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Accounts Payable
What Is Accounts Payable? Definition, Process, Software, and Examples, With Job
Description, Roles & Responsibilities
Accounts Payable
What Is Accounts Payable? Definition, Process,
Software, and Examples, With Job Description, Roles
& Responsibilities
Smriti Jain
at May 31, 2023
Table of Contents
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•
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What Is Accounts Payable?
Understanding Accounts Payable (AP)
Recording of Accounts Payable - The Accounts Payable Process
or Workflow
Trade Payables - Accounts Payable vs. Trade Payables
Accounts Receivable - Accounts Payable vs. Accounts
Receivable
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What Are Some Examples of Payables? Accounts Payable Best
Practices
Why Accounts Payable Software
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Benefits of Accounts Payable Automation
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Benefits Of AP Automation Software
Accounts Payable Job Description, Responsibilities & Skills
The Bottom Line - Conclusion
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What Is Accounts Payable?
Accounts Payable definition depicts that, Accounts Payable
means the amount a company owes to third parties or suppliers
for a short period. Any goods purchased on credit where the
payment can be made after a short period of time is known
as accounts payable.
In short, it is the liabilities that a company bears for a short period
of time”. This credit created by accounts payable increases
“Current liability” and hence it is recorded in the liability side of
the balance sheet.
Accounts Payable are short-term debt for a business or
company or individual, when a company purchases goods on
credit from a supplier for a short term, it is recorded in the current
liability of the balance sheet. These dues a business clears on the
predecided basis, here a creditor or supplier raises invoices to the
purchaser or business. Which a business pay after internal
approval or from the consent of the purchaser. For a better
understanding of what does account payable means. We can
easily relate it to our day-to-day life. We all consume some
services such as Electricity for example for a whole month i.e. 30
days or 31 days in return we pay at the end of the month to the
company.
Please Note the Two Factors to Be Considered Primarily Important
While Recording Accounts Payable:•
Time
•
Accuracy
A proper record of the time by which the money needs to be paid
and an accurate amount to be disclosed helps in the
transparency and acceptability of the accounting treatment.
Understanding Accounts Payable (AP)
Let us understand the end-to-end process:•
Receiving of Goods or Services or Invoice
This stage of accounts payable is the initial stage which specifies
the importance of the authenticity of the transaction and for
further scrutiny of the transaction. A valid invoice with proper
records needs to be obtained along with the goods or services.
This also helps in the documentation of records. Certain
important factors to look at in the invoice can be the vendor’s
name, date, time, requirements raised at the time of purchase,
quantity, proper stamp and signature. Always match the details
of the actual goods or services received with the invoice provided
along with the goods or services.
•
Timely Recording Bill
This stage deals with the documentation aspect of the process.
As and when the invoices are received and after scrutiny, the
invoice details must be updated in the ledger accounts. In case a
company uses software then entries are to be made in the
software after proper approval also a “Maker and Checker” step
can help to reduce error and dual verification is also ensured.
•
Timely Payment
This stage deals with the payment part of the process, where the
decided due date of the goods received or service provided
requires the unpaid amount to be paid by the buyer. The
documents which are essential at this stage can be vendor bank
account details, payment vouchers, purchase orders or contracts
or agreements with the vendor and supplier. A gentle reminder
before the due date to the supplier is a good practice in order to
not land in a situation of defaults or continuous chasing behind
the supplier.
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Closure
This is the end part of the accounts payable cycle, as soon as the
unpaid amount is paid, vendor books need to be closed. This
would result in the reduction of the liability in the books of
account of the company. The amount shown as current liability
will no longer be treated as a liability. The steps are a generic
process flow for understanding the meaning of accounts payable
(AP) but can be different within different organizat ions.
Recording of Accounts Payable - The
Accounts Payable Process or Workflow
Let's understand the recording of the Accounts Payable process in
a company, generally, it is different companies wises, because
some companies follow some steps some do not. Like
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Purchase requisitions - Whenever a company purchases or
require material, they release a PR for internal approval.
•
Request for quotation - Once PR get approval from top
management, then they share the PR with the different vendors
for quotation or prices, which we call bidding, once the vendor
submits the bid, companies do the analysis of the bid.
