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What is accounts payable? An overview of the AP function

What is accounts payable? An overview of the AP function
Accounts payable is what your company owes to its suppliers, creditors, and vendors for purchases of goods and services. Read more to find out more what falls under accounts payable management and the responsibilities of the AP department.

Every company that receives invoices will have accounts payable, or AP. Accounts payable is what your company owes to its suppliers, creditors, and vendors for purchases of goods and services. These payments are typically handled by your accounts payable department, but can fall to operations teams as well, depending on your company size. Read more to find out more what falls under accounts payable management and the responsibilities of the AP department.

What is accounts payable?

Accounts payable is considered a form of debt. Essentially, it is the money your company owes to its vendors and suppliers for goods and services. Credits increase the balance and debits decrease the balance. Debits should always be paid within a given period. This portion of your accounting is found under the “current liabilities” area of your company's balance sheet. This also includes any short-term debt or obligations you owe to creditors.

Accounts payable responsibilities

AP teams are primarily responsible for processing and tracking the entire payment process, overseeing purchase orders and invoices, as well as managing travel and business expenses. They typically work closely with the procurement department. The AP department enables internal controls to protect the company's current assets and cash. They verify all incoming bills and bring attention to any that seem questionable, and route the correct ones for approval and payment. Payable clerks usually perform the majority of data entry, ensuring that every invoice is coded and entered into the accounting software. AP teams are also responsible for ongoing correspondence with vendors and creditors. Additional responsibilities include creating monthly reconciliation reports, overseeing payroll, general bookkeeping, and accounts receivable.

Why is accounts payable important?

Even outside of business, we know that paying bills on time is essential. Cash flow management is crucial. Early payments can help maximize cash flow by taking advantage of discounts. AP teams maintain internal controls, which help avoid paying fraudulent invoices or transactions. Mistakes in tracking or paying invoices can heavily affect your cash flow reports and fees from mistakes can add up. Accurate inventory and tracking your balance sheet and invoices is a vital part of accounts payable teams. Failing to do so can lead to poor decision making due to inaccurate cash flow reports, among other issues. This accuracy also plays a role in maintaining a good relationship with your vendors and suppliers. It is up to the accounts payable team to oversee vendor management, handling vital tasks like vendor invoices, negotiating better payment terms, and ensuring vendors are paid in a timely manner.

Accounts payable vs. accounts receivable

Accounts payable and receivable are sometimes overseen by the same employees, however they are essentially opposites. Accounts payable refers to the money your company owes, while accounts receivable is the money that others owe you.

Accounts payable software

There are many types of accounts payable automation tools that can help simplify the invoicing process and avoid costly errors. These programs help save time through automated data entry, coding, and workflows. Often they are customizable and have integration ability to help your accounting team best process these invoices and will provide discounts for your team through time savings.

How Routable can help

Routable offers a simple and secure payment solution to not only help you with your AP process now, but to allow you to scale larger into the future. Our AP automation software will enable you to quickly email, scan, or upload your bills and batch files to process as many payments as needed while still hitting the due date. You can easily customize the approval workflow to fit your department’s unique needs. We also have two-way sync that allows for easy reconciliation and ensures your general ledger will always be up-to-date. Our goal is to help you to reduce your cost, clutter, and compliance risk.

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