Accounts Payable

To facilitate businesses, banks provide an account payable service which not only allows the company to purchase goods and services but also allows them to import these goods and services without making any upfront payment. They can acquire the goods that they need and can pay the actual charges towards these goods and services within six months thereafter. This ensures that the business runs smoothly and also allows the company to manage the cash flow accordingly.

Also Read: Business Loan

The accounts payable process involves the following mentioned steps:

1. Receiving the invoice – If the company is dealing in goods, the bill or invoice of goods assists in tracking the quantity of goods received.
2. Audit the invoice details – Details mentioned in the invoice is essential for auditing purposes. Invoice should include vendor’s name, authorizations, date, and requirements raised with the vendor. This can also be verified through the purchase order.
3. Update Ledgers – The third step in the accounts payable process includes updation in the ledger accounts. As soon as the bills are received, ledger accounts linked to the bills are required to include an expense entry.
4. Make payments on time – It is essential to process the payments on time. But, before processing the payment, it is essential to cheque all the details mentioned on cheques, vouchers, bills and purchase orders etc.

The procedures mentioned above can differ from one organization to another. However, some basic steps are required to be considered before making payments.

The term account payable is normally used when referring to the balance sheet of any company. This is a credit agreement between two companies where one is buying the service or good and the other is selling it.

If a company requires certain goods, then it can be purchased without any actual payment made immediately under accounts payable system. The two companies agree upon a time frame within which this amount needs to be paid in full. These account payable transactions are facilitated by banks where the company purchasing the goods repays the bank instead of repaying the company that has sold the goods.

Also Read: How can Working Capital help maintain Cash Flow?

The transaction is reflected as account payable in the balance sheet of the company and the company will get up to 6 months to repay it. The funding available is for 100% value of the goods that are purchased.

Even though money has not been exchanged between the two companies, the sale is considered complete in case of account payable. With account payable, it is necessary to ensure that the correct name of the supplier is provided to the bank. In addition to this, payments must be made on time to ensure that the cash position of the company does not get affected.

The limit on the accounts payable financing available to customers depends upon the bank. There is an interest charged on these short term debts that varies as per the tenure for which the debt has been availed for.

Benefits of Account Payable are as follows:

• It is possible to structure any finance facility as per the requirement of goods and services for the business
• Companies are able to enhance their cash flow by gaining some access to additional working capital
• Account Payable process allows companies to track invoices correctly and pay them on time
• Several unwanted charges such as late payment fees, overdue charges and more can be avoided by using account payable facility to make payments to service providers

When accounts payable option is used, it is extremely important for companies to track the repayment accurately to prevent any dual payments or missed payments.