•
Purchase order - Once the submitted price bid analysis is
complete, companies release the Purchase order to the vendor
who meets the requirement in terms of pricing, quality, terms
etc.
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The supplier ships the goods to the buyer and shares the
invoices.
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Companies conduct the GRN for received goods and
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Invoice approval takes place inside the company
•
Payment - Once goods are supplied and received without
making payment, it should be recorded as a liability in the
books of accounts of suppliers or vendors based on the invoice
amount. Eventually, when this amount is paid, the liability
should be reduced from the balance. Reducing the overall
current liability of the supplier.
The Account Payable Process Depends on Various Factors Such
As:1. Number of Vendors
2. The volume of Payments or Transactions Over a Given Period of
Time
Trade Payables - Accounts Payable vs.
Trade Payables
The term Trade Payable is often used interchangeably
with accounts payable. However, the two differ significantly.
Trade payable is the money a company owes to its vendor for
materials or supplies which are a part of the inventory. In contrast
to this, the meaning of account payable is the total sum a
company owes.
Accounts Receivable - Accounts Payable
vs. Accounts Receivable
Accounts Payable and Accounts Receivable are the antitheses.
Account payable means the amount a company owes to another
company or a service provider. In contrast, account receivable
means the amount owed to the company. Account receivable is
an asset to the company.
On purchasing a service or goods, one of the parties will register
the amount as a payable account whereas, the other party will
add it as an account receivable on their balance sheets.
Let’s discuss a few accounts payable examples that explain the
accounts payable meaning. Company A and Company B are in a
business relationship. Company A makes a purchase from
Company B on credit. This amount needs to be paid back within
the stipulated time. Now, for company A, this amount will be
registered as accounts payable. On the contrary, for company B,
this amount will be registered as accounts receivable.
What Are Some Examples of Payables?
Accounts Payable Best Practices
This is a relevant example of what is an account payable? Here
the services are given on credit by the company increasing their
liability which would be paid in the following month within the
dedicated due dates or deadlines which will ultimately reduce the
liability. However, for the time being, the credit of service given by
the company increases its current liability. Say for example, if
Company A buys certain goods from Company B on credit with a
timeline of 15 days, the amount would be account payable for
Company A but Account receivable for Company B. Hence the
name itself suggests that the effect is on creditors, the more the
creditors the more the accounts payable amount. It is also
sometimes referred to as trade accounts payable.
The concept of accounts payable can be generalized to our dayto-day lives as well. Just like companies purchase goods and
services on credit, we too purchase services like house cleaning,
electricity, data connections, and tv connections. Most of us pa y
our dues for the month, towards the month-end. Another account
payable example can be an employee receiving his salary
towards the end of the month for his services to the company.
Why Accounts Payable Software
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Timely Savings
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Elimination of stacks of paper
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Automation of your invoice approval workflow
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Smooth collaboration with the vendor by the creation of a
purchase order and instantaneously sharing the purchase
order and chatting with the supplier
What Are Some of the Best Features of Our Accounts Payable Automation
Software:
Masters India’s in One Software Provides a Seamless and RealTime Solution for Vendor Payment Management. Our Software
Ensures:
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Bill inbox
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Spend analytics
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Vendor Portal
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Approval workflow
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Business management and user management
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Features where Drag & Drop facility is available for your invoice
or simply upload along with the facility of emailing the invoice
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Provision of an invoice audit trail to check invoice status
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Integration of the Accounts Payable Software with ERP
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Effective and efficient onboarding of suppliers and multiple
business units
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Three-way match facility
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A dashboard to view requests & accept or reject queries in realtime
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Creation of invoices, debit and credit notes
Benefits of Accounts Payable Automation
The benefits of Account Payable Automation are countless. Some
of the best AP Automation software can free your organisation
from unnecessary stress. Accounts payable program refers to
the set of activities involving the process of paying debts to
vendors for goods or services received. A change can be
unsettling in the beginning, especially when a particular process
has been in action for ages. Changing techniques and strategies
within organisations that have been using the same process for
years seems daunting.
