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PROJECT REPORT
ON
“A STUDY ON ACCOUNTS PAYABLE SYSTEM”
FOR
“GENERAL MOTORS.”
SUBMITTED TO
UNIVERSITY OF PUNE
IN PARTIAL FULLFILLMENT OF TWO YEARS FULL TIME COURSE
OF MASTERS IN BUSINESS ADMINISTRATION (MBA)
SUBMITTED BY
HASWINI RAO
BATCH -2010 2011
UNDER THE GUIDANCE OF
PROF. SANJAY GAIKWAD
PIMPRI CHINCHWAD EDUCATION TRUSTS
PIMPRI –CHINCHWAD COLLEGE OF ENGINEERING NEAR
AKURDI RAILWAY STATION, AKURDI NIGDI, PUNE.
DECLARATION
I hereby declare that the project titled “A Study On accounts Payable Process” is an
original piece of research work carried out by me under the guidance and supervision of
Prof.Sanjay Gaikwad. The information collected by me has been collected from genuine
and authentic sources. The work has been submitted in partial fulfillment of the
requirement of MASTER OF BUSINESS ADMINISTRATION to Pune University. The
results embedded in this project have not been submitted to any other university for any
other course.
Student Signature
Haswini Rao
ACKNOWLEDGEMENT
It is my privilege to work on the project “Accounts Payable Process”. At the very outset, I am obliged to GENERAL MOTORS for the permission to undertake training program and provide me with the facilities.
I express my sincere sentiments of gratitude to Mr. Sanjay Bathe (EXIM Manager) who guided me throughout this project. I would also like to thank Ms.Vinita Shinde (Asst.Finance Manager) for her continuous assistance without which this project would not have been a success.
It is the spirit of being associated with the Finance and Accounts department particular and General Motors in general who inspired me to complete this project successfully.
I thank our Principal A.M.Fulambarkar and Dr.T.Vidyasagar (HOD).
I am indebted to my mentor Mr. Sanjay Gaikwad for extending his untiring guidance to me, by constantly discussing the project matter and helping me in clarifying my thinking in several pertinent issues and providing a meaning full insight into the subject.
I owe my deep sense of gratitude and sincere thanks to all of them
Thank you.
INDEX
OBJECTIVES OF THE PROJECT
To observe and understand the process of accounts payables.
To study different factors which affect accounts payable
To calculate and compare average payment period with collection period, cash
cycle and its effective management.
To settle the accounts which are opened for more than sixty days and ninety days
on priority and as soon as possible.
To develop the practically sound accounts payable system to make it more
effective and easier.
To check for modification and alternatives in current accounts payable process to
make it more effective and easier.
INDUSTRY PROFILE
AUTOMOBILE INDUSTRY IN INDIA
The Indian automobile industry seems to come a long way since the first car that was
manufactured in Mumbai in 1898. The automobile sector today is one of the key sectors
of the country contributing majorly to the economy of India. It directly and indirectly
provides employment to over 10 million people in the country. The Indian automobile
industry has a well established name globally being the second largest two wheeler
market in the world, fourth largest commercial vehicle market in the world, and eleventh
largest passenger car market in the world and expected to become the third largest
automobile market in the world only behind USA and China.
The Automotive industry in India is one of the largest in the world and one of the fastest
growing globally. India manufactures over 17.5 million vehicles (including 2 wheeled
and 4 wheeled) and exports about 2.33 million every year.
It is the world's second largest manufacturer of motorcycles, with annual sales exceeding
8.5 million in 2009. India's passenger car and commercial vehicle manufacturing industry
is the seventh largest in the world, with an annual production of more than 3.7 million
units in 2010.
A chunk of India's car manufacturing industry is based in and around Chennai, also
known as the" Detroit of India with the India operations of Hyundai, Renault and Nissan
headquartered in the city and BMW having an assembly plant on the outskirts. Chennai
accounts for 60 per cent of the country's automotive exports. Gurgaon
and Manesar in Haryana are hubs where all of the Maruti Suzuki cars in India are
manufactured.
The rapid advancement in the automobile industry in developed countries has boosted up
the demand for locally produced multipurpose cars and made the automobile industry of
India to strongly focus on exterior design and frequent introduction of new models and on
product with good quality and strong technology.
The Chakan corridor near Pune, Maharashtra is another vehicular production hub with
companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata
Motors, Mercedes Benz, Land Rover, Fiat and Force Motors having assembly plant in the
area. Ahmedabad with the Tata Nano plant, Halol again with General Motors,
Aurangabad with Audi.
MAJOR PLAYERS
The automotive industry in India produces a wide range of vehicles like passenger cars,
utility vehicles, commercial vehicles, two-wheelers and three-wheelers. Currently, there
are approximately 15 manufacturers of passenger cars and utility vehicles, 9
manufacturers of commercial vehicles and 16 manufacturers of two-wheelers and three-
wheelers.
Major Manufacturers in each segment
PASSENGER CARS COMMERCIAL VEHICLES TWO-WHEELERS THREE-WHEELERS
Maruti Suzuki Ashok Leyland Hero-Honda Bajaj AutoTata Motors Tata Motors Bajaj Auto PiaggioMahindra & Mahindra Eicher Motors TVS Mahindra & MahindraHindustan Motors Swaraj Mazda Royal Enfield Motors TVS MotorsHonda Mahindra & Mahindra Kinetic Motors Tata MotorsToyota Hyundai LML India -Volkswagen ITEC Suzuki Motors -General Motors Volvo Yamaha Motors -Ford - - -Audi - - -
The largest Indian passenger car manufacturers include Tata Motors, Maruti Suzuki,
Mahindra & Mahindra and Hindustan Motors. Presence of foreign players such as
Mercedes-Benz, Fiat, General Motors and Toyota is also growing in this segment.
Recently, the passenger car segment has also seen the entry of other global majors such
as BMW, Audi, Volkswagen and Volvo. Major Indian manufacturers of commercial
vehicles are Tata Motors, Ashok Leyland, Eicher Motors, Mahindra & Mahindra and
Force Motors.
Like the passenger car segment, this segment has also seen foreign companies such as
ITEC, Mercedes- Benz, Scania and Hyundai entering the market. Indian companies like
Hero Honda, Bajaj Auto and TVS dominate two-wheeler manufacturing. Foreign players
in this segment include Honda, Yamaha and Piaggio. Indian companies that include Bajaj
Auto, Force Motors and Mahindra & Mahindra also lead three-wheeler manufacturing.
As such, the automobile market has been flooded with numerous models in each segment
by both domestic and international players.
The growth of the Indian middleclass along with the growth of the economy over the last
few years has resulted in a host of global auto giants setting their foot inside the Indian
Territory. Moreover India also provides trained manpower at competitive costs making
the country a manufacturing hub for many foreign automobile companies. India proves to
be a potential market as compared to most of the other countries which are witnessing
stagnation as far as automobile industry growth is concerned.
