Accounts Payable Process
Accounts payable could be defined as the process that follows the payment cycle in an organization and entails many procedures in order to issue payments to the right parties. Accounts Payable Process:
1. Purchase Order (PO) Creation
- Initiation: The process starts when a department recognizes the need for certain goods or services and develops a purchase order that includes those goods or services, quantity, and prices that have been negotiated between the distributor and the purchasing department.
- Approval: The PO is submitted and vetted by authorized officials to ensure that it has not contravened the budget and procurement regulations.
2. Receiving Goods/Services
- Receipt Verification: The outgoing department assesses whether the received items meet the order reference number and whether the quantity received corresponds to the PO.
- Receipt Documentation: A receiving report or acknowledgment is prepared to record the delivery of assets or offerings.
3. Invoice Processing
- Invoice Receipt: An invoice is issued by the supplier, and it is delivered to the AP of the company or the accounts payable department.
- Invoice Review: To eliminate this discrepancy, an accuracy check is performed where the invoice is verified to correspond with the particular purchase order number and the receiving report, otherwise known as the 3-way match. It involves examining every amount, price, and term that are included in the contract.
4. Approval Workflow
- Validation: The created invoice is also checked for accuracy and professionalism, following the company’s guidelines.
- Approval: According to the developed workflow mechanism, invoices are forwarded to the appropriate personnel for validation. In some cases, higher amounts of money might be split into different tiers, meaning that they will require several to pass specific approval.
5. Data Entry
- Recording: AP invoices are paid and recorded in the company’s accounting system; this gives rise to an AP ledger liability.
- Coding: Every invoice goes through the process of getting proper G/L codes so that the cost is properly classified.
6. Payment Processing
- Payment Scheduling: Purchases are paid based on the payment timetable of the specific transaction and any early payment discount options.
- Payment Execution: Checks or EFTs (Electronic Fund Transfers) are made to the recipient, and in certain situations, other modes of payment might be used. Operation details include the payment details of the customers involved and some results of the transaction.
7. Reconciliation and Reporting
- Statement Reconciliation: AP also verifies and checks the supplier statements with the amount that has been recorded in the sales payables list to make sure that all the invoices have been paid.
- Reporting: Daily basis reports are created for tracking the receivables, balance, and due date of the payment.
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