Managing Accounts Payable and Suppliers’ Relationships
By recording all their transactions and regularly updating their accounts, entrepreneurs should be able to boost their credit rating.
As the world becomes increasingly globalized, more and more organizations are acquiring their products and services on credit. Furthermore, to maintain their competitive edge, suppliers are encouraged to offer credit to customers; these creditors, in turn, can be seen in a business’s accounts payable. Of course, business owners want to—and should—pay their expenses on time. After all, doing so will not only improve their relationships with their suppliers, customers, and employees but also improve their credit standing. Thus, it is crucial for business owners to understand the importance of accounts payable, which can help them manage their finances.
Success is never guaranteed, but by arming themselves with the proper tools, entrepreneurs can increase their chances of achieving success. Indeed, to establish themselves as legitimate business owners, entrepreneurs should learn the differences between sales and tax invoices, maintain good credit, use accounts payable to improve their business’s cashflow, and utilize the newest technologies and services to record all their transactions. Being an entrepreneur is by no means easy, but if you put in the necessary work, you will be able to maintain good credit, which, in turn, will improve your business’s financial standing.
In a world becoming more and more globalized, organizations are increasingly acquiring goods and services increasing on credit. It is a common practice for medium to large-scale organizations to fully utilize the credit facility offered by their suppliers. Suppliers in today’s competitive world are often expected to offer credit to their customers to stay in business. These creditors are commonly seen in most organizations’ Statement of Financial Position (Accounts Payable). Whether the balance is large or small, the organization must ensure that suppliers are paid timely and in full as per the terms of credit. Organizations that benefit from Accounts Payable maintain a healthier cash flow that can be used for more time-sensitive expenses.
Employees who have to process sales and tax invoices must be aware that there is a difference between these two types of invoices. They have some similar characteristics, yet there are a few things that distinguish them. Organizations that are value-added tax (VAT) registered will be entitled to reclaim VAT paid when acquiring goods and services. When VAT is received from customers, the organization has a responsibility to remit the net VAT balance to the revenue authority, according to the established due dates.
Some suppliers will prepare manual invoices and send them to credit customers with their drivers or office attendants/assistants. There are other organizations that have Integrated Information Systems and internet access, so when they prepare an invoice, it is sent to the credit customer electronically.
Suppliers may be willing to offer credit to certain customers. However, customers who want to benefit from credit purchases must build their relationships with suppliers. Oftentimes, suppliers will assess their customers and evaluate who meets their requirements to benefit from credit. Suppliers are also willing to offer different percentages of discounts to repeat customers and to those who will purchase large quantities.
Management must ensure that they have an Integrated Information System to record their inventory and Accounts Payable transactions. With an increase in quantity of goods and services on credit arrangement, the Accounts Payable balance will increase. The Accounts Payable policies and procedures will guide employees in how to process the suppliers’ invoices, regulate payments to suppliers, and determine approval levels of officers in the organization to authorize suppliers’ payments.
When suppliers’ statements are received by management, someone within the organization must be responsible for reconciling the Accounts Payable balance with the suppliers’ statement. Every effort must be made to reconcile suppliers’ statements and settle the outstanding balance according to the due dates. The ages of Accounts Payable balances are important to guide management as to when suppliers’ payments are due.
Accounts Payable turnover and Accounts Payable days are two quick analyses often used by management to assess the Accounts Payable balances and credit purchases. Management must strive to pay suppliers within the agreed-upon time so that they can benefit from future credit purchases.
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