A recent research conducted by the global consultancy firm Deloitte says that at least one
Indian automobile company will feature among the top six automobile companies that
will dominate the car market by 2020.
The Indian automobile industry proved to be in good shape last year even after the
economic downturn. This was majorly due to the fact of renewed interest shown by
global automobile players like Nissan Motors which consider India to be a potential
market.
As far as authorized dealer networks and service stations are concerned Maruti Suzuki is
the most widespread. The other automobile companies are also showing rapid
progression in this field.
FACTS:
The Automotive Industry in India is one of the largest industries and a key sector of the
economy.
At present, India is the worlds
Largest tractor and three-wheel vehicle producer.
Second largest two-wheel vehicle producer.
Fourth largest commercial vehicle producer.
Eleventh largest passenger car producer.
The Indian auto component industry is quite comprehensive with around 500 firms in the
organized sector producing practically all automotive components; there are more than
10,000 firms total. India’s component industry now has the capability to manufacture the
entire range of auto-components, for example, engine parts, drive, transmission parts,
suspension and braking parts, electrical, body and chassis parts, equipment, etc.
The Industry's Challenge:
Even though the automotive industry is robust, car manufacturers are complaining that the government's frequent change in policies is not encouraging the industry. Changing the policies and guidelines frequently severely hurts the companies’ plans. It also affects investment decisions in the country
Future Plans:
The Government has prepared a ten-year Automotive Mission Plan (AMP) to draw a future plan of action and remove obstacles in the way of competition, such as that required infrastructure be put in place well in time to alleviate its constraining impact on the growth.
The plan envisages a tax holiday for the industry on investments exceeding $225,000, 100% tax deductions of export profits, and deductions of 50% on foreign-exchange earnings. It also calls for a one-stop clearance for foreign-direct-investment proposals in the sector and deductions of 30% of net income for 10 years for new industrial undertakings. To bring down the cost of power and fuel, which accounts for 6% of the manufacturing costs in the auto sector, captive power generation would be encouraged to enable industries to access reliable, quality and cost-effective power.
COMPANY PROFILE
Introduction to General Motors
General Motors was established in 1908 by William C. Durant. General Motors, also
known as GM, is the world’s second largest Car manufacturer based on annual sales.
Founded in 1908, in Flint, Michigan, GM employs approximately 209,000 people around
the world. With global headquarters at the Renaissance Center in Detroit, Michigan,
United States, GM manufacturers its cars and trucks in 35 countries. In 2008, 8.35
million GM cars and trucks were sold globally under the brands Vauxhall, Daewoo,
Buick, Cadillac, Chevrolet, GMC, Holden, Pontiac, Hummer, Saab, Wuling, Saturn and
Opel.
GM brought brand differentiation to the world back in the 1920s, when Alfred Sloan
created the price ladder of GM Marques that offered “a car for every purse and purpose.”
Founded By: William Durant Present CEO: Daniel Ackerson
Today the GM product revolution again is strengthening its brands, with more innovative
marketing that better understands the customer. Witness the incredible renaissance of
Cadillac, led by all-new cars and trucks that have gone in a unique design direction, and
by marketing that really connects with potential buyers.
Designing, building and selling great cars and trucks that people really want to own.
Compelling designs excite customers and connect with them on an emotional level. Well
designed vehicles turn heads and fire the imagination.GM is investing aggressively in
high technology and e-business within its global automotive operations.
GM’s goal is to develop cars and trucks that have an emotional appeal for a new
generation of consumers- cars and trucks that people feel they must have.
Develop, build and provide India’s best vehicle and customer ownership
experience.
To profitably sell 200000 vehicles in 2010 and to be the preferred brand of choice with all our products in top 2 rankings of JD Power.
GENERAL MOTORS’S VISION GENERAL MOTORS’S MISSION
A slogan is a short, memorable catch phrase, tagline or motto used to identify a product or company in advertisements. The advertising
slogan, or business slogan most associated with General Motors, is:
"People in motion."
GENERAL MOTORS’S SLOGAN
Creation: 1897-1909
The world’s love of mobile started at the New York Auto Show in 1900.
General Motors was founded
by William “Billy” Durant on
September 16, 1908. Durant
had become a leading
manufacturer of horse-drawn
vehicles in Flint, MI before
making history into the
automobile industry.
First opel sewing machine
The Opel Bicycle Racing Team
Opel-Patent-Mototwagen System Lutzmann
1901 C Curved Dash Oldsmobile, was designed
First motorcar at its plant in Luton, England.
Cadillac Automobile Company in 1902. Cadillac would join GM in 1909.
Acceleration: 1910-1929
The rise of the automobile captured imaginations and sparked invention.
Buick Bug racecar set a new speed record of 115 mph.
Billy Durant started a car company with the most famous of his former racecar drivers, Louis Chevrolet
Introduced electric self-starter on the 1912 Cadillac.
Emotion: 1950-1959
The 1924 model year Buicks were the first to offer four-wheel brakes.
First production vehicle created by a professional designer Harley Earl. Earl was later hired by GM to create the industrys first design studio.
In 1928, Opel developed the famous Opel RAK 2 and turned race fans heads with its stabilization wings, power pack of 24 rockets, and speed record of 230 km per hour.
GMs commitment to innovation lent optimism during tumultuous world events.
1930 Cadillac V-16, the first production car to offer a sixteen-cylinder engine. Developed in secrecy, it set a new standard for performance, and luxury.
Chevrolet introduced the Suburban Carryall, a unique one-half ton truck with seating for eight. It was the grandfather of todays sport utility vehicle (SUV).
The 1949 Buick Roadmaster convertible, with its sleek profile, launched a new trend in automotive design
With the revolutionary Corvette in 1953, GM offered the North American industrys first sports car and created a new market segment
The 1957 Vauxhall Victor, which took styling cues from the United States, quickly became Britain’s top export car.
The 1950s Golden Era of styling ended with the Cadillacs
Revolution: 1960 -1979
Corvair was the first GM car to feature an air-cooled engine.
1963-model year Corvette Stingray featured Corvettes first complete re-design and remains a classic among sports car and performance car aficionados.
GM established another new market segment, the muscle car, with the 1964 Pontiac GTO
Chevrolet became a leader in the muscle car market with the launch of the Camaro.
GM and Boeing worked together to develop and produce the Lunar Rover, driven on the moon by the Apollo 15 astronauts.
General Motors's Chevrolet Impala was launched, the down-sized versions of all its full-size and luxury cars built
Globalization: 1980-1999
Innovation & Challenges: 2000-2008
In 1983, GM announced plans for a new small car program in the U.S. that soon led to the creation of the Saturn Corporation.
In 1996, GM launched the worlds first in-vehicle, hands-free communication system. Global positioning and satellite telecommunications enable Onstar to link the driver to operators around the clock.
With the launch of the EV1 in 1996, GM became the first automaker in modern times to sell an electric car.
