Accounts payable, also known as trade creditors, are the amounts owed by an entity to external people such as suppliers. An account payable comes about when a business purchases things on credit, and a tax invoice is given to the business by a supplier.
Accounts payable represent a current liability in the balance sheet, as it signifies money owing to external parties.
Tips to help manage your accounts payable
- Establish purchasing and accounts payable policies in writing.
- Make sure that you receive a valid tax invoice/invoice prior to processing the payment. There are specific elements that are required to be be included on ever invoice that is issued or received in order for it to be valid. If the invoice standards aren’t met, you should get in touch with your supplier and let them know. You should then ensure that you get a new invoice that complies with these standards. If you pay the invoice before you receive a correct tax invoice, the entity will be unable to claim back any input tax credits.
- When an invoice has been paid, it should be stamped accordingly – ‘PAID’. Also write the cheque number below the stamp to avoid it being paid more than once.
- Have a system in operation that will check for identical payments.
- Split responsibilities – have different people handling refund cheques and invoices, as well as the person who approves new vendors and the one in charge of paying the vendors.
- Invoices are required to disclose a street or registered business address. For invoices that only list a P.O. Box these should be treated carefully and investigated further.
- Verify that new vendors are listed in the phone book, or have a valid ABN.
Finally, and most importantly, make sure that you pay all your invoices on time – gaining a good reputation is hard to establish, yet very easy to lose.
For more information, visit our dedicated website All Bookkeeping Solutions.
For advice on managing your accounts payable, or any other accounting, tax or legal needs contact The Quinn Group on 02 9223 9166 or submit an online enquiry here.