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How to Manage Payable ?

Top-line sales growth can conceal a lot of problems-sometimes too well. When you are managing a growing company, you have to watch expenses carefully. Don't be lulled into complacency by simply expanding sales. Any time and any place you see expenses growing faster than sales, examine costs carefully to find places to cut or control them. Here are some more tips for using cash wisely: • Take full advantage of creditor payment terms. If a payment is due in30 days, don't pay it in15 days. • Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible. • Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you'll need their trust and understanding. • Carefully consider vendors' offers of discounts for earlier payments. These can amount to expensive loans to your suppliers, or they may provide you with a change to reduce overall costs. The devil is in the details. • Don't always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a bargain-basement price.

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Question added by Nadia Ahmed Mohammed Saeed , T/L. Credi t& Risk , Canar Telecommunication Co. LTD.
Date Posted: 2013/10/24
Ahmed Ezzat Mohamed Nasr
by Ahmed Ezzat Mohamed Nasr , Finance Director , M. Alriyadh Co. (Group of Co.)

Below are 5 tips to help you successfully manage your accounts payable:

1. Simplify Your Accounts Payable Process

  • Reduce the number of check runs; two per month at most is plenty.
  • When the accounting staff prepares check runs, they should have the invoice backup ready and invoices approved by the appropriate department heads before coming to you for signatures.
  • Make Accounts Payable aware of any cash disbursement ceilings for each check run so they can then select the most important invoices to pay.
  • Empower your staff with decisions that will make your life easier and are not dangerous for them to make. The decision to make partial payments on larger balances, or delaying payments to vendors who have a higher tolerance on due dates are a couple of examples.

2. Use Technology

  • Analyze and reduce errors such as paying incorrect amounts, incorrectly entering check numbers used to pay vendors, and paying too early or too late.
  • Make sure your accounts payable module is set up correctly so that transactions flow properly. You may need to use a consultant to make sure your accounting software and accounts payable module are correctly configured, or you could cause more problems than you solve.
  • Have Accounts Payable staff enter terms for each vendor in which the system can default to, such as Net 30, Net 60, etc. Terms are often provided by the vendor, and are usually printed on the face of their invoice.
  • Run aging reports so you know what is in the pipeline.  You may have a small check run this period, but could have a large one coming up that you didn’t know about until looking at these reports.
  • Use laser printed checks, which will update the system automatically, marking which invoices have been paid and with what check numbers.

3.  Reduce Accounts Payable Fraud

  • Anywhere cash/checks are handled (incoming or outgoing) can be a high-risk area for company fraud.
  • In Accounts Payable, this is often accomplished by setting up a “dummy vendor”.  Often times, this vendor is a company owned by a dishonest employee. Invoices for services never provided are created, and your business pays these invoices, essentially paying the employee.
  • Implement policies & procedures to mitigate the risk.  In the above example, have system parameters set so that the person cutting checks does not have the ability to set up new vendors. Each new vendor that is set up should require explanation to the owner prior to creating them.
  • Separation of duties, proper approval by department heads, and spot checks will help reduce the risk of fraud.

4. Vendor Terms May Be Negotiable

  • Usually invoices will come with Net 30, Net 60, 2%10 Net 30, etc.
  • Regardless of the terms given, you can call your vendors and negotiate terms for your own company.
  • Vendors will often give discounts or special terms to customers that purchase large volumes and on a regular basis.
  • Even if the normal terms can’t be changed, if you run into an issue and must pay late, it’s best to call and discuss it with your vendor rather than avoiding them.

5. Reduce CFO Impact to Verification & Signature

  • Typically the CFO signs checks but should not be assembling the check run.
  • Accounts Payable should run the aging, choose which invoices to pay, assemble the invoices, print the checks, and verify that all invoices are approved before bringing them to the CFO.
  • CFO simply checks the invoice amounts against the check before signing.
  • If your company manages cash more actively, let Accounts Payable know up front what their “budget” is. They will know best what vendors can wait until the next check run.

Amjad Ali
by Amjad Ali , Regional Manager , NATIONAL BANK OF PAKISTAN

In the first intant set terms of payables according to your own cash inflows.2nd increase rocoveries.3rd increase revenue. etc

Divyesh Patel
by Divyesh Patel , Assistant Professional Officer- Treasury , City Of Cape Town

Accounts payable, located on a company's balance sheet, are what the company owes its suppliers or the vendors from which it buys its inventory and other supplies. Accounts payable are a current liability and they are listed on the right-hand side of the balance sheet.

 

If you have a set of best practices in accounts payable management and you follow them, accounts payable can have quite a positive impact on your company's profitability.

 

5 ways to manage a successful Accounts payable:

  1. Simplify Your Accounts Payable Process

  2. Use Technology

  3. Reduce Accounts Payable Fraud

  4. Vendor Terms May Be Negotiable

  5. Reduce CFO Impact to Verification & Signature

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