will surely have consequences in terms of the time you spend managing your accounts payable. When considering different accounts payable options, you’ll want to evaluate how different payables options provide you the ability to populate check fields, schedule batch check prints, and prepare the actual mailing of these payments.
The ability to report on your accounts payable entries can have a significant impact on helping you to tighten your cash flow. For instance, if you discover you’ve been assessed interest charges by a vendor, you’ll want the ability to report on which payables have caused the charges. The amount of data available in these types of reports will be critical in helping you to quickly determine why the charges have occurred, the responsible parties, and how to avoid similar costs in the future. At a minimum level, you’ll want to create reports based on expense type, due date, payment date, payment period, payment status, internal source, and vendor. Perhaps most importantly, your accounts payable module needs to clearly show you which payments have been made, which have been made but have not yet cleared, and which have been processed.
The Master Vendor List
Your accounts payable module will not only track individual payments, but also provide you with an ongoing vendor database. The vendor list will need to be able to track information such as contact info, addresses, vendor terms, and other data. The precise way that each component package handles the vendor list will vary. You’ll want to make sure that the component supports all the vendor information you need to keep on hand. For instance, you may have a pre-established convention for setting up vendor codes. Does the component support the necessary number of characters and digits your codes require? The vendor list should also be easily sorted and exported for printing.
Purchase Order and Invoice Reconciliation
Your accounts payable component should include controls to identify the authenticity of each payment. No one likes to think they’ve lost money through errors or fraud, but audits often turn up evidence this has happened. Associating each payment record with the original purchase order and/or the vendor bill helps reduce errors and fraud. Your component package should eliminate unauthorized payments specifically by reconciling invoices and PO’s with the corresponding AP entry.
Accounts payable transactions don’t occur in a vacuum; they’re part of larger business processes. Most importantly, your Accounts Payable module should efficiently deliver the payables ledger information regarding current liabilities to the balance sheet located in the general ledger. In many integrated accounting systems, this happens in real time. If for some reason integration isn’t possible, make sure the Accounts Payable module exports data to the general ledger in a format that it can interpret. Another key integration point is with the purchase order module. Integration with the Purchase Order module is important as both Accounts Payable and Purchase Order processes benefit from mutual access to the master vendor list. Bank reconciliation capability functionality may also be contained in its own application. If this is the case, integration is critical to identify which payments have been made and to reconcile the Accounts Payable and bank records.
Alternate Payment Methods
Many accounts payable solutions now include support for ACH (Automated Clearing House) payments. The advantage of using ACH payments is that it reduces the cost of physical printing checks, mailing checks and leads to quicker turn around in completing transactions.
The payment terms for different vendors vary greatly. There can also be an advantage to keeping cash on hand–potentially earning interest–until payment is actually required. Conversely, it can be beneficial to make early payments if there is a financial incentive for doing so. Some accounts payable component provide the ability to identify upcoming payments and when it is most beneficial to make the payment and take advantage of cash discounts offered by your vendors.
A good AP module will include the ability to create custom report functionality, such as the ability to customize fields, report using complex instructions, and create graphical reports can create additional efficiencies.
Rebates and Vouchers
Accommodating the payment of funds that may or may not actually be cashed, creates a unique accounting challenge. An accounts payable module will provide specially developed tools to manage these transactions, such as show applicable discounts offered by your vendors.
Accounts Payable often integrates with:
- Budgeting, Planning and Forecasting
- General Ledger
- Inventory Management
- Purchase Orders