Processing accounts payable is part of the accounting cycle. As a small business owner, you will need to pay attention to the accounts payable cycle and learn the accounts payable process flow.
If you’re a very small business, it’s likely you can pay your bills as soon as you get them. However, if you have multiple bills to pay, you’ll likely add them to accounts payable to be paid at a later date.
How the accounts payable process works
The proper accounts payable procedure begins with a good chart of accounts, which enables you to post your expenses to the correct account. The process is complete when you issue a check or electronic payment to the vendor for the amount due on or before the stated due date.
Step 1: Create your chart of accounts
Creating a chart of accounts that works with your business is one of the most important things you’ll need to do before you begin to process accounts payable. Your chart of accounts is where all of your accounting transactions reside, and accounts payable is no exception.
While most accounting software applications include a default chart of accounts, be sure to add any additional accounts in order to track your accounts payable expenses properly. You can also set up your chart of accounts on spreadsheet software such as Microsoft Excel.
Step 2: Setting up vendor details
If you’ve just started your business, you’ll likely have to set up your vendors. Whether you’re tracking accounting transactions using spreadsheet software or accounting software, you’ll need to record vendor details.
If you’re using accounting software, you can set up vendor details directly in the application, including accounting or payment terms provided by the vendor. These accounting terms indicate how long the vendor or supplier gives you to pay your bill.
Step 3: Examining and entering bill details
Once you receive an invoice from a vendor or supplier, you or your accounting clerk need to review the bill for accuracy.
If a bill is for products ordered, be sure to verify that the products listed on the invoice have all been received. If the invoice is for services rendered, ensure the services were provided as described on the invoice. It’s important to complete this process for any invoice received.
Once this is complete, you can begin the process of entering the invoice information, either in your ledger accounts or in your software application. If you typically enter all accounts payable for your business, you can approve bills as you review them.
Step 4: Review and process payment for any invoices due
The best way to ensure that your vendors are paid on time is to review your accounts payable in peoplesoft each week to see what payments are due. Whether you use a manual accounting system or accounting software, you’ll need to review due dates to see which invoices need to be paid.
There are many methods you can use to pay invoices. You can write a check, process checks from your accounting software, pay your vendors and suppliers using a company credit card, or use an electronic payment method such as ACH in order to pay your vendors in a timely fashion.
Step 5: Repeat the process weekly
By implementing and following a weekly accounts payable cycle, you can reduce your workload at the end of the month while also avoiding late payments and late fees. Even if you only have a few vendor payments to make, processing the invoices on a regular basis can help with cash flow.
