Between 2021 and 2022, there were over 167,000 additional businesses that entered the Australian market. Of course, not all of these companies will achieve long-term success. Having a strong understanding of accounting and business expenses is crucial when it comes to building a successful company.
In particular, accounts payable is something that no entrepreneur can overlook. So, what is accounts payable? Let’s explore the key factors you need to know.
What Is Accounts Payable?
Put simply, this term refers to financial obligations that a company has to its suppliers or creditors. More specifically, it refers to money that they have not yet paid to these entities.
So, accounts payable are a current financial liability. On a balance sheet, an accounts payable balance is the total amount of money that a business owes to creditors and suppliers.
For example, accounts payable balance could include money owed to five parties or 500.
What Is Accounts Receivable?
As you might assume, this term refers to the inverse of accounts payable.
Accounts receivable refers to the money that other entities owe a company. More often than not, these other parties are customers or clients. To elaborate, if someone makes a purchase at a business with credit, the selling business would record that amount in its accounts receivable.
Accounts Payable Process
If a company does not manage their accounts payable, they run the risk of defaulting on payment of an outstanding amount. This can lead to a large number of consequences. A default occurs when a borrower lapses in their payments to a creditor.
This could be due to financial hardship, outright refusal or simple mismanagement. Defaulting on a balance could result in legal action being taken against you. It could also affect your ability to secure financing in the future.
Companies can analyze accounts payable to determine if spending issues exist. To elaborate, if the accounts payable balance increases over a period of time, the business is using credit to purchase goods or services instead of cash. While this isn’t inherently bad, it could lead to financial issues in the future.
Accounts Payable Recording
To properly record accounts payable, business accountants will need to utilize double-entry bookkeeping. This means they will record a cost in accounts payable and debit an expenses. For example, let’s assume that a company receives a $5,000 invoice for supplies it will use to renovate one of its offices.
The accountant would record a $5,000 credit in accounts payable. However, they will also record a $5,000 debit in renovation expenses or fitting asset.
The latter part of this process is to record the transaction even though the company has not fully paid off their financial obligation yet. After the company pays the bill, the accountant would record a $5,000 debit to accounts payable.
As you can see, this isn’t a complicated process. However, things can become convoluted if there are hundreds of outstanding balances at once. This is why it is so important to have an experienced, dedicated professional handle this obligation.
Accounts Payable Role
It’s important to know that accounts payable can also refer to a department and role at a company. As with any other financial position, it’s essential to find the right candidate to avoid problems in the future. Hiring the wrong person could cause many complications for your company that are difficult to overcome.
This position includes processing incoming invoices and ensuring financial compliance. It also involves verifying, classifying, and archiving accounts payable information.
Other obligations include preparing bank deposits, bills, and invoices. Most candidates will need to have a degree in accounting, finance, or business administration. They will also need to have strong communication skills and attention to detail.
Finding an Account Payable Officer
At first, it can seem notably difficult to find the right accounts payable officer. When searching for a candidate, you’ll need to consider the above information to determine if they’re a right fit.
Small businesses often don’t have the budget to hire top-tier talent. However, this doesn’t mean that they should cut corners. Reworking your recruiting strategy is the first step to take if you find that you can’t seem to connect with the right employee.
Interestingly, many people overlook the fact that you can outsource this role to an experienced professional online. Not only does this streamline communication with them, but it also allows you to circumvent hiring a full-time employee. You can tap into their skills whenever you need them without having to worry about extended downtime.
When choosing to go this route, consider their past reputation. You’ll want to work with someone who has plenty of experience in the industry.
You should also prioritize people who work with businesses like yours on a regular basis. If you own a small company and they often handle large corporate accounts, they might not be the best fit. Finally, consider how comfortable you are communicating with them.
This will go a long way when it comes to getting the results you need.
Take Action Today
If you’re having trouble understanding or managing your accounts payable, it’s best to get in touch with a professional as soon as possible. Just be sure to consider the answer to “what is accounts payable” so that you can identify areas of concern.
Feel free to get in touch with us at Accountants 2 Business today to see what we can do for you. We have a team of dedicated professionals who can help you take the best course of action.
