Accounts payable (AP) is a critical part of any business’s financial operations. It represents the money a business owes to vendors, suppliers, contractors, and service providers. If accounts payable is not properly managed, businesses may experience late payments, damaged vendor relationships, unnecessary late fees, and cash flow shortages.
A well-organized accounts payable process ensures that a business pays its bills on time while maintaining accurate financial records. However, many businesses struggle with tracking outstanding invoices, avoiding duplicate payments, and reconciling vendor accounts—all of which can lead to financial inefficiencies and errors.
Jessica Croft of Bookkeeping by Prismatic Jess specializes in accounts payable review and reconciliation, helping businesses stay on top of their outstanding obligations, improve cash flow, and prevent costly mistakes.
This guide will cover the importance of accounts payable management, common AP mistakes, and how Jessica helps businesses ensure accurate and efficient payments.
Accounts payable refers to the short-term liabilities a business owes to external parties for goods or services received. These include:
1. Prevents Late Payments and Avoids Penalties
When businesses fail to track due dates on invoices, they may incur late fees, penalties, or damaged relationships with vendors.
2. Improves Cash Flow Management
By keeping AP records updated, businesses can plan payments effectively, ensuring they have enough cash on hand to cover obligations without disrupting operations.
3. Reduces the Risk of Duplicate Payments
A disorganized AP system can result in duplicate invoice payments, which can create unnecessary financial losses. Regular review helps catch these errors.
4. Helps Detect Fraud and Unauthorized Transactions
Fraudulent invoices, overpayments, or unauthorized charges can slip through without a thorough review of accounts payable. Reconciling AP records helps prevent these financial risks.
5. Ensures Accurate Financial Reporting
Accounts payable impacts the balance sheet and cash flow statements. Businesses that do not properly track AP may have inflated expenses or inaccurate financial reports.
6. Strengthens Vendor Relationships
Vendors and suppliers value businesses that pay on time and communicate effectively about payments. Managing AP properly fosters trust and reliability in business relationships.
1. Failing to Track Invoice Due Dates
Some businesses wait until the last minute to pay invoices, leading to late fees, interest charges, and strained vendor relationships.
2. Not Verifying Invoices Before Payment
Businesses that do not check for duplicate or incorrect invoices may end up paying the wrong amounts or paying twice for the same service.
3. Not Reconciling Vendor Statements
Vendor statements often include credits, outstanding balances, and payment discrepancies that need to be reconciled with internal records.
4. Paying Invoices Without Matching Purchase Orders
Without a proper purchase order system, businesses risk paying for services that were not received or for incorrect amounts.
5. Recording AP Transactions Incorrectly in Accounting Software
Jessica will review you’re accounts payable aging report with you each month as part of monthly bookkeeping services to keep everything up-to-date and accurate. She also ensures that there are no missing payee or vendor information on transactions, detects errors, identifies any possible duplicates, and will alert you to any potential issues.
Ensuring that accounts payable is organized, accurate, and up to date is essential for maintaining strong cash flow, avoiding unnecessary expenses, and improving vendor relationships.
