Accounts payable process

Ki$hor B (Training & Advisory) (3015 Points)

11 October 2012

I was puzzled when my colleague, a new joiner, came up and said “I find the Accounts Payable process a double dutch, payments made by cheque should be easy peasy (lemon squeezy)”. I peeped into his educational background and found him as a fresh com graduate. I thought to myself – He’s as fresh as freshly laid eggs!

The payment process is known by many names – Vendor Payments , Bill Payments, Accounts Payable and in a SAP (ERP) environment it’s known as Vendor Management. This reminds me of the Hindi adage “Haey Ram Tere Kitne Naam”- Many names for Lord Rama.

Payables, mostly includes the bills both for the materials purchased and the services availed. Further, the claims submitted by employees could also be classed under this payment head.

The SCOPE of payables includes:

1)Bills – Materials and Services.

2)Claims by employees:

(i)Salary component, usually reimbursed on a monthly basis

Fuel
Telephone and
Driver’s salary

(ii) Conveyance claims – local & outstation.

The primary document in this process is mostly a bill received from the creditor or a voucher which could take the form of a claim made by an employee. In an organization structure wherein the divisional heads report to the CEO, each bill submitted into accounts for payment must be approved by the respective divisional head.

Process flow in Payables:

Bill scrutiny

Points to be considered:

Bill received is properly authorized.
Is original.
Drawn in the name of the company.
Matches with details on PO/WO.

Updating records in Bill Received file maintained in excel.

Verify the bill with the supporting documents & authorization in case of fixed assets.

Booking the expense.

Deduct TDS at appropriate rate.

Key points:

Deduction is to be done at appropriate rates.
Manager-Payments should be updated on the relevant verdicts related to TDS.
Once could buy access to case laws by paying an annual charge.
If TDS at lower rates is applicable, the Certificate for Lower Deduction as issued by the ITO should be checked for its validity.

Pass TDS entry. Reimbursements made to employees are not subject to TDS.

Verify the documentation for the following
1. Cheque
2. Payment voucher
3. Printout of bill booked
4. original bill with MRN/ Job Completion Certificate
5. Copy of Work Order/Purchase Order

Sending for signatures.

Update the details of cheques issued in Bills Inward Register.

Release the cheques to the vendors/employees.

Deducting TDS at the appropriate rate avoids the follow ups from the vendors. This results into surplus time for the process development. Going back to each stage in the payables will expose the probable and practically possible areas that need improvement.

This process generates the data to be used in filing the TDS returns. Hence very much important from the view point of compliances.

AP is often dubbed as the area that’s as dry as a bone. Attrition rate in the payables team could be high. Hence constant employee motivation is a must. One could flaunt his team only if they’ve team members who are as old as the hills. Having two goody shoes in this team is crucial to bring down the TAT.

When the company has almost no funds then the ringing phones generate blue funk. In such situations, the payments manager has to be a smart cookie for he has to run with the hare, hunt with the hounds (play double game) with the vendors to save his face (or that of the CFO). For such situations one should have a reservoir of reasons to face the vendors (a kangaroo course on reasons could be my following article!).