In 2001, GMs HydroGen1 fuel cell vehicle set new endurance standards at GMs proving grounds. The HydroGen1 was powered by pure hydrogen and emitted little more than water vapor.
The Pontiac Solstice stole the show at the 2002 North America International Auto Show.
GM introduced the industrys first hybrid pickup trucks. Hybrid versions of the Chevrolet Silverado and GMC Sierra delivered up to 10 % fuel economy improvement.
Saturn introduced the Aura mid-sized sedan, its most important new car in a decade. Aura won accolades from the press and was named 2006 North American Car of the Year.
The 2008 CTS is sure to inspire a new generation of Cadillac enthusiasts.
The Chevrolet Volt extended-range electric vehicle concept was the star of the 2007 auto show season.
Rebirth: 2009-Present
The Chevrolet Volt enables daily driving of 25 to 50 miles on power from the grid, backed up a range-extender for longer trips. It swept 2011 car of the year awards.
The Chevrolet Cruze joined the U.S. market following great acceptance in major global markets.
The SRX crossover helped make Cadillac the fastest growing major luxury brand in 2010, continuing the resurgence begun by the CST and Escalade.
GENERAL MOTORS
PRODUCTS SERVICES
GENERAL MOTORS PRESENCE IN INDIA
Delhi
Nashik Mu
mbai
Gurgaon
[ Mktg Office ]
Bangalore
[ Mktg Office ]
Chennai
[ Present Mfg Plant ]
Halol
Indore
Ahmedabad
Talegaon
Tatanagar
Kolkata
GENERAL MOTORS IN INDIA
General Motors India has completed 14 years of operation and today offers a range of
products under the Chevrolet brand, which was introduced in India in 2003. In addition to
the Chevrolet Spark and Beat, it produces Captiva, Optra, Cruze, Aveo, Aveo U-VA, and
Tavera.
GM is now the fifth-largest automobile manufacturer in India and in the first 10 months
of 2010, sold 93,960 vehicles, which represents a growth of 73 per cent from the same
period last year.
It has 211 sales points and 205 service outlets in 178 cities across India, and has
embarked upon an ambitious rural marketing initiative to further boost sales. In February
2010, GM and its Chinese partner SAIC opened a joint venture in India for cooperation in
vehicle manufacturing and sales.
GM signed an agreement with the Maharashtra Government for the construction of a new
engine plant adjacent to its vehicle manufacturing facility. Construction started in
December 2008, with pilot production commencing in March 2010. The engine plant
complements GM's vehicle manufacturing facilities in Talegaon and Halol, Gujarat, and
the GM Technical Centre in Bangalore, which is carrying out a range of engineering,
design and R&D activities.
GENERAL MOTORS TALEGAON
Karl Slym (left) President and Managing Director, GM India, and Vilasrao Deshmukh,
Union Minister for Heavy Industries & Public Enterprises, at the inauguration of General
Motors' flexi-engine plant in Talegaon, Pune.
General Motors India (GM) inaugurated its new flexible-engine facility at Talegaon near
Pune. This is GM's first power train plant in the world that enables both petrol and diesel
engines to be manufactured simultaneously.
The facility represents investment in excess of $230 million and while it has an initial
annual production capacity of 1.60 lakh engines, it is designed to accommodate future
expansion. The new plant will produce engines for small passenger cars of the company
in India and has come up in under two years.
GM Talegaon Produces Cars of Only Chevrolet Brand.
PRODUCTS OF CHEVROLET
BEAT
SPARK
GENERAL MOTORS ORGANISATION STRUCTURE
Managing Director
Admin & Finance
Finance
Procurementt
Medical
Law
Security
Administration
Public Relation
Production
Production Sales
Billing
Programme
Floor & Set
Editing
Camera & Light
Technical/EngineeringAudit
Laboratory
Colour
Black & White
Chemical / Quality Control
Store
Development
Laboratory
Workshop
Plant & Machinery
Electrical
Electronics
Civil
LITERATURE SURVEY
The below Trading & P&L A/c and Percentage Distribution figure explains the allocation
of various percentage distribution in the Books of Account in a manufacturing
organization.
Trading & P&L Account
Particulars Amt (%) Particulars Amt (%)
Raw-Material Expenses 63.72 Sales 100
Direct Expenses 19.28
Gross Profit c/d 17.00
100 100
Indirect Expenses 14.23 Gross Profit b/d 17.00
Net Profit c/d 2.77
17.00 17.00
PERCENTAGE DISTRIBUTION
63.7219.28
14.23 2.77
Sales
Raw MaterialDirect ExpensesIndirect expensesNet Profit
As we can see that indirect expenses comprises of only 14.23% in the industry,
and the raw material comprises of 63.72% in which all the vendor’s bill payment process
is done. As per the previous figure we can see that the highest percentage is of the Raw-
Material Expenses, these expenses include the biggest process in the company to allocate
the payment to Vendors and close their open transactions.
The payment to the external party is of prime basis to the company. As it is a
Manufacturing Company, supply of Raw Material should be in a constant flow without
any barriers. The need for the settlement of vendor’s account in urgency arises by this.
The company has to deal with the external party i.e. vendor’s whose on time payment is
of vital importance for the company.
Out of overall expenses the Direct Expenses carries 19.28% in which 10.13% belongs to
Suppliers or Vendors. This includes:
Carriage Inwards
Power and Fuel
Gas Supply
Excise Duty
VAT
Octroi Duty
Indirect Expenses carries only 14.23% in overall expenses. In this, the involvement of the
vendor is of negligence percentage the reason is participation of vendors is limited only
for providing services to company like transportation, packaging etc. they deal only in
limited area of the company expenses.
DIRECT EXPENSES VENDOR PARTICIPATION IN %
Carriage Inward 1.23
Power and Fuel 1.62
Gas Supply 2.33
Excise Duty 3.12
Octroi Duty 0.61
VAT 1.22
The indirect expenses are:
Courier Services
Packaging
Transportation
The vendors are our Creditors and their payment is of prime importance, they come
under the accounts payable section. The payment making process is called as Account
Payable Process. Direct Expenses, Indirect Expenses, and Raw Material Expenses
payment is done under the Account Payable. The dealing of the above process is done by
the finance department.
Accounts Payable
Introduction:
Account is formal record that represents, in words, money or other unit of measurement,
certain resources, claims to such resources, transactions or other events that result in
changes to those resources and claims Payable means amount owed to a creditor for
delivered goods or completed services. Hence account payable means nothing but an
expense that has been incurred but not yet paid. This is comprised of all short-term
obligations owed by a business to creditors, Suppliers and other vendors. Accounts
payable can include supplies and materials acquired on credit.
Meaning and Definitions:
According to Financial Dictionary; Money owed to suppliers,
An expense that has been incurred but not yet paid. According to Don Hofstrand,
Accounts payable:
“An amount owed to a supplier for goods or services purchased on credit; payment is
due within a short time period, usually 30 days or less; according to Berenson LLP
Certified Public Accountants”.
