Complete an accounts payable industry overview to develop an understanding of the services available. Accounts payable modules in the most popular accounting software packages are designed to be used by accounts payable professionals. The exponential growth in specializing accounts payable firms points to the cost savings potential ly available through the efficient management of suppliers.

The accounts payable industry is focused on offering several types of services—third party specialized firms that manage account payable functions, accounting software offerings and external management solutions. Follow the three items below to enhance your knowledge of the options provided by the accounts payable industry.

1. Review the most popular accounts payable software in the industry.

2. Keep up to date on accounts payable trends.

3. Research accounts payable profiles.

Action Steps
The best contacts and resources to help you get it done

Investigate the most common accounts payable software

Manage your accounts payable through the use of accounts payable software. Every accounting software package has an accounts payable module, as the management of a companies bills and creditor is essential to the viability of the firm. Make a list of the types of suppliers that your firm deals, credit terms and contractual complexities.

I recommend: Download accounting software products to test the quality of the accounts payable module and the functionality available to see if they would benefit your firm. Peachtree is a well known accounting software package that has a free trial download available. Microsoft Dynamics is an excellent accounting package that has a free download to assist with the evaluation of the options.

Stay informed on the accounts payable industry

Maintain connections to the accounts payable industry to keep your firm on the leading edge of technology and business process advances. Explore options continually improve and enhance business services while reducing costs. Keep up to date with best practices to learn from industry leaders.

I recommend: The Accounts Payable Network is a valuable resource with a wealth of information, tool, calculators and tips to assist in the management of the accounts payable process. IOMA provides access to seminars and courses that cover the latest trends in the accounts payable industry.

Gather accounts payable company profiles and information

Discuss the recent developments in technology and business process with your a/p department and discuss the options that would benefit your firm. Web based accounts payable solutions are increasingly popular, but require full integration with your accounting system for transactions to be posted directly to the accounts payable ledger.

I recommend: The AP Channel provides newsletters, blogs and reports on what other companies are doing to improve their accounts payable practices. Purchase an Industry Profile of accounting services firms to determine the common practices surrounding accounts payable services at First Research.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Most companies fail to investigate the quality of accounts payable system now available. There is a great deal of cost saving available through the efficient management of early payment discounts and vendor management.

Part of keeping your business financially fit means managing all of the bills you owe – a.k.a. your accounts payable (A/P). A/P takes into account every single purchase your company makes, including office supplies, merchandise and equipment. Setting up a solid A/P system will help you keep track of these expenses, verify that you're paying the correct amount and simplify actual bill paying.

Very small operations can get by with a simple manual tracking system, but many business owners are opting for accounting software to facilitate the process. Whether you track A/P by hand or by computer, a good system involves these basic steps:

1. Draft a purchase order.
2. Make your purchase.
3. Record the expense and subsequent payments in a cash disbursement journal.
4. Record the purchase in an accounts payable ledger.
5. Balance the ledger and journal against your general ledger.

Action Steps
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Consider a software or Web-based system

If you run a one- or two-person shop, a manual system may be sufficient. However, A/P software and Web-based programs make it easier to track, review and pay accounts payable. A major benefit of these programs is the reduction in human error.

I recommend: A/P is a component of numerous popular accounting software programs, such as Peachtree, QuickBooks BIll Pay Service and MYOB. If you prefer a Web-based program, look into ExpenseWatch.com.

Use purchase orders

Purchase orders are the first step in an A/P system. When you decide to buy equipment or supplies, draft a purchase order authorizing the purchase and include the prices to be paid.

I recommend: Create purchase orders using your accounting software, customize a purchase order template included in SmartDraw software or create purchase orders online at LawDepot.com.

Use a cash disbursement journal

Record all purchases, along with all checks written and other payments made, in a cash disbursement journal, sometimes called a checks disbursement journal. Record purchases in one column and payments in a separate column. Be sure to balance this journal with your general ledger — where you record both accounts receivable and accounts payable — each month.

I recommend: If you're taking a manual approach to A/P, order a disbursement journal from Deluxe.com or download one in Microsoft Word format from AllBusiness.com.

Use accounts payable ledgers

Create a separate A/P ledger for each supplier and record all purchases so you can easily determine how much you owe a particular supplier. Balance the totals in your A/P ledgers with your general ledger on a monthly basis.

I recommend: For manual entries, find ledger books at OfficeWorld.com. If you're using software or a Web-based program, the program will help you create the various ledgers for each supplier.

Prevent overpayments and fraud

Implement controls to reduce the chances of overpayments or mistaken payments. Match your suppliers' invoices to your purchase orders to verify amounts due. Avoid duplicate payments by faithfully tracking cash disbursements. To reduce the potential for employee theft, separate duties — have one person write checks and another person sign them. Insist on receiving regular reports of balances and take the time to review them.

I recommend: Generate detailed and targeted reports, such as spending by vendor or budgeted expenditures vs. actual expenditures, with your software or Web-based accounting program.

