Accounts payable are the bills and other debts that the business needs to pay.
“The accuracy and completeness of a company’s financial statements are dependent on the accounts payable process,” said Harold Averkamp, founder and author of accounting advice website Accounting Coach.
Accounts payable, sometimes abbreviated as A/P, are tracked monthly for many small businesses, but as the business grows, it is better to make it a weekly task to take advantage of early payment discounts and resolve any credits due to inventory returns.
It is handy to keep a record of accounts payable in case there are any payment disputes, to remind the business of current or outstanding invoices, or as proof of spending at tax time.
Each invoice needs to be verified for accuracy, billing date and payment date, and then entered correctly in the general ledger or accounting software.
If you typically only work with accounts payable once a month, consider a system in which you identify early payment discount opportunities when the invoice is received and pay those separately from the monthly pile.
A solid system of monitoring and paying accounts payable gives you a clear picture of your expenditures against your revenue, enabling better business decisions.