Why are Accounts Payable Important?
Accounts Payable (AP) is critically important for several reasons:
1. Cash Flow Management: Through AP, a company is able to manage payment schedules and effectively reconcile the financial accounts so that it can meet its obligations as well as identify new profitable investments.
2. Vendor Relationships: Timely and accurate payments to suppliers mean that the relationships with them are healthy, and thus they can negotiate for better working terms because of the good relationship and even get discounts together with improved supply.
3. Financial Accuracy: Proper capturing and handling of payables also enables the preparation of true and accurate financial statements with regard to liabilities, which facilitates decision-making and planning.
4. Cost Control: Having effective control of AP management can allow the organization to capture early payment discounts while at the same time avoiding late charges that, in a way, have a direct relationship with the firm’s cash flow.
5. Operational Efficiency: Automation of the accounts payable helps to decrease manual mistakes, accelerate invoice processing, and use employees’ time more efficiently for other, more significant tasks.
6. Fraud Prevention: Businesses should apply controls and verifications in the AP process to reduce fraud by identifying potential cases of fraud that may put the company’s assets at risk.
7. Compliance and Audits: Correct AP management means that the accounting is done in accordance with the accounting standards and current legislation; the audits are easier and more informative.
8. Financial Health Indicator: The condition of the AP in a given company can often be an approximate reflection of its economic performance and productivity if points are observed in the framework of an increase; this may be associated with problems with cash flows.
9. Strategic Decision-Making: By dissecting the AP data, departments identify and understand where and how much it was spent, which vendor, and whether or not it might be possible to save money or negotiate better terms next time.