Accounts payable function

Accounts payable function is concerned with processing the payments of a company. Except for the payroll payments, almost all other payments fall in the domain of the accounts payable function. For small companies, payments are processed by the accountant or the owner of the company. However, as the business grows, quantum of transactions increases significantly and processing all these payments becomes impossible for one person. In large companies, usually there is a separate accounts payable department for processing payments.

If you are thinking that the accounts payable function is a simple one as they just have to make payments, that’s not correct! Whether it is a large company’s accounts payable department or a small company’s owner or accountant, the challenge lies in scrutinizing the accounts payable and paying only the invoices that are valid and accurate.

In addition, the accounts payable function needs to schedule the payments in such a way that maximum benefit is obtained from the available credit periods without breaching the agreed due dates for settlement. If there are any early payment discounts on offer, the accounts payable function should keep an eye on them and should not miss those discounts.

For reporting purposes, accounts payable function’s record should always be up to date so that accurate information related to accounts payable is presented in the financial statements.

Processing of payments

Accounts payable function scrutinizes the invoices before making payment. Following steps are usually done before making payments:

  • Purchase orders are evaluated to check what was ordered by the company.
  • Goods received note is evaluated and compared with the purchase order to ensure that the company got what it ordered.
  • Invoice is evaluated for its accuracy.

If the company is satisfied with the accuracy and legitimacy of the invoice, it is then paid and the liability is settled. Ideally, companies should develop some internal controls for processing of payments and management of accounts payable. Purpose of these controls is to:

  • Avoid payment of inaccurate and illegitimate invoices.
  • Avoid double payments to the vendor.
  • Avoid making late payments resulting in penalties and damaged reputation.
  • Avoid losing out on any early payment discounts on offer.