When a small business owner purchases stock or services from a vendor, standard practice is to offer the vendor credit known as Accounts Payable.
This will then create part of the businesses Accounts Payable. This is an advantage as you will not have to pay for any purchases and services you ask for until the credit period has lapsed. Your creditor forwards you an invoice which you file until it’s scheduled for payment. Accounting for your debtors and paying your invoices on time are the duties of an Accounts Payable function. Your bookkeeper must carry out numerous important activities to ensure that your Accounts Payable is managed competently.
You launch your purchases cycle by issuing a legitimate and authorized purchase order to your supplier. This is the opening step in identifying the items and products that you require for your business. It will contain itemized particulars of your purchase with unit costs and the total payable for the order. When you place an order with your vendor, the prices quoted on the purchase order will normally fit the decided product price list that your provider has forwarded to you to aid ordering.
The Purchase Order, or PO, constitutes a legal offer by you to purchase the specified items from your supplier. When your supplier accepts this PO, it confirms the order and your provider is then obliged to carry out the order accordingly. In an outsourced Accounts Payable department, the bookkeeper raises the PO after checking that the business owner truly requires the items. This prevents any mistakes in ordering and prevents budding disputes between the business and the wholesaler.
Any errors in the PO could result in surplus stocks and ineffective or incorrect deliveries. If you urgently need items to complete a client order, then wrong deliveries could be catastrophic for your business. Therefore your business will benefit from meticulous and well thought-out PO preparation.
Once your PO has been sent to your supplier, you will get the goods ordered in a short time followed by the vendor’s invoice. The invoices will then need to input into your accounting system such as MYOB to keep your accounts up to date. Other bills that form part of accounts payable include electricity and other utilities. The bookkeeper will appropriately identify the invoices and establish if they are stock invoices which directly affect the cost of the goods that you sell to your customers and therefore your gross profit.