An inefficient accounts payable process, or one that loses track of supplier invoices, will inevitably incur late fees charged by suppliers. When this happens, the fee is generally recorded in the same expense account to which the rest of a supplier invoice is charged. As a result, the inefficiency of the accounting department is passed through to the department that originally ordered the goods or services from the supplier, even though it is not the originating department’s fault.
A more responsible approach is to record late fees in a separate general ledger account that is charged to the accounting department. By summarizing all late fees in a single account, management can also see if late payments are a significant expense for the company—information that would be impossible to locate under the old system.
The prime difficulty with this best practice is that the accounting staff does not like to document its own failures, and so might “accidentally” charge late fees to other accounts. Accordingly, have the internal audit department periodically test the payables recording system to ensure that late fees are being stored in the correct account.