Managing payables refers to the process of ensuring that a business pays its bills in a timely and efficient manner, while also maintaining accurate and up-to-date records of what it owes. Following are the processes involved:
- Record purchase transactions: Record all purchases made on credit in a purchase ledger or accounting software. This includes the date of the purchase, the amount of the purchase, and the terms of payment.
- Monitor accounts payable: Regularly review the accounts payable ledger to track the amount of money owed by the business and the payment due dates. This helps to identify any potential issues with suppliers and take appropriate action.
- Prioritize payments: Prioritize payments based on the payment due date and the importance of the supplier to the business. This helps to ensure that the most important bills are paid on time and avoid any late payment fees.
- Take advantage of discounts: Take advantage of early payment discounts offered by suppliers, where applicable. This helps to reduce the cost of goods and improve cash flow.
- Negotiate payment terms: Negotiate favorable payment terms with suppliers, such as extended payment terms or partial payment terms, where possible. This helps to improve cash flow and reduce the pressure on the business’s finances.
- Use an accounts payable automation system: Consider using an accounts payable automation system to streamline the process of paying bills and keep track of what is owed. This can help to reduce errors and improve efficiency.
Example: Suppose a business purchases goods worth PKR 100,000 on credit from a supplier with payment due in 60 days. To manage the payable, the business would:
- Record the purchase in the purchase ledger
- Monitor the accounts payable ledger regularly to track the payment due date
- Prioritize the payment based on the payment due date and the importance of the supplier to the business
- Take advantage of any early payment discounts offered by the supplier
- Negotiate favorable payment terms with the supplier, where possible
Ledger Account Date Amount Payment Due Date Status
Accounts Payable Feb 1 PKR 100,000 Apr 1 Pending
The payment is made on March 20 and the ledger account is updated as follows:
Ledger Account Date Amount Payment Due Date Status
Accounts Payable Feb 1 PKR 100,000 Apr 1 Paid (Early Payment Discount of PKR 2,000 applied)
By monitoring the accounts payable ledger and prioritizing payments, the business can ensure that it pays its bills in a timely and efficient manner, while also maintaining accurate records of what it owes.