Businesses cannot survive without financial management. This strategic process of establishing and monitoring monetary processes helps companies accomplish crucial objectives such as increasing revenue. Effective financial management also benefits businesses by helping maintain tax compliance with proper bookkeeping, reducing expenses by maintaining a strict budget, and determining business success based on profit.
One department that significantly contributes to financial management and these benefits—yet is often overlooked—is the accounts payable department. An accounts payable job involves making payments to suppliers, paying invoices and bills, and recording the business’s short-term debt. They also maintain records of outstanding payables and ensure accurate financial documents.
Here are more reasons why the accounts payable department is essential for business.
They make sure that cash forecasts are accurate
Cash flow forecasting is the process of estimating a company’s future financial standing. Accounts payable achieves this by reviewing a business’s finances as often as necessary, which is one of our top financial tips—especially for new entrepreneurs. Doing so ensures that a company is financially on the right track, meaning it can sustain itself in the long run. The accounts payable department makes this possible through meticulous bookkeeping and record keeping. Therefore, when a business’s finance team releases a cash flow forecast, they can check if this is accurate. If not, the company can take the necessary actions to improve its future financial standing and avoid debt or other monetary difficulties.
They help prevent fraud
Any business—especially bigger and more successful companies—can be a victim of fraud. ASMag.com’s article “7 Statistics About Fraud Your Business Should Know in 2022” reveals that 52% of large companies experienced fraud in the past two years, costing them millions. The accounts payable department can prevent fraud incidents since they’re in charge of bookkeeping. When a business has all its financial records updated and organized, it can more easily detect fraud. For instance, if someone requests reimbursement for a project, the accounts payable department can determine if the requested amount is in line with the company’s financial records. This way, businesses avoid losing money via fraud.
They ensure good relationships with suppliers
As mentioned above, part of accounts payable professionals’ tasks is to pay vendors and suppliers. Because they hold the records of a business’s owed amounts to these external stakeholders, they’re also aware of payment deadlines. As such, they keep a good relationship between the business and suppliers by paying the right amount of money on time. This is essential for companies since it shows a good sense of responsibility, improving trust between the two parties. In the long run, businesses will benefit from this by maintaining a lasting professional relationship and potentially getting better deals.
They make audits easier
Audits can happen to any business. However, getting audited isn’t always a bad thing. While businesses can undergo a correspondence audit (performed due to simple tax return mistakes) or field audits (more thorough financial record examination), there are times that audits happen by chance. What businesses need to focus on is the audit’s duration: it can take days or even months to complete, slowing everyday operations. Fortunately, the accounts payable department can make audits go by faster and easier. Because they keep and organize financial records, the auditors will have an easier time finding what they’re looking for or assessing the company’s transactions and other activities.
The accounts payable department is often overlooked but plays a significant role in managing a business’s finances, making it an essential part of any company.
