Start with a purchase order
A purchase order records what you agreed to buy, from whom, at what price, before the vendor delivers. It lets you see commitments that have not yet turned into invoices, and it gives approvers something to approve while the decision can still change. Small companies can use a simple form or a spreadsheet for purchases above a set amount.
The three-way match
Before you pay a bill, compare three documents: the purchase order, the receiving record or proof of delivery, and the vendor's invoice. Quantities, prices, and totals should agree. A mismatch might be a pricing error, a partial delivery, or a billing mistake, and you resolve it before the money goes out.
A smaller business can do the same with less paper: the person who ordered confirms the goods or service arrived and the invoice is right.
Cutoff: the right month
Cutoff means putting each transaction in the period it belongs to. A bill for services received in March belongs in March even if it arrives in April. At month end, ask which goods and services were received that have not been billed, and accrue them. Then check bills entered in the first days of the next month for ones that belong to the month just closed.
Do the same on the sales side, so invoices and earned revenue land in the correct period.
Vendor credits and returns
When a vendor issues a credit or you return goods, apply the credit against the original bill or the vendor balance, and adjust inventory or expense once. A common error is to record the refund as income while also leaving the original expense, which counts the same item twice. Match the return to the purchase, and reduce the payable.
Read the payables aging for cash planning
The aging report shows what you owe and when it is due. Use it to plan the next several payment runs and to see when cash gets tight, rather than only to find bills to pay. Late payments can cost fees and strain supplier relationships.
Also look at who you depend on. If one vendor is a large share of your spending or hard to replace, note the risk and decide whether to qualify a second source.
Frequently asked questions
Do small businesses need purchase orders?
Not for everything. Use them for larger or recurring purchases, where it helps to approve the spend before it happens.
What if the invoice does not match the order?
Do not pay it until the difference is resolved with the vendor. Record the dispute so the bill is not forgotten.
What is accrual of unbilled expenses?
Recording costs for goods or services received but not yet invoiced, so the month reflects them.