SOP Payment Definition And Examples

In simple terms, SOP stands for Standard Operating Procedures, and refers to a set of clearly laid out instructions for a particular task or process. If you’re in business, the use of an SOP can help to standardise the way a particular aspect of that business is run, ensuring consistency and efficiency on an ongoing basis. SOPs can apply to the supply chain of your business, your marketing and branding and the use of corporate communication, but for a merchant trading with multiple customers the most important SOPs are those that apply to the accounts and finance of the business 

Why accounting standard operating procedures are so important

For any merchant the key to business success involves knowing exactly how different aspects of the business are performing at any given time. Metrics such as the gross profit margin and cash flow to debt can give a clear insight into how key areas of the business are operating, but the figures these metrics are based upon can only truly be relied upon if accounting SOPs are in place. Using standard operating procedures for accounts and finance means you can always be sure that the figures you rely upon have been collated and interpreted in a consistent manner, enabling you to track trends going backward and forward in time. 

The other big advantage of instigating SOPs for accounts and finance is that you can be certain all of your accounting methods comply with the relevant legal standards, since these standards will have played a part in establishing the SOPs initially. Using SOPs will also mean you have accurate and verifiable figures to show to any external auditors or potential investors. 

Areas covered by accounting SOPs

Although the concept of an SOP can be applied to virtually any business process, specific areas of finance and accounting are particularly suited to the set methodology and rigid parameters involved in standard operating procedures. Some of the areas covered by accounting SOPs include the following: 

• How invoices and billing are handled

• How to deal with any payments that default or which are delayed

• How to gather, analyse and store customer data in a secure yet accessible manner

• How to manage accounts receivable data and reconcile the figures with those on the balance sheet

• How to keep track of any shipping documents and monitor deliveries and collections

SOPs for accounts payable

Accounts payable are those debts carried by a business that are due to be paid within 12 months. They should be listed as current liabilities on the business balance sheet. The SOP for dealing with accounts payable consists of:

• Capturing and collating the data of all incoming invoices 

• Approving those invoices for payment 

• Matching invoices to purchase orders

• Making the payments themselves 

Standard SOPs for the accounts department 

The accounts department for any business should have SOPs in place for a range of activities and responsibilities, including:

• Collecting information from various parts of the business to create invoices to send to customers 

• Preparing regular budgets for the business as a whole, setting out plans for future expenditure

• Keeping track of any payments that are overdue and instigating processes to chase the funds in question 

• Collating accounts payable to suppliers and through employee expenses and overheads 

• Collecting the information needed to make accurate payments to any employees 

We Can Help

If you’re interested in finding out more about standard operational procedures, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.