Accounts Payable (AP) is an accounting term that means ‘the money you owe for goods or services you have purchased but not yet paid for’.

Accounts payable also refers to the process, department or people responsible for paying invoices for goods or services rendered.

Let’s delve into the details of what AP is and then take a look at how to make it as efficient as possible.

How Does Accounts Payable Work?

When a company or organization orders, subscribes, contracts, or otherwise obtains a good or service there are two ways to pay: upfront or by invoice.

Upfront payments mean that the price is paid before the good or service is delivered. You are familiar with upfront payments as it is most common in retail purchasing. You can’t leave a store until you’ve paid for your purchases at the cashier.

But companies pay most business expenses on an invoice basis. This means the company takes possession of the goods or services on credit and pays for the goods or services at a later date – typically within 30 days.

In some cases, such as rent or utilities, the invoice arrives in the form of a bill. In other cases, invoices reflect the goods or services that were specifically requested in either a purchase order or some other requisition request. See more about the difference in these types of accounts payable in our article What is the Difference Between a PO and Non PO Invoice?

How Do Companies Handle Accounts Payable?

Since AP is money owed by a business to its suppliers, it is shown as a liability on a company’s balance sheet.

An accounts payable department or clerk’s primary responsibility is to process invoices. They review transactions between the company and its vendors/suppliers. Then they ensure that all legitimate invoices are approved, processed, and paid in a timely manner.

Processing an invoice includes extracting important data from the invoice and inputting it into the company’s financial, bookkeeping, or ERP system.

After this is accomplished, the invoices goes through the company’s business process including invoice approval and filing in order to be paid.

The final step in the AP process is to pay the invoice.

What Does an Accounts Payable Clerk or Department Do on a Day-to-Day Basis?

The accounts payable process involves an enormous number of detail-oriented tasks.

An AP department only enters legitimate and accurate amounts in the accounting system and paid. This information comes from:

• purchase orders
• receiving reports/packing slips/receipts
• invoices from vendors and suppliers
• contracts and other purchasing agreements

A well-run accounts payable process will include:

• accurate capture of data from these documents into the accounting system,
• timely processing of only accurate and legitimate invoices,
• obtaining approval for invoice payment from managers,
• accurate recording of payments in the appropriate general ledger accounts, and
• reports of obligations and expenses that have not yet been completely processed.

That’s a LOT of time and effort. And lots of room for mistakes.

Why Is Accounts Payable Important?

It’s critical to pay close attention to your AP expenditures. It’s the only way to maintain internal controls to protect your cash and assets and avoid paying for inaccurate or fraudulent invoices. And maintaining an organized and efficient accounts payable process allows you to remain aware of the impact AP has on your bottom line.

The efficiency and effectiveness of the accounts payable process will also affect the company’s cash position, credit rating, and relationships with its suppliers. After all, no one wants to do business with a company that misses payments or make incorrect payments.

How AP Automation Can Maximize AP Processing Efficiency

Accounting teams use AP Automation (Accounts Payable Automation) to digitize and streamline the processing of purchase orders and invoices.

AP Automation software uses advanced optical character recognition (OCR) technologies integrated with robotic process automation (RPA) software to automate accounts payable PO, invoice, and payment processes.

The best AP automation solutions also use Verified Data Capture Services to achieve near-100% accuracy of AP data automation.

AP automation replaces manual tasks around PO and invoice processing, approvals and payment while providing better visibility and control over financial data.

A full end-to-end AP automation solutions include:

• Purchase Requisition Automation – Automated purchase requisition and approvals.
• Purchase Orders and Confirmation Automation – Purchase orders are automatically generated out of purchase requisitions with built-in PO approval and acceptance automation.
• Receiving Automation – Automated receipt confirmation against an open PO upon delivery of goods or services.
• Invoice Processing Automation – Invoice process automation including  Verified AP Data Capture Service that delivers near 100% accuracy of invoice data processing, automated 2 way and 3 way PO matching, and easily configurable invoice approval workflows.
• Travel and Expense Automation – Automating the travel and expense reporting process just makes employees happier!
• Payment Automation – The ability to automatically make electronic payments by check, ACH or wire transfer. Or why not use virtual credit cards and receive a 1% rebate on every payment you make!?

Here’s a video of what that looks like:

Bottom Line – What is Accounts Payable

Accounts payable refers to several things:

• The amount of money you owe for products and services that you have received but not yet paid for.
• The process of paying that money.
• The department and people who manage that process.

It’s critical that your AP be timely, accurate, and free of fraud or waste.

And the best way to achieve that goal is through AP automation using tools like CoreIntegrator Enterprise or A/P One.

Click here for a free, no hassle demonstration of how we can automate your AP today!

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