|Purchasing & Accounts Payable Philosophy
Establishing strong business practices is a must for all organizations; without proper practices the company will not be organized nor will it be able to perform to its full potential. One of the chief categories that involves business practices is Accounts Payable; a firm must keep a detailed and specific account of all payables. Included in this are vendor qualifications, purchasing process, invoicing, and payments and reconciliation of the payments. Each of these will now be discussed in detail.
Finding the right vendors is crucial for a company; once a vendor is found the contract can be negotiated. This is the first step that needs to be carefully thought out and executed. One factor to take into account is the nature of your and the vendors business, making sure the vendor meets your needs. Upon selecting a vendor a detailed profile must be created and maintained; included within this should be the vendors name, address, products, contact person for the company, a track of the vendors performance etc.
A W-9 is also necessary, since it is used for tax purposes, for each individual vendor; this form gives a detailed description of the vendor and the relationships it has with the company it is working with. In everything, there needs to be constant communication between vendors and customers.
A goal of every business should be to purchase the right materials from the right vendor at the right price and at the right time. In order to do this, businesses need to first find the right vendor that meets their needs and then master the art of negotiation. Being able to reach a mutual agreement where there is a cost savings and both parties benefit needs to happen. A company needs to do an extensive cost analysis before purchasing; this includes identifying the type, quantity, and target price of the materials among other things. This aids the business in being able to find the cheapest and best deal. When a deal is reached the purchase needs to be recorded and kept on file for future reference.
Furthermore, doing a risk assessment is necessary; this ensures the company will not be jeopardizing itself. Upon doing all these practices, the company will have assurance that they have made a smart purchase.
Accounts Payable Invoicing:
Invoices need to be monitored very closely; all aspects/details of the invoice must be recorded. First, an invoice needs to go directly to accounts payable and a number needs to be established for each order; there can be no duplicates or batch orders, each item(s) that make up the order need to have their own number.
Other important details to include within the invoices account are the vendor, exact price, and exact quantity; there should be no estimates or quotes. Also, the invoices need to be original, not mere copies.
Finally, it is important to have separation of duties; for example, there should be one person who enters the invoice and another who goes and approves them. Invoices are a central part to a company and in order to maintain success a set of practices must be established.
Payment and Reconciliations:
One of the most important things a business should keep track of is its payments, both to vendors and any other entities. A file should be created for payments with each transaction being recorded in detail (amount, whom it was paid to, what was being paid for etc.). This will ensure everything is accounted for, nothing is missed, and all information is valid and accurate.
Similarly, creating a payment schedule is very beneficial, it reduces confusion and keeps the firm accountable and on par. Next, there is the reconciliation process. The first thing the business should do is make sure they actually reconcile all accounts. This is where it is important to have updated information on all accounts but also have separate accounts for everything. The accounts should contain the necessary data with summaries of the most important information. Obviously, the payment and reconciliation process needs to comply with the rules and procedures of accounting.
Lastly, it is wise for a company to watch and manage its payments and reconciliations consistently. All of these practices will help the company stay healthy and understand where it is at financially.