According to Glossary; account payable means Money which a company owes to vendors
for products and services purchased on credit. This item appears on the company's
balance sheet as a current liability, since the expectation is that the liability will be
fulfilled in less than a year. When accounts payable are paid off, it represents a negative
cash flow for the company, example, Money that you owe to your suppliers and other
creditors will be recorded as transactions in the account payable ledger.
Accounts payable is the obligation that a business owes to its creditors for buying goods
or services. That is, it is the unpaid invoices, bills or statements for goods or services
rendered by outside contractors, vendors or suppliers. Accounts payable are sometimes
referred to as "payables".
Role of Accounts Payable Process in the organization:
The accounts payable system controls the disbursement of funds to outside
organizations. As part of this process, it retains subsidiary ledger information for
thousands of vendors and thus becomes a vital tool, providing management with an
abundance of information relating to vendor activity.
Effective and efficient accounts payable processing is important for several reasons:
The accounts payable system is one of the main sources of general ledger activity.
Because of the disbursement of funds, accounts payable is a likely place for
fraud to occur.
The relationship between customer and supplier can be greatly influenced by the
accounts payable services.
The nature of the accounts payable system makes it a prime target for periodic
auditing.
The primary role of the accounts payable system is to process payments to vendors for
both trade and administrative payables. In addition to this, most businesses use the
system as a centralized disbursement system for paying other demands, such as customer
refunds or employee expense advances.
Importance of Accounts Payable Process:
The accounts payable processes have a significant impact on the profits of a business.
Companies spend huge amounts of money every year to process invoices, perform
purchase order matching, address defects and respond to vendor inquiries. If the accounts
payable system is not effective, a company has to bear the additional cost of late payment
penalties, missed discounts, duplicate payments and rework. With an increased focus on
cost reduction and improved fiscal management, executive management teams are
realizing the benefits of an effective accounts payable process. The accounts payable
system is a totally integrated and consistent sub-system of the general ledger system.
Accounts Payable Cycle
No
No
No
NoNo
Yes
Yes
Yes
Material Material
Advance Shipment Notice
Purchase Order
Re-purchase Order for short Quantity with same
invoice Number
Re-purchase Order for short Quantity with same invoice
Number
Unloading Material
Qty. Match with Purchase order
and invoice
Creation of GRN in MGO
Step 1 Identification of Material Error relate to Step 1
Error relate to Step 2
Step 2 CENVAT crediting
Online Document Management (ODM)
ACS action
Vender A/c Credited
Vendor open A/c closed
Report by ACS to finance team for error
Finance team Action
Error relate to ODM
Indirect Direct
Purhase Requisition
Direct / Indirect Material
Direct Material Vendor
Indirect Material Vendor
Yes
Yes
Vendor:
Vendor is the most important person for any organization. They are the one who supplies
the raw material to the company not only for production but also for different services
which a company needs.
In General Motors there are 2306 Vendors. The vendors are being bifurcated on their
different types namely:
Direct Material Vendor.
Indirect Material Vendor.
Direct Material Vendor:
Direct material vendors are those vendors who supply the direct raw material required for
the production purpose, those raw material or parts are known as Parent Parts. Direct
material vendors are the fix supplier of parts to manufacturing company.
Indirect Material Vendor:
Indirect material vendor’s generally provides different types of services to the
manufacturing company. These vendors’ do not carry fix type of contract with
manufacturing companies for providing services.
The Vendors are being created in SAP (System Application & Product in Data
Processing) System. This process is done through Bangalore office of General Motors
and vendor code is created against each and every vendor. Unique vendor code is
allocated for every vendor. These vendor codes are used for the process of payment.
Vendor codes get confirmed to ACS (Affiliated Computer Service) which provides
finance serves to all GM plant including in foreign countries.
Raising Purchase Requisition:
This is the step in the process of General Motors Company. As the material needed for
the manufacturing is being supplied by the vendors, a purchase requisition is raised by
the purchase department when any material or raw good is needed. In General Motors the
purchase request is raised by the purchase manager against the vendor by using SAP
system.
The Purchase Requisition is filled by the Purchase Manager.
Purchase Requisition Process:
Cost Book
Pre RFQ
1st Round of Offer
RFQ
Tech Review
Target Setting
SOR
2nd Round of Offer
Final Offer
SOR is a Statement of Request which is raised by Engineering Department. Cost
Book is given by Finance Department for target costing. Pre RFQ is pre request for
quantity to the Shortlisted Bidders. After that RFQ is given to the selected Bidders.
As this process ends, 1st round of quarter, in which the selected bidders called, there
Technical review is done, in which again cost and quality of material decided. In 1st round
the cost and quantity is submitted by the Bidder to the company. After this, 2nd round is
also done where the company and bidder come together to set a common platform for
price and quality of material. As this round is completed the final Bidder is given the
contract for supplying material to the company.
The recommendation of the selected supplier is sent to the management for the
approval. Once the management approves the Supplier, is listed in the vendor list of the
company and is allowed to supply the decided material to the company.
Purchase Order:
After the selection of the Supplier, the purchase order is raised by the vendor. The
same is selected by the management, approving the supplier for allowing him to supply
the necessary material or the required quantity to the company. In the approval, the
condition is also set by the management about the Delivery Term, Packaging,
Transportation, Batches etc.
Advance Shipment Notice (ASN):
Advance Shipment Notice includes terms and conditions for a delivery of goods given
by manufacturer to vendors. Advance Shipment Notice is being sent by the purchase
department in for the sample delivery of required material. The sample material is then
tested by inspection committee for the verification of the material so that it should match
the required and estimated quality of the company. If it gets matched then, approval is
made for the supply of goods or material.
Unloading Material:
Once the request is raised, the vendor provides the required quantity against the order.
The vendor brings the material with the Invoice which has all the description of the
material. The material is collected by the stores department and the original invoice is
sent for the further process viz, clearing of Bill amount.
The Below entry is passed after the material is shifted to stores department as
inventory.
Date Particular L/f Debit Amt. Credit Amt.
XXXXX Inventory A/c Dr. XXXX
To GRIR A/c XXXX
( Being material Shifted to stores as inventory )
Creation of GRN in MGO:
Material Global Optimization (MGO) is software in which the vendor fills the
information of the material sent to the factory and which is being checked by the account
department for making sure the same material is posted to manufacturing unit. Once the
account department receives the invoice the actual work of Finance gets started. The flow
is as following.
After this process we get the Good Receipt Note (GRN) no. which is automatically
created in MGO (Material Global Optimization). GRN is a unique number which is
assigned against every single invoice. No two GRN numbers can be created for a single
invoice. The GRN number which is created in MGO is called as MGO GRN. The MGO
GRN is an important data which is sorted by the account department. It is used for the
further process of the Invoice. After this process the invoice moves for the next step, that
is Identification of Material.
