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When a purchased part or material arrives at your company, it is the payable department’s responsibility to determine that it is in the quantity, form and fitness that was ordered. Obviously, you don’t want to pay for items that you did not receive. You also don’t want to pay for a part that was damaged in shipment or otherwise not fit to be used by your company. The accounts payable department should return for credit or file a damage claim on such parts. Inventory of obsolete or surplus parts should be returned for credit thereby freeing up resources to be used in a more meaningful way. Diligence in the receiving, paperwork, and entry of the invoice now results in an accurate accounting of money owed. With due dates in place, you can maintain a timely forecast of cash requirements, which together with the cash forecast from the accounts receivable department, will allow a smooth and efficient payment schedule. Variation from this schedule, either early or late, distorts the accuracy of your forecast and that of your customers. Whenever possible, you should consider taking any discounts offered. It may be worth the extra work that might be required to expedite the invoice processing. To calculate the discount simply multiply the discount percentage times the amount of the invoice. To calculate the opportunity cost (that is the amount it cost you to give up the extra days you would otherwise be allowed) you would take your cost of money from loans, etc and divide that rate by 365 and multiply by the number of days that you are giving up. Multiply that number by the amount of the invoice and that becomes your cost of money for that extra period. For example suppose that you have an invoice for $1000 with a 2% discount for 10 day payment as opposed to the entire amount in 30 days. Even if you have money borrowed at 10%, your cost for the extra 20 days would be $5.48. Your savings on taking the discount would be $20. The accounts payable department is the companies face to the vendors. The reputation of your company is the responsibility of this department. In business, in everyone’s business, there are times of difficulty. If a payment is not going to arrive at your vendor’s door as promised, it is imperative that the vendor be notified prior to their expectation of the payment. Whether the problem was an error or just did not have the funds, they can deal with it better with notice. Two very important things to have in your accounts payable department is communication and integrity. It is better to tell a vendor that you are not sure when you can make a payment and you will let him know than to make a promise that you can’t keep. A good accounts payable department can smooth out some of the” bumps” in the business road and save you money at the same time.
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