Accounts Payable

What is Accounts Payable (AP)?

The accounts payable (AP) definition covers the way businesses control their cash flow. Accounts payable, in accounting, refers to the current and short-term debt for goods or services that have been received on credit from a vendor.

What is the role of accounts payable (AP)?

The accounts payable meaning lies in the role it plays in accounting. The accounts payable function records and processes various financial transactions in procurement and supply management, including:

• Data entry and analysis of invoices
• Efficient payments processing, and disputes addressing, when they arise
• Accurate maintaining of supplier data and information, and creating strong supplier relationships

Why is accounts payable important?

Accounts payable efficiency is critical for organizations to achieve the following key outcomes:

• Optimizing working capital through the right payment terms and on-time payments
• Enhancing productivity through efficient processes
• Ensuring compliance to protect the company’s reputation
• Preventing fraud

How does accounts payable work?

Broadly, the accounts payable workflow includes the purchase and receipt of goods, and efficient recording, posting and payment of invoices on the due dates. The steps in the accounts payable process flow include:

• Receipt of invoice
• Review and approval of invoices
• Entry of the invoice details in the accounting system
• Account coding of the invoice and crediting the AP account
• Payment of invoice

How can companies benefit from accounts payable automation?

AP automation delivers significant efficiency in the accounts payable processes as it minimizes (or even eliminates) effort- and time-consuming manual data entries. This enhances accuracy, reduces financial discrepancies and fraud, and enables on-time payments for improved vendor relationships.

AI-driven automation of the accounts payable cycle can bring tremendous efficiencies in coding invoices, GL mapping, detection of frauds and anomalies, extracting patterns and trends for predictive analysis — all of which provide increased visibility of the AP cycle, thereby ensuring better decision-making for effective financial management.

What are the common accounts payable challenges?

• Discrepancies in payment terms, purchase orders and invoices
• Incomplete documentation
• Delays in raising invoices, and wrongly filled invoices
• Haphazard approval process leading to delay in payments

What are some important accounts payable best practices?

Some of the best practices in accounts payable are as follows:

• Digitize AP documentation for real-time data sharing and reporting
• Automate as much of the accounts payable process flow as possible
• Continuously monitor AP reports to understand expenditure trends, enable better cash flow, improve accounts payable workflows and enhance compliance

How is accounts payable (AP) different from accounts receivable (AR)?

An organization’s accounts payable (AP) ledger lists its short-term liabilities — such as money owed for purchases, and to creditors. It appears as a debit on a company’s balance sheet.

Accounts receivable (AR) comprises the money that the company expects to receive from customers and partners. It appears as a current asset on the balance sheet.