Part 1: Identification of Material:
This procedure is called as Part 1 creation. The Part 1 is created in SAP under SAP
under ‘J1iex’ transaction code.
Par t 2: CENVAT Crediting:
This process is nothing but the cross checking of Step 1 data. For retrieval of the
data here we enter the SAP internal number so that the invoice entry number is displayed
and we can cross check for the accuracy of the data. If the SAP internal number is not
made we are not able to retrieve the data for cross checking. The internal number is also
written on the invoice for its identification. The Sap GRN number is then used for the
further process of clearing the vendor payment
After crediting CENVTA entry is passed in SAP as the GRN (Goods Receipt Note) is
created and GRIR A/c is made for the vendor.
Date Particular L/f
Debit
Amt. Credit Amt.
XXXX GRIR A/c Dr. XXXX
To Vendor A/c XXXX
(Being accounting entry passed)
ACS (Affiliated Computer Services):
Affiliated Computer Services is business processing outsource service provider
company based in Bangalore provides Finance and Accounting services to General
Motors since mid-2000. Major play of Affiliated Computer Services (ACS) is in the
Vendors Account payable process and preparation of annual general motors for General
Motors.
Finance Service Provider:
General Accounting services from ACS include overseeing, coordinating and
controlling the accounting records and closing activities of General Motors. ACS handles
intercompany Consolidations & Close, Account Reconciliations, Fixed Assets,
Inventory/Cost accounting and General Ledger services. The benefits of allowing ACS to
handle General Motor’s general accounting needs include fewer rework issues,
minimized journal entries, standardized reconciliation process, greater compliance and
increased reliability and repeatability of every process.
Role of ACS in General Motors:
In General Motors ACS plays a vital role for closing the open transaction of vendor
account in GRIR A/c in General Ledger by making the payment to the vendors. The
material invoices are scanned in General Motors Talegaon Plant and being sent to ACS in
Bangalore. The original is filed with the company and the scanned data is uploaded in
ODM which can be accessed by ACS only. Every single invoice is scanned and sent to
ACS for their amount payment. After the payment is made the accounting entry in SAP is
also done by them. We can see these entries in SAP after the posting is completed. If any
problem occurs during the payment procedure, the same is informed to finance
department of General Motors with their respective reasons. As the scanning is complete
in the GM Company ACS updates the ODM fields which are helpful for the finance team
for viewing the scanned invoices.
Online Document Management (ODM):
Online Document Management is done by Finance department itself for the
convenience in handling the invoices and making it available as per the requirement.
ODM provides the scanned image of invoice copy. Scanned invoices are send to ACS so
that the payment of the vendor can be done. By referring scan invoices with SAP entries,
payment to vendors are made through bank transaction. Online Document Management
(ODM) is nothing but a service which is used for the scanning purpose and also
maintains data. As the scanning is completed by the ODM department they receive a
Document number (DCN) for each invoice. Finding the scanned invoice in ODM is very
easy task if we know the DCN number.
In the above screen shot we can see the different fields which carry certain numbers.
These numbers are updated by the ACM team. Only DCN is received at the time of
scanning. The field indicators are as follows:
Field 1: Scanned date
Field 2: SAP posting number
Field 3: P/o number
Field 4: Invoice number
Field 5: Vendor code
Field 6: SAP GRN number
Field 7: SAP doc. number
The entry is passed after the payment to vendor is done by ACS. This entry is passed to
close the open account of the vendor. Accounting entry is as follows.
Date Particular L/f Debit Amt. Credit Amt.
XXXX
Vendor A/c Dr. XXXX
To Bank A/c XXXX
(Being payment made to vendor)
Report by ACS:
Affiliated Computer Services (ACS) after receiving the scanned copy of the invoice,
processes it for the payment of vendor to be done. The accounting entry is done in the
books of accounts and also is being updated in SAP. The posting of all entries in SAP has
a particular SAP posting number which is listed in SAP.
When ACS is unable to do payment to vendors or unable to do the process then, they
inform about this to Finance Department of General Motors with error report submitted
separately. Finance department had a separate team to handle such challenges by ACS.
All the queries by ACS are resolved by finance team and process is completed when this
team completes the course of action for the payment of vendor’s.
ACS provides the detail of the pendency of Invoices on the basis of aging i.e. period
of open transaction. This aging is done on three different categories.
Transaction opens for more than 90 days
Transaction opens for more than 60 days.
Transaction opens for less than 60 days.
The same can be seen in SAP also. SAP, under the vendor line item list, displays the open
and closed transaction. The priority of closing open transactions is decided by the
Finance Department.
General Motors maintain a separate GRIR Pendency report for different Vendors,
so to solve the error and clear the payment of the same.
Research Methodology
Definition:
“The process which includes defining and redefining problems , formulating hypothesis
or suggested solutions; collecting ,organizing and evaluating data, making deductions and
reaching conclusions, and at last carefully testing the conclusions to determine whether
they fit the formulating hypothesis.”
- Clifford Woddy
Statement of Research:
The Plant spends large amounts on Account Payable but in order to evaluate that
whether the existing process is convincing or not an appropriate check has to be done.
So, a process of evaluation, rather than being an additional cost, can be a significant cost-
saving measure. The statement of the research is:
“Evaluating the effectiveness of Accounts Payable Process in General
Motors.”
Research Data:
The research data used were of two types:
Primary Data
Secondary data
There were a collection from the Plant’s Finance Department and stored
documents in form of hard and soft copy.
Primary Data
Meaning:
Primary data are obtained by a study specifically designed to fulfill the
data needs of the problem at hand. Such data are original in character and are
generated in large number of surveys conducted mostly by government and also
by some individuals, institutions and research bodies.
Source of Primary Data for Project
The primary data consists of the interaction with the Team Members of
the Finance floor and the staff of the Plant. A lot of information was available by
the Plant’s trainings, interacting with the staff members and the trainers.
Secondary Data
Meaning:
Data which are not originally collected but rather obtained from
published or unpublished sources are known as secondary data.
Source of Secondary Data for Project
The secondary data was collected by the hard and softcopies of the
Vendors’ Accounts Payable documents. They were as follows:
Hard copy as well as soft copies of various Invoices
Soft copy of pending vendors’ Account Payables
Access to Online Document Management
Reports by ACS
Access to SAP
Research Design:
The research design comprises of accounts payable process in below six steps:
Observation of Accounts Payable process in General Motors India with the
help of SAP, MGO, and ODM software’s.
Practical work on Account Payables process and close the vendors’ open
account by crediting to vendors’ account.
Analyzing various errors occurs during settlement of vendors’ account.
Design course of action to be taken to resolve the errors occur
Implementation of actions to prevent the errors
Finding the result
Research Process:
This project in General Motors is attempt to depth study and search on a topic
named Accounts Payable Process as area of investigation, backed by the collection,
compilation, presentation and interpretation of relevant details and data.
