We take the invoices for the next couple of months, upload the batch to the bank site, and the bank pays the vendors on the due dates. How do we manage the accounting, and will this have any adverse effect on the DPO/DSO ratio?


While the approach you describe does have a distorting impact on DPO, more importantly, it is resulting in an understatement of the company’s cash position in its financial statements. It also must be creating a lot of reconciliation items on the bank statement.

The best thing would be to transfer the payment items to the bank when due, rather than when ready to pay.

But it that’s not a good option, then instead of making the journal entry when you send the payment batch (ready to pay file) to the bank, consider one of the following alternatives:
1. The most accurate way would be for the bank to send you a file with the payment number when paid and you book according to actual pay date. This will give you an accurate cash position, accurate DPO, and eliminate having to reconcile items from the bank reconciliation.
2. Make the journal entry based on due date—there might be a difference between the bank and your books, but it will still give you a fairly accurate cash position and DPO, though you still will have some reconciling of bank items.

Either way, when you send the ready-to-pay items to the bank, book the expense and AP holding; when the bank pays, reverse AP holding and book cash.
1. If the bank sends you a pay file, then you reverse AP holding and book cash—this would be the most accurate way to account.
2. If you make an entry based on the payment due date, then there might still be some differences between the bank pay file and your entries, though hopefully not many.

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