What is accounts payable control?
Accounts payable control is an important aspect of financial management for any organization. It involves the tracking and payment of bills and invoices from vendors and suppliers. Proper accounts payable control helps a business ensure that it is paying its bills in a timely and accurate manner, while also protecting against fraud and errors. In this article, we will discuss the key components of accounts payable control and how it can be effectively implemented in a business.
Components of accounts payable control
One of the primary components of accounts payable control is the creation of an accounts payable system. This system should be designed to track all bills and invoices that are received by the business, as well as the payments that are made to vendors and suppliers. The system should include a process for verifying the accuracy of bills and invoices, as well as a process for approving and processing payments.
One way to ensure the accuracy of bills and invoices is to have a system in place for verifying their accuracy before they are entered into the accounts payable system. This can be done through a number of methods, such as comparing the bill or invoice to a purchase order or contract, or by having an employee physically inspect the goods or services that were received. Any discrepancies or errors should be promptly addressed and resolved.
Another important component of accounts payable control is the establishment of internal controls. These controls help to ensure that payments are made in a timely and accurate manner, and that the accounts payable system is being properly followed. Some examples of internal controls that can be implemented include:
- Requiring multiple approvals for payments above a certain threshold
- Establishing a clear separation of duties between the individuals responsible for entering bills and invoices into the system, approving payments, and issuing checks
- Implementing a system for reconciling vendor statements to ensure that all payments have been properly recorded
In addition to these internal controls, it is also important to have a system in place for detecting and preventing fraud. This can include implementing measures such as requiring supporting documentation for all bills and invoices, conducting regular audits of the accounts payable system, and implementing a system for tracking vendor relationships and communication.
Control using KPIs
One way to ensure that the accounts payable system is being properly followed is to have a system for monitoring and reviewing the accounts payable process. This can be done through regular audits or by implementing a system for tracking key performance indicators (KPIs) related to the accounts payable process. Some examples of KPIs that may be useful to track include:
- The average time it takes to process a bill or invoice
- The percentage of bills and invoices that are paid on time
- The percentage of bills and invoices that are correctly entered into the system
By regularly monitoring and reviewing these KPIs, a business can identify any issues or problems with the accounts payable process and take steps to correct them.
Another key aspect of accounts payable control is effective communication with vendors and suppliers. This includes promptly responding to any questions or concerns that vendors or suppliers may have, as well as ensuring that payment terms and deadlines are clearly communicated. Establishing good relationships with vendors and suppliers is also important, as it can help to ensure that the business is able to negotiate favorable payment terms and resolve any issues that may arise in a timely manner.
Why it’s importent?
Effective accounts payable control is essential for any business, as it helps to ensure that bills and invoices are paid in a timely and accurate manner, while also protecting against fraud and errors. By implementing an accounts payable system, establishing internal controls, monitoring and reviewing the accounts payable process, and maintaining good relationships with vendors and suppliers, a business can effectively manage its accounts payable and improve its financial management.