DATA ANALYSIS
Inception:
For the analysis of data we have picked some random line item of invoices of
different vendors available in General Motors.
The vendors which are selected to close the open accounts which are open from June
2011with some queries being raised by ACS for not closing vendors GRIR accounts.
Here we are trying to solve those queries and close the vendors GRIR accounts.
The following table indicates the vendor details which are selected to show the
process of closing the open GRIR account.
Sr.
No.Vendor Name Vendor Code Invoice No. Invoice Date
1
TATA
AUTOCOMP
SYSTEMS LTD.
19000074 968034929 29.05.2011
2BUNDY INDIA
LTD.19000091 709098 11.06.2011
One invoice may consist of many line items. Even it can have more than 100 line items in
a single invoice.
The objective behind this project is to settle the accounts which are opened for more than
sixty days and ninety days on priority and as soon as possible.
Arrangement for Account of Tata Auto Company Systems Ltd:
The process starts when Tata Auto comp system has sent the required material placed by
the Purchase Manager of General Motors. Vendor TATA Auto Company Ltd. Sent
material along with the invoice showing below.
Stamping on invoices is done in the stores department at the time of receiving the
material after checking the quantity demanded by purchase department.
In this case, required quantity and supplied quantity by the vendor is same and do match
with each other.
GRN creation in MGO
Material Global Optimization (MGO) is software in which the vendor fills the
information of the material sent to the manufacturing industry and which is being
checked by the account department for making sure the same material is posted to
manufacturing unit. Once the account department receives the invoice the actual work of
Finance get started.
The received material is shifted to stores department as inventory. And the GRN is
created by the account department, passing a journal entry in the Books of Account. The
entry is as followed.
By passing this entry in SAP material is shifted to the stores department. Materials in
stores department are treated as raw material inventory of the General Motors.
The GRN no is also get created in MGO software against particular invoice (invoice
no.92010587308) this GRN no commonly known as MGO GRN no.
:Date Particular L/f
Debit
Amt. Credit Amt.
25/05/2011
Part No. 95970211 A/c Dr. 34968.70
To GRIR A/c 34968.70
(Being material shifted to stores as inventory)
Step 1: Identification of Material
This process is called as J1iex- Part I creation where Part 1 is created in SAP
for identification of material under J1iex transaction code. The above screen shot 1 is the
image of the SAP-J1iex transaction screen used for creation of part I for identification of
material.
The above screen shot shows invoice is captured for excise duty rates. Once the invoice
number is entered in the field the screen show the description of the invoice and the Part I
team has to check it with the original invoice and capture the excise rate for the invoice.
The excise rates are fixed as per the Government rules. The process once finished the
team then saves the information in SAP and receives an internal number which is being
used for the further process.
Step 2: CENVAT Crediting
This is the process of capturing CENVAT in SAP under J1iex – part 2 transaction codes.
Cross verification of J1iex – part 1 entries is also done in this part. Screen Shot 2 is the
image of the SAP - J1iex transaction screen used for creation of part I for identification of
material.
The above screen shot shows how SAP screen looks like after the crediting CENVAT.
After crediting CENVAT while saving all transactions a unique SAP internal number is
generated against the transaction done.
In this type the POSTCENVAT is done in which the SAP excise duty rate and the
original invoice duty rates are checked. The quantity and the amount are also checked for
making sure that everything is correct with the invoice processing system. Once the
POSTCENVAT is done the data is again saved in SAP system and we receive a unique
number which is called as, SAP GRN Number. Here the work of CENVAT crediting
team finishes.
Screen shot shows the duty rate for TATA auto comp Ltd. invoice.
Various types of duties are chargeable to vendors of manufacturing company such as
BED, AED, ECESS, and SED. All duties are deducted directly from the payment to
vendors and TDS (Tax deduction Certificate) is being sent to vendors by company. The
TDS certificate is made by referring to following SAP screen.
Screen shot 4 shows the different types of duties like the BED, AED, ECESS, etc being
calculated in General Motors
Screen shot shows that how SAP Screen looks like after the Part II is captured.
The above screen shot shows the SAP GRN number and all the information of the
invoice including the duty values and other different values. Once we get the SAP GRN
number the same is used for tracing the invoice in ODM.
After crediting CENVAT accounting entry is passed in SAP as the GRN (Goods Receipt
Note) is created and GRIR A/c is made for the vendor
Particulars Debit Credit
Tata Auto comp Systems 42,681.04
GR/IR A/C-M200 34,968.70
Cenvat Clg A/c 2,882.98
Cenvat Clg A/c 57.66
Cenvat Clg A/c 28.83
VAT Receivable Mtls-Mah 4,742.27
Round Off 0.60
Total 42,681.04 42,681.04
By passing accounting entry in SAP GRIR (Goods Receipt Invoice Receipt)
account is created against vendor TATA AUTO COMP of Rs. 42,681.04 /-
Online Document Management (ODM)
This is a last stage in the process of invoice for its payment clearing in the
General Motors, Talegaon plant. The scanning of the invoices is getting done in online
document management. After scanning we will receive a unique document number
known as DCN which is most useful for tracing scanned invoices.
The DCN number is useful for retrieval of scan copy of original invoice. In ODM
screen DCN number is to be entered in the mentioned field only, then only we can access
invoice. The screen shot of the same is as follows.
For the TATA AUTO COMP vendor the Online Document Management DCN
(Document no) is 3482609 which should be fill in the field showing DCN in ODM screen
so the invoice of TATA AUTO COMP amount of Rs. 3742.37 with the vendor line
item, part no of PPGM0157 and invoice no 9201058738 can be retrieve.
Screen shot
We can see that just entering the DCN we received the full information about TATA
AUTO COMP invoice viz.
Scanned Date (Indicated in Index field 1)
SAP Posting No (Indicated in Index field 2)
Invoice number (Indicated in Index field 4)
Vendor Code (Indicated in Index field 5)
GRN No. (Indicated in Index field 6)
With the ending of ODM process all the responsibilities of Finance
department of General Motors are getting finished. From here work of ACS
(Affiliated Computer Services) is gets start.
Affiliated Computer Services (ACS) has to complete the accounting entry in SAP within
3 working days. While closing the vendors account Affiliated Computer Services (ACS)
passed the accounting entry as
.Date ParticularL/
f
Debit
Amt.
Credit
Amt.
15/07/2011
Tata Auto comp Dr. 42681.04
To Bank A/c 42681.04
(Being payment made to vendor)
The Accounts Payable process of TATA AUTO COMP (Invoice no 9201058738) is
finished with the final accounting entry for crediting the payment in vendors account.
This is a normal process which is followed by the company for clearing the
payments and closing the open A/c’s.
As the coin has both the sides, the company also has to deal with
many challenges. Few challenges which are faced by the company are as
follows:
The main reason which the ACS provides for not clearing the vendor
payment is Invoice Not Found to them.
