An accounts payable system pays the bills of a business in an organized manner. The goals of this system are to make payments in a timely manner and to pay the correct amounts to the correct suppliers. The following steps can be used to set up such a system:
- Select software. Buy an off-the-shelf accounting software package that contains an accounts payable module. Look for such standard features as the ability to set up standard payment information for each supplier, spot duplicate invoices, take advantage of early payment discounts, and make electronic payments.
- Set up suppliers. Enter into the vendor master file in the software the names, addresses, payment terms, and default general ledger expense accounts that apply to each supplier.
- Enter invoices. Enter each invoice into the accounts payable system. Doing so includes entering the invoice date (not the date of receipt) and the payable amount.
- Approve invoices. Create a system to either have managers individually approve each supplier invoice as it arrives, or use negative approvals, where managers only have to notify the payables staff if they do not approve of a payment. A workflow management system could be integrated into the system in order to track the status of approvals.
- Schedule payment. Do a test run to print from the software a listing of all invoices that are due for payment, and verify that the report is including all invoices that should be paid within the selected date range.
- Test a check run. Check off in the software all approved payments, and print a batch of checks to pay for these invoices. Ensure that the system is only paying those checks that were selected.
- Sign checks. Designate a person to be the primary check signer, as well as another person to be the backup check signer. Inform these people of their duties in examining the backup documentation attached to each check.
The preceding steps cover the basic actions involved in how to process payables through an accounts payable system. The following additional items can be incorporated into the payables system:
- Three way matching. It may be necessary to have a payables clerk match supplier invoices to the company's related purchase orders and any receiving documents. This matching may be needed to ensure that the business only pays for properly authorized and received items.
- Expense reports. Set up a system that requires employees to submit expense report forms, to which are attached receipts for any items they purchased. This system may include a set of travel policies governing which expenses will be reimbursed.
- Procurement cards. Set up a system under which procurement cards are issued to a selection of employees, who are authorized to make purchases with the cards on behalf of the company. Include procedures for reviewing the card statements for errors, and submitting fully-reviewed statements to the payables staff for payment processing.
It may also be necessary to add a selection of controls to the payables system, to reduce the risk of excessive payments being made.