Maximize your accounts payable

Once you have your system in place, take steps to get the most out of it and continually revisit your processes to refine and streamline them.

I recommend: As a member of The Accounts Payable Network, you can access tips and use online calculators, such as days payable outstanding and payment float calculators, to determine the best management of your accounts payable.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Always ask if there's a discount for prompt payment of A/P. Some vendors will lower the amount due if you pay within a certain number of days.
• •  Avoid late fees and penalties by paying your bills by the due date.
• •  Even if you use an accounting software program to handle your A/P, continue to hold on to your physical purchase orders, invoices and receipts in case of disputes or tax audits.
• •  Maintaining a good grasp on your A/P will give you a better picture of your company's financial health and help you manage your cash flow more efficiently.

Investigate the role of accounts payable (A/P) in your firm. Document the time and resources required to manage this process. There are multiple methods available to streamline the workflow from the receipt of the paper or electronic invoice to payment and reconciliation.

The account payable process can be easily isolated from other accounting practices, making it an ideal candidate for accounts payable outsourcing or software development. The efficiencies that can be gained with an accounts payable application are substantial. The three items below provide more information on these options.

1. Investigate accounts payable software products.

2. Issue RFP for accounts payable software.

3. Connect with accounts payable professionals.

Action Steps
The best contacts and resources to help you get it done

Evaluate accounts payable software

Manage your accounts payable process more efficiently by investigating accounts payable software. The business process for accounts payable is fairly consistent across industries and business streams, resulting in a wide range of quality accounts payable applications. Make a list of the features you require before selecting products to review.

I recommend: Software products increase the number of firms that benefit from A/P automation. Both Bottom Line and Read Soft increases efficiency by allowing business to scan accounts payable paper invoices and uploading the relevant details into an electronic format. This software removes the need for data entry staff and increases accuracy dramatically.

Locate and select an accounts payable system

Create a list of your current and future requirements to fully automate the accounts payable process. Document the entire workflow and identify bottlenecks and inefficiencies. Follow a clear procurement strategy to increase the return on investment and to assist in the selection of a software provider.

I recommend: Produce a request for proposal or RFP document and make it available to the accounts payable industry. Use the supplier list provided by Find Accounting Software to determine which suppliers to invite. Obtain an RFP template from Accounting Software System to reduce the time and effort required. Following an RFP business process takes time, but results in a better purchasing decision.

Get information on the accounts payable industry

Review your current A/P workflow and discuss with your staff the options available from accounts payable services. The accounts payable basics to focus on are payment terms, discounts, vendor management and contractual agreements. Management of these key points improve cash flow and vendor relations, which are both key to any successful business.

I recommend: Review the accounts payable information available through networks of accounts payable professionals. Join The Accounts Payable Network to gain access to newsletters, information and product reviews. Purchase The Forrester Wave to understand the trend and direction of the accounts payable industry.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  The accounts payable application industry is growing to meet changing business needs. Invest time to learn about invoice processing systems and technologies to improve service and reduce costs.

Accounts payable, or the debts a business needs to pay out, are an area riddled with terms. Accounting professionals must determine the proper terms to use to describe each of the notations they make, for business information, legal requirements and for taxation purposes. A business needs to carefully explain its income and losses. As a business professional, a thorough knowledge of terms like accelerated depreciation, deferred revenue, and comprehensive income is an important part of performing well.

Action Steps
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Accelerated asset depreciation

Accelerated asset depreciation is a bookkeeping method used to show how value is being lost from property. In particular, the property is losing value at a faster pace than normal.

I recommend: Commercial Property Consultants provides a thorough explanation of accelerated asset depreciation and its affect on your business.

Carrying value, or book value

Carrying value, also known as book value, refers to a business's total assets over total liabilities. It is the amount shown on the books for assets net any reductions, including those for accumulated depreciation or bad debts.

I recommend: Investor Words provides more information on carrying value, or book value, including related terms.

Comprehensive income

Comprehensive income includes unrealized gains and losses. In comparison with net income, comprehensive income is not reported on an income statement.

I recommend: Accounting Coach offers an explanation of comprehensive income as compared with net income.

Deferred revenue, or unearned income

Deferred revenue, or unearned income, refers to an item that will become an asset over time but is initially a liability. The item becomes revenue usually through the normal operations of a business. For example, a landlord may have unearned rent, rent that is expected to be paid, but as of yet is not. This is deferred revenue for the business.

I recommend: Money Instructor provides an explanation of deferred revenue.

Capitalized interest

In accounts payable, capitalized interest is an account that is created to hold funds to be used to pay off upcoming interest payments. It is noted as an asset.

I recommend: Investopedia provides a definition of capitalized interest. It also offers definitions of related terms.

Interest expense

Interest expense is often part of an accounts payable statement and calculation. It is defined as a liability. It is the cost of borrowing money.

I recommend: The Internal Revenue Service provides a description of interest expense for business and rental property, including how it must be accounted for on taxation forms.