The reason behind this is the different errors, they are known as Primo
Errors. Generally error comprises of the following points:
1. Quantity Mismatch
2. Amount Mismatch
3. Part number Mismatch
4. DUN’s number not found
5. Vendor code not found
6. System Problem
7. Wrong P/O number taken
8. Excise not captured
9. Excise wrongly captured
10. Invoice with unclear display
There may be many more new problems which can arise while clearing the account. The
finance team deals with this entire problem and tries to clear all these invoices by making
the payment to the vendors as soon as possible. Everyday Finance team deals with many
different cases for making the biggest process flow in a smooth manner. As making
payment to the external parties is the main dealing of every manufacturing company,
General Motors also keeps its hand full in making this BIG process easy and maintaining
the data in the books of account.
The frequency of invoices trapped or invoice amount not credited to vendor
accounts depend upon the various factors such as image quality of scan copy, etc.
Dealing the Challenges
As the challenges come to finance team, they try hard to deal with them in the
most efficient manner and as soon as possible, the time duration of solving a problem
depends upon, what type of the problem is. As per the list provided above about the
different errors and challenges to the finance team arises, the solution set is now made to
tackle such challenge. The solution for challenge is as follows:
Capture the right quantity, if by mistake wrong is captured, reverse the entry and fill the
right quantity and then forward it.
i. If amount is mismatched then capture the right amount and clear the
problem.
ii. If part number is mismatched, check the invoice with that of in MGO and
then correct the error.
iii. Check in GPS, why DUN’s number is not found, it may be due to change
in the vendor code or the vendor name. Correct it and solve the problem.
iv. If vendor code is not found in SAP list and the vendor is of this plant,
create the vendor code for this plant in SAP.
v. If any system problem occurs contact to IS&S team.
vi. Update the P/O number which the vendor has raised for the payment
purpose.
vii. Select the excise rate as per the Govt. rules and then forward the invoice.
viii. If excise is wrongly captured, check for the excise rate, quantity of
material on which excise is taken, correct the error, forward for the further
process.
ix. Invoice with unclear image or display should not be taken and processed
for the payment, as unclear data will create an error in future.
As the first sample invoice of TATA AUTO COMP was cleared in a smooth process and
it didn’t needed any extra efforts for making the payment to the vendor, now we will see
one invoice which has an error and the solution on it so that the invoice is also cleared for
the payment.
Arrangement for Accounts Payable of BUNDY INDIA LTD.:
Vendor BUNDY INDIA. Ltd is a direct material supplier local vendor. This vendor
supply the direct raw material required for the production purpose. Urge for closing
vendor account arises because this vendor is direct material supplier if vendor stop supply
of direct material manufacturing process of automobile also get stop. In car
manufacturing company if the production line is delayed by a single minute result in the
loss equal to the selling price of one car. So in case of General Motors, Talegaon plant
the loss will be around 3.5 lacks.
In case of vendor BUNDY INDIA. Ltd. sent the required material as per the
requisition of material placed by the Purchase Manager of General Motors along with the
invoice (Invoice no 0106598)
The process goes as same as TATA AUTO COMP.
MGO GRN creation
Step 1 – Identification of Material
Step 2 – CENVAT Crediting
Online Document Management Scanning
But when the scanned invoice reached the ACS they were unable to make the payment
and clear the account. ACS provided the following reason:
Wrong Excise Duty Captured in SAP (J1iex), now this is the place where the finance
team got a challenge to solve the problem. ACS has provided the reason for not clearing
the payment to the vendor. Then we looked in to the SAP for our further analysis. The
SAP screen showed the following data which can be viewed in SAP
Screen Shot
Now here finance department start with the work of clearing of Bundy India Ltd
Vendor line item. As per the training given to us on SAP and ODM, we found the reason
of invoice not cleared for bill payment to vendor. We also received an opportunity of
visiting different departments of the company and also got training on dealing with
different challenges that are faced by the company. As per the observations the reason
behind the open transaction is the wrong quantity which is captured by the team and then
forwarded for the further procedure. Due to which a wrong excise duty has been captured
in SAP, which again added a challenge in front the Finance Department.
Screen Shot
Screen Shot
Both the screen shot shows how the problem occurs and what is the challenge faced by
the finance team. In the case of vendor Bundy India Ltd., excise duty is wrongly captured
in the SAP (J1iex) process.
But we can see that in the invoice and the SAP posting done the quantity which is
there do not match with each other. In the invoice the quantity is 200, while in the SAP
the posting of quantity is done as 17,258. This quantity is nothing but the amount of the
invoice which by mistake is taken as the quantity of the invoice material.
Secondly the GRN is being created twice, which cause problem for the payment of the
bill because while processing invoice for further formalities every number should be
unique and single in every process so that invoice can be traceable. This case is of
multiple problems, there are two GRN created, the quantity is wrongly taken, and the
Excise amount is not captured properly. Now to deal with this problem the solution for
this type of problem is as follows:
Cancel both the SAP GRN
Cancel the entries passed for this invoice
Create a new GRN for the invoice
Capture the right quantity and right excise amount
Forward the same to ACS for payment of the Bill Amount.
This was the solution for the problem that occurred in making the payment to the
vendor. After acting in the same manner, we will be able to clear the account.
Findings:
For analyses of data and the process of Accounts payable we took a monthly
Dump file for April 09. The file including 1092 vendors’ accounts opened in the
system.
1092 opened transaction are bifurcated on the basis of aging period of more than
90 Days & More than 60 Days.
A. 692 transactions opened from more than 90 days
B. 400 transactions opened from more than 60 days
For CASE: A
165 of the open transaction were closed, as they were in the process.
And action was already taken on it.
269 of the transaction were closed by taking necessary action with the
guidance of Finance Team
151 cases are still in Error, and under process of Finance Team.
107 cases are such cases which were cancelled and action is taken and is
under process of getting cleared.
Most of them are in Primo Error.
Bad invoice image is one of the causes which lead the invoice under
Primo Error.
For CASE: B
Most of the cases were in Primo error
12 cases are being cancelled and action is taken and is under process of
getting cleared.
95 cases are still in Primo Error, and under process of Finance Team.
52 cases are of the Supplier who do not stand in the GMTP Vendor List,
and were by mistake come to GMTP Finance Team for the clearing of
the bill amount.
117 of the transaction we closed by taking necessary action with the
guidance of Finance Team.
134 transactions were closed, as they were in the process, and action
was already taken on it.
Conclusion:
With the better understanding on the company’s “Vision – Mission” and leaning of
Account Payable Process thoroughly means of various databases like Process Charts,
Tables….etc, the suggestions to improve the effectiveness of the current practices is
evaluated. Also, the systems based Invoice processing in SAP and ODM is understood
and evaluated to improve the efficiency of the function.
