The actions involved in full cycle accounts payable are often tedious and time-consuming, but the procedures involved are vitally important to the financial health of any business, and it forms the core of any Accounts Payable (AP) department.
Full cycle accounts payable is a label applied to outstanding balances after receiving goods or services. Procedures to resolve those balances are the nuts-and-bolts platform of an AP department. Resolution of full cycle AP requires monitoring expenditures. It is the tracking and paying of a bill in a timely manner, while avoiding duplication of payment. Full cycle accounts payable maintains a business credit rating and builds goodwill among vendors.
Life Cycle of an Invoice
The birth of an invoice is not when a vendor generates it. Invoicing actually starts with the product order, whether it’s a recurring order or a one-time purchase. Businesses often have price-oriented procedures regarding purchases. Most dictate obtaining a Purchase Order (PO) if the cost is above a mandated price, and that PO gives birth to an invoice.
The purchasing section or department forwards to Accounts Payable order information including item description, quantity, and product identification. The AP department registers the information and assigns a PO number.
The delivery invoice or bill of lading must mirror the PO data before payment is authorized; it should include the actual PO number, as well. Discrepancies must be resolved quickly to avoid late or non-payment. The receiving party must sign an original copy for AP verification. AP enters the accepted and complete delivery invoice and approves it for payment. The entry is tracked to ensure timeliness. Once the bill is paid, the invoice is marked as closed, and the invoice cycle has ended.
Loans and Taxes
Invoice payment is neither the sole function of an Accounts Payable department nor its only responsibility. Any outstanding balance a business owes is a liability and falls into the full cycle accounts payable purview.
The AP department notes and adds interest accrual to loan balances and payments until the loan is paid in full and zeroed out on the liability ledgers. If more than one loan is outstanding, each loan follows its own full cycle entry, tracking, and payment documentation on the balance sheet.
Sales taxes and business taxes follow the same cycle procedures. Accurate and timely payment of taxes is crucial in avoiding audits by government revenue departments.
Details and accuracy are kingpin to proper full cycle accounts payable resolution, but without them, no business can survive. Duplicate or errant payments can obliterate a business’ bottom line.
John Wiley & Sons. “Accounts Payable Best Practices,” 2004. Mary S. Schaeffer and the Institute of Management and Administration.
Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2010-11 Edition, Bookkeeping, Accounting, and Auditing Clerks, on the Internet at http://www.bls.gov/oco/ocos144.htm
How Business Plans Work. “Financials: Balance Sheet,” Lee Ann Obringer; http://money.howstuffworks.com/business-plans17.htm
Morgan Payables.” J.P. Morgan. N.p., n.d. Web. 27 Sept. 2010. www.jpmorgan.com/tss/Product_Index/Payables_/1104848722732.