Accounts payable (AP) is the amount a business owns to its creditors, generally for the purchase of services and goods. It is a liability for any company and it is imperative for businesses to pay their bills in a timely manner. Accounts payable is one of the factors that plays a role in the success of the business.
Managing accounts payable is no mean feat and can be a formidable task, even for top most executives in a company. Undoubtedly, any business will want money coming in the organization. However, companies also need to bear in mind that payments need to be made to creditors on time. It is mandatory for companies to keep a check on their accounts payable as it can affect their position.
The following are some accounts payable errors that companies certainly need to avoid:
Not making timely payments to creditors is a common blooper many companies make. Dealers and suppliers expect their payments to be made on time. However, many companies fail to make payments by the due date, which can annoy suppliers. Some of the reasons for late payments can be wrong entry in the accounting software, filing the invoice in the wrong place, companies not having the funds and various other reasons.
Delayed payments can lead to late payment charges and can affect your credit rating. It will also make your dealers unhappy and due to this, they can discontinue their business relationship with your company. Hence, making payments in a timely manner is one of the most crucial things that your company needs to put into practice.
A major issue faced by accounts payable departments is incorrect data entry. Entering data manually from invoices into computers is not only a time-consuming task, but is also likely to have more inaccurate data entry incidences. Even a simple data entry mistake can cost a lot to the organization.
Many companies use software like Excel or any other spreadsheet software. What happens sometimes is that there may be a wrong formula, or false value entered and due to this, there can inaccuracies in the spreadsheet. Searching for the errors and rectifying them can be a time-consuming process.
Another data entry error that should be avoided is making entries of multiple invoices in the accounting software at one go. Unquestionably, it seems to be hassle free and consumes less amount of time. In spite of this, there are chances of issues crop up afterwards. It also becomes difficult to retrieve a particular invoice during audit. For this reason, it is better to enter invoices one by one in the system so that records are maintained properly and can be retrieved easily in the future.
Processing invoices manually is a clumsy task and certainly consumes too much time. On the other hand, having an automatic and systematized account payable system speeds up the invoice processing task significantly. Having an automatic system can increase the number of invoices processed by five times per employee.
By increasing the invoice processing speed with an automated system, your company will see many enhancements. You will be able to prevent late fees and in fact, you can receive discounts for making payments beforehand or on time. This will surely improve your company’s cash flow. In addition, your AP employees will be left with extra time, which can be used for other tasks.
Companies often have a tendency to reduce expenses and while cutting back on expenses, they may have one employee to take care of all accounts payable tasks in addition to other duties. This can turn out to be a blunder for various reasons.
One overburdened employee handling all accounts payable jobs can be exhausted and tried out. Such a worn-out person who handles your organization’s invoices and payments is more probable to make an error compared to an entire team working on accounts payable tasks.
A single employee paying all the bills and handling other tasks is bound to forget to perform some chores. No company would like a scenario where invoices remain unpaid just because the employee handling bills is performing other tasks. Therefore, having an exclusive team for managing accounts payable jobs ensures that bills are paid on time.
It often happens that there is no communication between the supplier and the company. Furthermore, there can be communication failure or miscommunication among the team members in the accounts payable unit. Lack of communication can result in misunderstandings between the supplier and the company and among team members.
Failure in communication in your organization can happen due to a number of reasons. If there are not any proper processes established, then it is likely that the accounts payable team does not know what each team member should do, which could create chaos and affect work. Tasks could be mishandled, mistakes could be made, or tasks could be given a miss. Due to this, your suppliers can be affected and it can happen that they have do not receive their payment. Therefore, proper communication and having proper system in place is extremely crucial for any business.
Accounts payable is valuable for any company because it is through this department that bills are paid. Accounts payable involves monetary transactions and chances of frauds occurring are high. Frauds related to billing is a concern for businesses and is rampant. Therefore, it is important for companies to stop frauds through accounts payable. Companies do also face other internal frauds like check tampering and fake expense settlements. In addition, they have to face external concerns like malware and phishing.
Fraud related matters could be exasperating for any company. As a result, it is must for companies to comprehend how frauds thrive and how to control them. Continuous vigilance is necessary and it is mandatory to have anti-fraud practices put in place.
The above are some common accounts payable errors that every firm must try to avoid. Otherwise, they can burn a hole in the company’s pocket.
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