Accounts Payable Department Functions
Accounts payable departments often do more than simply pay incoming bills and invoices. In a larger business, accounts payable employees are often responsible only for the accounts payable side of finance, while in a smaller business, accounts payable and accounts receivable responsibilities are often combined.
Some smaller businesses outsource their accounts payable function to local contract bookkeeping services, or have a part-time contractor come in to do the work weekly or bi-weekly. Although the size of a business ultimately determines the roles accounts payable plays, most fulfill at least three basic functions in addition to paying bills.
Processing Vendor Payments
Processing incoming invoices and paying the business’s suppliers is a function of accounts payable that most people think of first. A/P organizes and maintains vendor contact information, payment terms and Internal Revenue Service W-9 information either manually or using a computer database.
Internal controls determine whether the A/P process starts with a pre-approved purchase order or whether accounts payable verifies purchases after a purchase is made. Vendor payments also include the end-of-month aging analysis reports that tell business owners and the management team how much the business currently owes vendors.
Making Internal Payments
Accounts payable often functions internally to distribute internal reimbursement payments, control and administer petty cash, and control the distribution of sales tax exemptions certificates. Internal reimbursement expenses follow business control procedures that require employees to turn in a manual log report, receipts or both to substantiate reimbursement requests.
Petty cash is typically used for small expenses such as miscellaneous postage, out-of-pocket office supplies or a company meeting luncheon. Accounts payable often maintains a supply of sales tax exemption certificates it issues to department managers to ensure qualifying business purchases don’t include sales tax expense.
Managing Business Travel Expenses
Larger business or businesses in which the owner and other employees (such as sales people) frequently travel may add travel management and payment responsibilities to the accounts payable function, explains FreshBooks. Travel management responsibilities can include making advance airline, car rental and hotel reservations.
If internal controls allow for advance travel payments, accounts payable processes requests and distributes funds to cover travel expenses. When the traveler returns, accounts payable would then be responsible for settling funds distributed versus funds actually spent or for processing travel reimbursement requests.
Other Accounting Functions
The accounts payable department also functions to reduce costs by paying attention to details that can save the business money when, for example, an invoice gets paid within the discount period that many vendors provide. A/P is many times a front-line contact between the business and vendor representatives.
As a result, building and maintaining good relationships often falls to accounts payable employees. Strong relationships can benefit the business when it comes to working with vendors. For example, during a seasonal dip in sales, a good relationship might lead to relaxed credit terms.
Accounts payables professionals sometimes analyze bills before paying them to make sure they are correct. A/P might call a vendor if a bill is larger than usual, or contact an internal employee if it looks like the staff member did not choose the lowest-priced option or use a company-approved vendor when making a purchase on behalf of the company.