Every business is established using capital, however, the capital eventually runs out and profits, loans, and IOUs are used to support businesses in the long term. Accounts payable is an estimate of the amounts owed to suppliers, creditors, and vendors. It is recorded as a liability in business accounts.
Accounts payable turnover is a business term that shows the number of times a business has paid its creditors. Creditors in business might include suppliers, banks, some short-term investors, etc. For a business, when vying for new investors, accounts payable turnover is very important, because it shows how good a business’s credit is, but that’s not all there is to it.
There are different processes for keeping track of accounts payable. Businesses need to keep track of their accounts payable for a number of reasons. Some of them are;
It helps businesses to establish a schedule for repayment
When accounts payable are recorded, businesses can create schedules based on profit to repay their suppliers. The more detailed the accounts payable record, the easier it is to create a schedule to perform the repayment.
It helps to establish long term amicable relationships with suppliers
Businesses that have an established pattern of repayment for debts have a good relationship with suppliers. This helps to boost business integrity and establish trust between suppliers and businesses. Consistent repayments and accounts of them help to breed favor with future suppliers.
It ensures that no extra charges are incurred from late payments
Due to the fact that some loans have interests on them, accounts payable turnover is a means to ensure that loans do not incur additional charges before they are repaid. This helps businesses avoid any additional charges, unnecessary taxes, etc.
It provides a system to properly track and organize invoices
Records of accounts payable were usually listed under liabilities in accounting books. These records provide a system to properly track any debts and organize invoices for paid and unpaid goods and services.
It also makes it easier to go through records of payments to ensure that there are no double payments or accidental omissions of payments.
With a strict account payable process, fraudulent activities can be reduced
When records of accounts payable are properly kept, fraudulent activities are kept in check. This is because details of paid and unpaid transactions are recorded properly. Furthermore, when there are records of double transactions, they can easily be checked and removed from the books.
It helps with the management of cash flow
When businesses have established accounts with their accounts payable recorded, they can plan for their cash better. This helps to improve their management of cash, by ensuring that they reduce liabilities before investing in less important things in their business. It also ensures that they utilize profit earned properly for the growth of the business.
Keeping an accurate account of a company’s account payable balance helps to balance the books. It helps to properly track and account for expenses and when kept properly can ensure that errors can be omitted from company books. For more information, visit website.