Accounts payable (AP) is the money your business owes its vendors and suppliers. These purchases may include rent, utilities, inventory and the cost of doing business. When you make a purchase, the vendor or supplier invoices you. You then make the payment at a later date.
In comparison, accounts payable reporting is the process of tracking and reporting these business expenses. This ongoing reporting process ensures your business maintains accurate financial records.
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Businesses of all sizes can benefit from an accounts payable process that includes accurate reporting. However, an accurate accounts payable reporting process is particularly crucial for small business accounting. You must know whether you’re paying invoices on time and paying the correct amounts.
Here are a few reasons why accounts payable reporting matters:
Accounts payable and accounts receivable (AR) both play a crucial role in daily business operations. Accounts payable is the money you owe suppliers and vendors. AR refers to the funds you earn from product and service sales.
Let’s look at some of the most common types of accounts payable reports your business will run.
An invoice aging report includes a list of all unpaid accounts payable invoices. This information can help determine how much the business owes and which invoices must be paid first.
An invoice aging report includes details like the following:
An invoice aging report will help you spot missed payments and see how far past due an invoice is. To avoid getting behind on vendor payments, you should run an invoice aging report daily or weekly.
The AP trial balance lists the ending balance in each general ledger account and includes any unpaid or partially paid invoices. This report ensures a business’s debts match its credits and that all journal entries are accurate.
Generating an AP trial balance is similar to balancing a checkbook. It reviews all payments to ensure they match the total amount due. If you accidentally overpay a vendor or miss a payment altogether, your AP trial balance will help you catch this. If your credits and debits don’t match, it could be because your business received inventory but hasn’t yet received the invoice. Once you’ve received the invoice, your accounts will reflect that.
A payment voucher is a document businesses use to track supporting information needed to approve an invoice payment. It’s an internal auditing control that ensures each invoice is paid and that the company receives the goods and services.
A voucher activity report includes the following information:
A voucher activity report tracks payment vouchers made over a specific period. It can help you see how much the business spent on a particular project or how much you’re spending in different departments.
The open reconciliation report shows all accounting activity concerning payment vouchers over a specific period. This report helps you determine whether your business makes accurate and timely payments to its vendors.
You can use the open reconciliation report to check for unpaid liabilities. This report will also show whether you’re sending payments to the correct vendor.
Inaccurate reporting and missed payments can cause differences in the ledger. Account reconciliation can also help you spot any issues with fraud.
A payment history report details payments you’ve made over a specific period. This report can help you see how much you’ve paid a particular vendor. It can also help with budgeting because you can see how much you’ve spent in a certain category.
Every company has monthly recurring bills, such as rent, insurance payments or software subscriptions. A recurring invoice report helps ensure these bills are paid on time and makes forecasting spending easier. This report can also make it easier for the AP department to flag any unusually high or low bills.
Many vendors offer an early payment discount to companies that pay invoices in full before the due date. A discount report can help your business take advantage of early payment discounts. It’ll show you the early payment discounts you’re currently receiving from vendors and identify opportunities to save that you’ve previously overlooked.
A credit memo is an adjustment that either reduces the amount of a current vendor bill or lowers future bills. Credit memos can be issued for various reasons, including product returns or incorrect pricing. A credit memo report shows how many credits are currently available so your company can apply them to future invoices.
A top vendor report ranks your company’s top suppliers based on the volume and value of transactions. This report can help you determine which vendors are most crucial to your business and which invoices should be paid first. It can also help you negotiate more favorable terms with your suppliers.
An AP turnover report tracks the efficiency of your company’s AP process and shows how quickly your business pays its vendors and creditors. A high turnover ratio means your company is paying its bills quickly, while a low ratio could indicate you’re having difficulty paying its bills.
Improving the AP process can help your company free up working capital and reduce business expenses overall. Here are some steps you can take to improve the AP process:
Accounting software is the best way to stay on top of your AP reporting. Instead of manually entering your financial data, the best accounting software can do the heavy lifting for you while automatically generating reports and displaying payment trends over time.
Here are a few ways accounting software can benefit your business:
As a business owner, you must stay on top of your accounts payable reporting. Tracking the most pertinent reports will ensure you stay on top of outstanding invoices and maintain a good relationship with your vendors. It will also help you keep accurate financial records.
If you need help with your AP reporting, the right accounting software can make this process easier. Accounting software reduces the risk of human error and will generate these reports for you automatically. That way, you know your financial records are accurate and up to date.