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Learn how to get your start up business organized right out of the gate by managing your accounts payable:
You’ve put a lot of time, money, and energy into your new start-up company. It feels great to be in a position to start seeing profits and growth, but what about managing your accounts payable? The last thing you want to do is spend late nights wondering where your money is going, and if it’s going to the right places. We’re going to look at some easy practices you can put in place so that managing accounts payable will be much less stressful than a lot of start-up owners make it out to be.
W-9’s and why you need them from your vendors
The IRS requires that you issue a 1099-MISC for any individual you pay $600 or more annually. This rule applies only to individuals, not corporations. So, who should you get a W-9 from? To answer this question, it is important to address what information is on a W-9 and how is it used. The basic information on a W-9 is the company name, their address, their entity structure (are they incorporated?) and their social security number or FEIN (Federal Employer Identification Number). Most accounting systems enable you to tag a vendor as a “1099 vendor”. If the vendor is incorporated and has a FEIN, you do not need to issue them a 1099. However, if they are an individual, they will require a 1099-MISC if you spend more than $600 dollars annually with them. If you collect W-9‘s and manage this process for all your vendors, you can run a report at the end of the year of all “1099 vendors” showing how much you paid them, then issue the 1099-MISC to any individual who you spent more than $600 with. As such, it is a best practice to collect W-9’s for all your vendors. This will also serve as an audit trail for your 1099-MISC reporting.
Separating responsibilities is the key
When it comes to protecting your business from accounting mistakes or fraud, one of the best things you can do is to separate responsibilities. As a business owner, the last thing you want to do is have the person who is handling the bank reconciliation also be the person who is cutting checks to vendors. This situation opens the door for fraud because one person has complete control over who is getting paid and how much. This point cannot be stressed enough. Many startups think that they are saving money by having one person handle both of these functions, when in fact it just sets up the company for mistakes or worse yet, fraud. Having two separate entities handle the accounts payable and bank reconciliations is a good step in protecting your business and your money.
Use electronic invoicing/payment wherever possible
We now live in an age where a check or bill getting “lost in the mail” is not a viable excuse when managing accounts payable. Even small businesses tend to gravitate toward electronic invoicing and payment methods as a means to reduce error and to help automate the accounts payable process. Electronic invoicing/payments can be stored on a computer or printed for auditing and filing purposes. They are also much easier to keep track of than paper receipts – which many companies have taken to digitally scanning for ease of record keeping. By utilizing the proper system of checks and balances, while also automating as many accounts payable procedures as possible right from the start, you will greatly reduce the possibility of losing track of funds. The bottom line is that if your company is still relying on paper invoices and files, then there is a lot of time being spent for that process alone that could be spent on revenue generating activities. You are also opening your business up to errors and money loss issues (including fraud) by not utilizing automated and electronic processes to manage your accounts payable. By moving over to an electronic payment system, you will reduce the time spent on your accounts payable procedures because the automated procedures will give you all of that information at a glance.
Keeping everything in order
By following a routine and making sure everyone in your accounts payable department adheres to the structure, in addition to automating as much of the process as possible, you will greatly reduce the margin of error and chances of internal fraud. Think of it as making your AP processes fool-proof and self-auditing. If you employ the guidelines listed above, you will cut down on the time your accounts payable department has to put into processing payments, have a streamlined AP process for your company, and – best of all – you will be able to relax a bit rather than worrying about where every cent is going in your business.