Evaluation of current process was done to mitigate the non-value adding elements
of the process. Pros – Cons” were taken in to the consideration for further improvement
in the organization’s financial management.The learning’s through various Invoice
transactions and feedback systems are considered to effectively control cost and make the
system much easier. The small control points or improvements, but more effective in
results, are mentioned in above– Suggestions.
Suggestions:
Dump file should be maintained on monthly basis for the updation of vendor
payment in every month.
Responsible person should maintain the file showing the status of invoices
with them and the reason for the invoices not forwarded to the further process
At the time of dotting down the material part no, part description, quantity and
amount in SAP it should be recheck once by the concern person when all the
fillings get done in SAP.
The company should accept invoices printed by using dark ink so at the time
of scanning the risk of bad image generation get reduced.
At the time of receiving the material from vendor stores manager must
confirm that he is not pasting stamp on amount or on any text explaining
about the material.
While capturing excise and other duties in J1iex part 1 should be cross check
once by concerned person.
Stores manager should confirm the authorized signature of licensee or
authorized agent on invoices. The invoices should be rejecting which not
caring any signature of licensee or authorized agent on invoices.
Limitation of the Project
The project is most comprised of technical data.
Using of SAP was a bit difficult at the time of training and requires hands-on
experience of the SAP and GM practices.
Special training was imparted for using the SAP system and guidance to
operate ODM was supported by GMI personnel.
The other software (ODM) used in the company was unknown at the time of
joining.
All other functions of the company may not be known without the training.
As accounting and financial help is provided by other service provider, only
managing of the finance is done in this company.
Relationship Between Accounts Receivables & Accounts Payable
Average Receivables Period
For example, if the average collection period is sixty days and the standard days of credit
is thirty, then customers are taking much too long to pay their invoices. A sign of good
performance is when the average receivable collection period is only a few days longer
than the standard days of credit.
Formula 31st Dec
2008
31st Dec
2009
31st Dec
2010
Average Accounts
Receivable
Annual Sales/365 days
= 3,56,310
67,04,055/365
= 19days
= 3,38,310
25,86,330/365
= 47days
= 3,91,455
61,01,640/365
= 23days
Graphically Presented
19
47
23
days
31st Dec 200831st Dec 200931st Dec 2010
The resulting number indicates how many days on average the company’s customers take
to pay their invoices. For example, if the company extends its customers a credit frame of
30 days, then the company would want the Average Collection Period Ratio ≤ 30. That
would indicate that, on average, the company’s customers take 30 days or less to pay
their invoices, therefore complying with the credit policy. If, utilizing this example, the
Average Collection Period Ratio is > 30, then the company’s customers, on average, are
not in compliance with the credit policy, and/or the company is not enforcing those
policies sufficiently.
Average Payment Period
The average number of days a company takes to pay its bills used as a measure of how
much it depends on trade credit for short-term financing.
Formula 31st Dec
2008
31st Dec
2009
31st Dec
2010
Average Accounts Payables
Annual Sales/365 days
= 1001655
67,04,055/365
= 54days
= 8,42,625
25,86,330/365
= 118days
= 9,67,365
61,01,640/365
= 59days
Graphically Presented
54
118
59
Days
31st Dec 2008
The resulting number indicates how many days on average it takes the company to pay its
bills. For example, if the company’s suppliers extend it 30 days of credit, then the
company would want the Average Payment Period Ratio ≤ 30, but as close to 30 as
possible. That would indicate that on average the company pays its bills on time, but it
uses the credit terms offered very effectively. If, utilizing this example, the Average
Payment Period Ratio is > 30, then the company is on average paying its bills late, which
in case may be very detrimental to its relationship with its suppliers.
Comparing the Average Collection Period Ratio (ACPR) to the Average Payment
Period Ratio (APPR) can also offer very valuable information about the cash-flow
situation of the company. If, for example, the ACPR > APPR, then the company may
encounter a cash flow problem (or cash shortage) in the near future, as it takes the
company’s customers more days to pay their invoices than the company takes to pays its
own bills. The difference between the two, ACPR minus APPR, equals the days the
company has to dig into its own cash reserves. This means the company is experiencing
negative cash flow during that period, as it have to give money out (pay bills) without
getting cash in (getting paid by its customers). Over the longer term this could lead to
severe cash shortages. Therefore the company should always aim at ACPR ≤ APPR, so
the cash coming into the company form its customers pays for the company’s bills, and
there isn’t a cash crunch.
Current Ratio
An indication of a company's ability to meet short-term debt obligations; the higher the
ratio ,the more liquid the company is. Current ratio is equal to current assets divided by
current liabilities. If the current assets of a company are more than twice the current
liabilities, then that company is generally considered to have good short-term financial
strength. If current liablities exceed current assets, then the company may have problems
meeting its short-term obligations.It measures the ability to pay bills.
Formula
31st Dec
2008
31st Dec
2009
31st Dec
2010
Current Assets
Current Liabilities
= 19,92,015
34,02,360
= 0.585
= 26,66,115
23,59,575
= 1.129
= 23,87,385
21,22,065
= 1.125
Ratio Accounts payable proportion in Current Liabilties
Formula
31st Dec
2008
31st Dec
2009
31st Dec
2010
Accounts Payable
Current Liabilities
= 1001655
34,02,360
= 0.29
= 8,42,625
23,59,575
= 0.35
= 9,67,365
21,22,065
=0.45
Ratio Accounts payable proportion to Current Assets
Formula
31st Dec
2008
31st Dec
2009
31st Dec
2010
Accounts Payable
Current Assets
= 1001655
19,92,015
= 0.50
= 8,42,625
26,66,115
= 0.31
= 9,67,365
23,87,385
= 0.40
Accounts payable ageing schedule
The accounts payable ageing schedule can help you determine how well you are (or are
not) paying your invoices. While it is good cash flow management to delay payment until
the invoice due date, take care not to rely too heavily on your trade credit and stretch your
goodwill (and future credit terms) with suppliers. Worse still, late payments may drive a
supplier out of business, resulting in potential supply chain problems and threatening
your own business.
Accounts Payable Ageing Schedule
Suppliers Name Total
accounts
payable
Current 1-30 days
past due
31-60 days
past due
Over 60
days
past due
Delphi Automative 4645 4645 - - -
GMW Downshell 2255 2000 255 - -
Tata Autocom 3020 2000 455 340 225
Bundy Ltd 3260 1500 1000 420 340
Lear 500 500 - - -
Kiran Udyog 750 325 225 50 150
Total 14430 10970 1935 810 715
Percentage
breakdown
100% 76% 13% 6% 5%
The accounts payable ageing schedule is a useful tool for analysing the makeup of your
accounts payable balance.
Looking at the schedule allows you to spot problems in the management of payables
early enough to protect your business from any major trade credit problems. For example,
if Bundy India Ltd was an important supplier for Genearl Motors, then the past due
amounts listed for Bundy Ltd should be paid in order to protect the trade credit
established.
