Many companies are taking a concerned look at liquidity. Rising costs are putting an enormous strain on the financial situation. Accounts payable management is an important lever for settling liabilities.
An important part of financial accounting is the so-called accounts payable accounting. All incoming invoices of a company end up here, are processed and booked. The current price increases do not only affect private consumers. Companies are also concerned about incoming invoices. Will liabilities continue to rise? How does this affect liquidity? This makes accounts payable all the more important. But what is accounts payable anyway? And why does it play such a big role? Here is a little insight:
Definition and tasks of accounts payable
Simply explained: Accounts payable processes all invoices that the so-called creditors issue to the company. Creditors are creditors of a receivable. The company has a liability to the vendor. This liability will be invoiced.
By the way: Accounts payable should not be confused with accounts receivable. The distinction is quite simple: Accounts payable takes care of incoming invoices, while accounts receivable is responsible for outgoing invoices.
Accounts payable performs important tasks related to accounts payable management. For example, the following:
- Management of master data: The accounting department must first set up the master data of a creditor. But of course, this data must also be managed and changed if necessary.
- Checking incoming invoices: When an invoice is received, it must be checked whether the formal requirements (especially in terms of VAT) are met. Before paying the invoice, the content must also be checked: Was the invoiced delivery or service ordered at all? Is the invoice amount justified? For example, was an agreed discount taken into account?
- Posting of incoming invoices: The incoming invoice must be posted. In this context, input VAT booking must also be considered: The VAT shown in the invoice (if eligible for input tax deduction) must then later be claimed as input tax in the advance VAT return.
- Open items: Not every invoice has to be paid immediately. Sometimes generous payment periods are granted, which can be used accordingly to preserve liquidity until, for example, more incoming payments have been recorded. Accounts payable management keeps an eye on the various due dates.
- Pay bills: Incoming invoices should be paid (ideally on time). However, if a reminder has already been received, diplomacy may also be required: After all, relationships with creditors must be maintained, even if something goes wrong.
- Retention obligation: The invoices must be kept – and properly retained. For example, if a tax audit is pending, every incoming invoice must be traceable. The principle here is also: No booking without a receipt!
However, accounts payable takes on many more tasks. For example, complex accounting issues are clarified, preparations are made for the preparation of annual financial statements and data analyses are prepared. This already shows that it doesn’t work without expertise.
Importance of accounts payable in securing input tax deduction
Especially when it comes to checking incoming invoices, the error is already in the details. Cross-border issues, for example, cause stumbling blocks. Companies cannot simply rely on the fact that the invoice will already be correct. If necessary, there may be a change of tax liability (sec. 13b of the German VAT Act). If the vendor makes a mistake here, it must be pointed out and an invoice correction requested. Errors in VAT can be expensive – for both sides. Therefore, this is already an important step towards securing liquidity.
In-house financial experts or outsourcing of accounts payable
Specialist knowledge is mandatory. Many companies are already using technical options, such as automation in the invoice receipt process. But in the end, when it comes to complex questions, a human being still decides. That’s why accounts payable accountants are very much in demand on the job market. Many companies are trying to build up their own expertise in accounting for this area. However, this also depends on the structure and size of the company. Not every company employs a VAT or accounts payable expert. Nevertheless, the liabilities must be managed professionally. Outsourcing can be a solution here. In this way, experts can provide advice and support in the introduction of modern technologies. Ideally, the invoice receipt process can be automated as comprehensively as possible in this way. The processes are already designed in such a way that risks in payment processing are minimized and manual effort is avoided as much as possible. Digital processes can thus be designed to be cost-optimized and legally compliant. And last but not least, complex accounting issues can also be clarified by experienced experts.
How is your accounts payable department organized? We look forward to your comments.
Image Credit: Adobe Stock Photographer: Andrey Popov
Author
Sylvia Meier
Guest Author
Sylvia Meier is a certified financial economist (FH) and has worked at the tax office, in consulting (Big Four firm), and for a specialized publisher. Today, as a freelance consultant, she supports companies and can demonstrate numerous publications, particularly on the topics of taxes, controlling, accounting, and finance.
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