Your accounts payable department (AP) is responsible for the collection of financial documents that reflect a company’s payments on recurring or short-term debts. That requires some rather robust record-keeping and reporting. Especially when it comes to tax time. Understanding the important data that must be pulled from your AP dash is the first step in running the right reports. Once a business gets there, they can gain valuable insight into operations.
In this guide we will cover:
- Accounts Payable Aging Reports
- Account Reconciliation Reports
- History of Payments Reports
- Voucher Activity Reports
The Basics of Accounts Payable Reporting
Accounts payable reporting is the ongoing process of tracking and recording all business expenditures by a company, big or small, to ensure accurate financial data. Accounts payable reports cover cash expenses, mortgage or rent, utility payments, and the overall cost of doing business.
Every report run within an AP system is typically time-sensitive. The financial records only apply to a specific time frame with corresponding data. These periods of time can change depending on the frequency a small business owner pays debts and how they go about cash flow management. Typically, reports in your accounting software update on a monthly basis to reflect new payments made on recurring debts.
These payments are tied to larger debts that can include:
- Mortgage or rent
- Utility payments
- Private loans
- The cost of doing business
Accounts payable can also include one-time payments that are made for the purchase of assets, which involves things like:
- Maintenance and replacement parts
- Advertising fees
Whatever software program you choose, the time periods should be customized to your business needs.
The Most Commonly Used Accounts Payable Reports
Every type of AP report you run requires specific criteria that reveal secrets about a company’s finances. Although most bill payment programs will let you customize all forms of reporting, there are still some standard reports to keep in mind.
The Accounts Payable Aging Report
This is the main report to run to keep a finger on the pulse. It enables a business to effectively manage invoicing and keep up on due dates. An AP aging report will help to identify the vendor payments that are past their due dates and to prioritize AP actions.
An AP aging report typically lists vendors on the left side with “bucket” columns on the right for past due periods like “1-30 days,” “31-60 days,” etc. The total amount due for each row is listed in the last column. Running this report helps a company always stay on top of total expenditures and payment terms. It’s like the general ledger of accounts payable and the first report to be run.
The Account Reconciliation Report
The open reconciliation report will demonstrate all accounting activity that is related to issued payment vouchers for debts over a given time period. It refers to a company’s debts collectively as liability accounts. A business owner can verify open or outstanding liability accounts against the general ledger.
The entire purpose of this report is to make sure you are making the correct payments to the right vendors. It also ensures a business isn’t carrying any delinquent liability accounts. Any unbalances between the open reconciliation report and the general ledger can indicate a human error or incorrect payments.
The History of Payments Report
When it comes to effective bookkeeping, the history of payments report will list all business expenditures within a given time period. It will represent the total funds spent by a brand on various liabilities, which includes things like:
- Utility payments
- Private loans
- Raw materials purchases
If you are adhering to an annual operating budget, then this report is critical. It helps to harness business expenses and control spending. If you fail to monitor total expenditures you can easily exceed operational budgets. This can harm a brand’s ability to meet financial obligations and hurt relationships with specific vendors.
The Voucher Activity Report
The voucher activity report details the payment vouchers made over a specific time period that meets certain criteria. AP runs this report when they want to view spending within a particular department or group. It can also be used to view expenditures on specific projects or business ventures. A business can review this data to directly trace where the money is going within targeted report criteria.
For example, if you want to review a project’s expenses against an operating budget, a voucher activity report will reveal the total expenditures through payment vouchers. These vouchers will have the name of the creditor as well as the dates of transactions. To generate payments, the approval of vouchers is usually necessary.
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Improving the Accounts Payable Process
Running reports is essential to staying on top of business finances. In order to run the most effective reports possible, an accounts payable department should also have some other best practices in place. This includes some of the following ideas:
Set up Reminders
One of the best ways to organize a modern accounts payable department is to set up automated reminders. The more payments being made, the easier it is to forget. It opens everything up to human error. If an invoice slips through the cracks, it could damage that vendor relationship. It could also mean late fees and fewer discounts.
Setting reminders is about taking a proactive approach to bill paying before the due date passes. If you need to, use a calendar to manage due dates and set alerts accordingly. Give yourself a few days prior to when something is actually due as a buffer.
Archive All Data
The more invoice data you keep track of, the easier it is to process recurring payments and run reports. Immediately after receiving an invoice, it should be scanned and saved in the system as an online file (usually .PDF). This also includes any documentation that goes along with it like:
- Purchase order/s
- Notice from vendors
The more data you save, the more accurate AP will be. It will help to know who to pay, how much, when, and any other conditions required to transact efficiently. These documents can then be referenced when paying an invoice and filing tax returns.
Always keep all vendor and contact information fresh. You must be able to reach your suppliers. Store all data in a collective space and make sure you have information like:
- Company name
- Contact name
- Phone number
- Email address
- Physical location
On the contrary, your vendors also need to reach you. It’s responsible to make sure all of your company data is always up-to-date in every channel.
Sometimes paying early or working out a deal means discounts on inventory, supplies, and services. It never hurts to ask new vendors if they offer discounts for early payment. It’s also good to know who charges interest or late fees to better prioritize in AP.
If you are ordering items in bulk, there may be an opportunity for a discount there as well. This would give you a larger discount on the total. Consider stocking up to save money.
Running an efficient accounts payable department is about having your eyes on everything at once. Luckily, modern technology enables a business to do that with limited staff. If you haven’t already, look into some robust AP software. It will enable you to run the right reporting to gain deeper insight and truly drive ROI.