The batching of accounts payable is the process of aggregating invoices to be paid into groups, or batches, and making one entry in the accounting records for the entire batch of invoices, as opposed to individual journal entries for each payee. Batching is a common technique used to reduce journal entries, and it helps the accounting information system operate more efficiently. However, batching procedures have drawbacks as well.
The primary benefit in batching accounts payable transactions is a reduction of entries in the accounting system. Companies with high numbers of low dollar value transactions can quickly see thousands of debits and credits in expense accounts. This level of detail in the payables ledger is unnecessary and creates a processing burden for the computerized accounting system. By batching transactions on a daily or weekly basis, this burden is alleviated.
When transactions are batched on a daily basis and payments are made by wire, it is simple for accounting supervisors to reconcile daily cash-out amounts to the bank statement's cash outflows, as bank statements frequently list daily transactions totals. Furthermore, random selections of paid invoices can be made and traced into batches and the bank statement to ensure amounts recorded are accurate.
Daily and weekly batching of transactions allow accountants to quickly analyze the trending of payment amounts by day. Each payment batch represents the same unit of time; outliers are easily spotted by listing daily batch totals and investigating high or low amounts. However, batching makes it more difficult to detect individually abnormal cash outflows. If the company is concerned about large cash payments being made without authorization, supervisors can institute policies to include double signatures on large amounts.
A potential drawback to batching accounts receivable can be difficulty in reconciliation. If company accountants are not diligent in recording what transactions make up each batch, payment reconciliation can be difficult, if not impossible. If this weakness exists, it can be easy for employees to commit fraud or vendors to dispute that they have received payment.