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Vendor payments are commonly referred to as accounts payables. They represent the payments due to the business’s suppliers of goods and services. More often than not, purchases are made on a credit basis, payable after a specified period.
The accounts payable function needs to be a smooth and free-flowing process. If not, problems such as the following may arise:
Manual data entry always carries a high potential for errors. Errors of miscalculation and payment-related errors are common and inevitable, especially when multiple vendors have a large number of invoices. Since the data is entered on a spreadsheet, mishaps are common.
Handling a large volume of vendor invoices often results in problems with regard to tracking the invoices and their due dates. It may all seem a little too overwhelming, especially when you miss some of the due dates. This results in the levy of interest charges or penalties for late payment that could have been avoided. Moreover, poor management of vendor invoices tends to affect vendor relationships.
Where purchase orders are created manually, businesses often find them time-consuming and thus do away with them. This makes it hard to track the items ordered. Moreover, it leads to price fluctuations in the purchase price, especially.
The business must ensure that TDS is deducted for all invoices to be paid. Once the TDS is deducted, the TDS return has to be filed, and TDS payment has to be made on the designated portal. Often, with the error-prone manual system, the business runs the risk of incorrect TDS rates being chosen and incorrect amounts of TDS being paid as a result.
Manual systems drastically slow down the payment process, especially in an organisation where 3-5 staff members are authorised to approve a particular payment. This causes significant delays in the payment process, thus leading to fines and charges levying for delayed payments.
Records can be maintained on a spreadsheet efficiently only when the number of invoices and vendors is relatively small. It is not feasible for an organisation that has a large number of invoices and vendors. Moreover, although the spreadsheets contain sensitive information, the security controls are very poor. It is easy to manipulate and make unauthorised changes to the stored data.
Every process contains flaws from time to time, but it is encouraging to note that every problem has a solution. Here are a few of them:-
Automation of the vendor payments process enhances the payment process’s accuracy, timeliness, and efficiency. Tracking and following up on the due dates becomes relatively easy, with reminders being common in modern accounting software and digital invoicing.
Choosing the right vendors that suit your business does make a remarkable difference to the process. Regular reviews of the service level agreements and contracts with the vendors need to be carried out to ensure that the terms are adhered to.
The process should be smooth, from the issue of a purchase order to the completion of the payment. Modern accounting software facilitates process automation, thus speeding up the entire process while maintaining accuracy and efficiency.
Software today allows for data to be stored on the cloud. This ensures that the data is safe and secure, with regular backups being performed. This helps in satisfying the legal compliance requirements with regard to the period for maintenance and storage of business records.
It is always good practice to verify all the items against the purchase order and then the invoice to ensure complete delivery. Once this is done, the vendor can make the payment without any hassles or issues whatsoever.