Accounts Payable Process Overview

Introduction

• Accounts payable process is complex; involves more than just receiving and paying bills.
• Informed by Mary Schaefer, founder of APNow.
• Session based on her book "The Fundamentals of Accounts Payable."
• Target audience: accounting professionals, new graduates, seasoned professionals, and entrepreneurs.

Key Components of the Accounts Payable Process

• Parts of Accounts Payable: Invoice processing, payment, regulatory issues.
• Emphasis on understanding both the big and small picture in accounts payable.
  • Importance of details for efficiency and fraud prevention.

Basic Elements in Accounts Payable

• Invoice Processing: Paying the company’s bills; involves several documents:
  • Purchase Order: Created by purchasing; specifies order details (quantity, price, conditions).
  • Receiving Document (Packing Slip): Confirms items received match the order.
  • Invoice: Billing document from supplier requesting payment.
  • Advanced Shipping Notice (ASN): Sometimes used in specific industries to anticipate incoming shipments.

Matching Process

• Three-Way Match: Purchase order, receiving document, and invoice must match to process payment.
  • Discrepancies lead to delayed payments and additional work.
  • Four-Way Match: Includes ASN in specific industries.

Best Practices in Invoice Processing

• Ensure purchase orders are filled out correctly; special terms must be noted.
• Avoid after-the-fact purchase orders based on invoices to prevent errors.
  • Purchasing should create POs based on own records, not invoices.

Receiving and Managing Invoices

• Invoices should be sent to a single, specified location (mail, email, fax).
  • Reduces duplicates and inefficiencies.
• Encourage electronic delivery of invoices.
• Recognize vendor credits and manage them properly to avoid duplicate payments.

Duplicate Invoice Management

• Implement rigid coding standards for data entry.
• Track discrepancies and resolve them promptly.
• Regular follow-up on unpaid discrepancies to maintain supplier relationships.

Early Payment Discounts

• Definition: Discounts for early payment (e.g., 2/10, net 30).
• Encourage the capture of early payment discounts as a financial strategy.

Payment Methods in Accounts Payable

1. Paper Checks: Traditional but costly and inefficient.
   • Secure checks and implement positive pay to prevent fraud.
2. Cards: Procurement and travel cards with controlled limits.
3. ACH: Efficient electronic payments; two flavors – credits and debits.
4. Wire Transfers: Expensive, used for large payments.
5. Instant Payments: Newer methods like FedNow; still developing in the corporate sector.

Regulatory Issues Impacting Accounts Payable

• W9 and W8 Forms: Collect tax information from U.S. and non-U.S. persons respectively.
  • Best practice: Collect before the first payment and utilize IRS TIN matching.
• Information Reporting: 1099 issuance must be accurate and timely; stay updated on regulations.
• Worker Classification: Ensure correct classification of employees vs. independent contractors to avoid audits.
• Unclaimed Property: Follow up on uncashed checks to avoid penalties.
• Sales and Use Tax: Track sales tax paid; liability for remittance lies with suppliers.

Conclusion

• Accounts payable encompasses many responsibilities and processes.
• Continuous improvement and adherence to best practices can enhance efficiency and compliance.
• Further learning resources available, including videos and materials on specific topics related to accounts payable.