Page 61 - Accounting Best Practices

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Accounts Payable Best Practices
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address), has been paid the wrong amount (because of an incorrect early payment
discount rate), or has been paid at the wrong time (because of an incorrect due
date). This type of problem is inevitable in even the best-run company and will
require some time to research and fix. However, the problem is greatly exacer-
bated in a company that has many suppliers, because there are so many chances
for the supplier information to be incorrect. Another problem with having many
suppliers is that there is typically little control over adding new suppliers (after
all, that is how there came to be so many suppliers in the first place!). The
accounting staff must deal constantly with adding new data to the supplier data-
base, consolidating supplier records that have been entered multiple times, and
(especially) making a multitude of small payments to a plethora of suppliers.
Wouldn’t it be much easier if there were just fewer suppliers?
This is a best practice—reducing the number of suppliers. It is much easier to
maintain accurate data in a relatively small number of supplier records, while there
are few new suppliers to add to the database. In addition, the volume of purchases
from the smaller number of suppliers tends to be larger, so there are typically
fewer, larger invoices that can be keypunched more easily into the accounting
database and paid with fewer, larger checks. Essentially, shrinking the supplier
database reduces a variety of data-entry tasks.
Unfortunately, shrinking the number of suppliers is not easy. The first prob-
lem is that the accounting staff must convince the purchasing staff to adopt a sup-
plier reduction strategy, which the purchasing staff may not be so eager to pursue,
especially if they prefer the strategy of sourcing parts from multiple suppliers. In
addition, company employees may be in the habit of buying from any supplier they
want, which can require a considerable amount of retraining before they are willing
to buy from a much shorter list of approved suppliers. The effort required to reduce
the number of suppliers is frequently far in excess of the productivity gains real-
ized by the accounts payable staff, so most controllers do not pursue this best
practice unless there is already either an active supplier reduction campaign in
place in the company, or else the head of the purchasing department appears to be
amenable to the idea. Even then, a supplier reduction strategy does not take place
overnight. On the contrary, it can take years to effect a massive cutback in the
supplier base. Accordingly, this strategy should only be adopted when there is
multidepartmental support for the idea as well as a long implementation timeline.
Cost: Installation time:

3–24 WITHHOLD FIRST PAYMENT UNTIL W-9 FORM IS RECEIVED

Within one month after the calendar year is complete, the accounts payable
department must issue completed 1099 forms to a variety of business entities,
detailing how much money the company paid them during the year. The IRS uses
its copy of this information to ensure that the revenue reported by the recipients is