But in reality, there are numerous advantages of automation
within organisations- especially when it comes to processes
involving accounts payable programs. It is no denying fact that
an organisation may have sustained itself using paper-based,
manual, inefficient, and error-prone AP processes in the past; it’s
high time that to take a closer inspection at the usefulness or
benefits of AP automation and how it can empower a company’s
finance department to work efficiently and effectively. AP
automation benefits an organisation by cutting costs, generating
cash flow opportunities, and building goodwill with vendors. Set
an accounts payable benchmark for your current accounts
payable system and notice how e-invoicing in place of paperbased processes delivers massive benefits.
Downfalls Encountered By Conventional Accounts
Payable Workflow Processes Paper-based, manual, and
traditional AP environments are battling to keep up with the world
of advancements and technologies. Even today, a bunch of
industries tend to depend on processing invoices manually. The
manual AP process requires a lot of time and resources while
shifting data from invoices into the computer, leading to plenty of
errors.
Further, it is harsh to manage, involves slow approval process ing,
increases the chances of fraud, and is very expensive. Resolving
these blunders in traditional ways can cost you a great deal of
valuable time, money, and energy. But wait! An excellent solution
is waiting to release you from the burden of issues and
negligences caused by humans &ndash, and that is the accounts
payable process automation. With the account payable benefits,
you can experience smooth accounts payable processes.
Read More: GST Search | Billing Software for
GST | GST API Documentation | Eway Bill
API Providers | E Invoicing GST | e-Invoicing | EWay
Bill | Proof of Delivery
Benefits Of AP Automation Software
Automation is an indispensable aspect of any business in the
21st-century world. By now, you must be curious to know what
these modern technologies bring with them that eliminates tried
and tested manual methods. Many organisations experience
frustration due to manual errors and delays when these new
technologies come into existence and use. Not only can you
eradicate frustration by way of automation, but possessing the
best software in place can escalate your potential for
development and provide your organisation with unbelievably
competitive accounts payable automation benefits.
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MORE PROMPT PAY DISCOUNTS
Few companies offer early payment discounts in order to
encourage clients to pay their invoices timely. Settling your
invoices timely decreases the amount owed and makes it simpler
to reconcile accounts. Additionally, it can boost your relationships
with your current vendors.
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STRENGTHEN CUSTOMER SATISFACTION
Delayed payments caused by lost or disorganised invoices can
lead to supplier dissatisfaction. This is where AP automation
software works like magic. Automation can lead to quick
operations and strengthened relationships with the vendor.
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UPGRADING ACCURACY AND LIMITING FAULTS
Accounting mistakes can cost you in multiple ways. Human errors
can cause overpayments, late payments, and payments involving
wrong amounts. Having authentic and reliable software at your
place that attests to data and recognises exceptions may be the
rescue you’ve been looking for. Ensuring accurate bookkeeping,
validating data, and providing reliable routing through
automation can improve productivity and minimise errors.
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CUSTOMISE YOUR PROCESSES
Personalising and customising your AP process can enrich the
quality of your AP department by suiting the company's workflow
needs. If you accept invoices via multiple media or your invoices
need to accompany specific routes, you can instruct the
automated workflow to stick to the path that will retain you the
most time.
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GAINING THE COMPETITIVE EDGE
If you want to gain a competitive advantage over your
competitors in the market, automating your AP process is the next
step you need to give your attention to. A quick return on
investment and the financial usefulness of automation will
provide you with enough of an edge. Additionally, time savings
and error minimisation can give you immeasurable benefits.
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TIME EFFICIENCY
With manual processing, it can take up to two weeks to entirely
process an invoice, verify the numbers and get the required
approvals and signatures. However, with the help of automated
AP software, it just takes one to seven days to finish the entire
process. Because you can complete the entire process faster and
earlier, your faculty will have more time to focus on other
significant areas of your company, thus improving your
company’s efficiency.
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WIDENING PROCESS VISIBILITY
Manual filing and heaps of paper receipts are impossible to see
the whole procedure on a single page. But it opposite in the case
of automation. Electronic systems and software provide a boost
in visibility by demonstrating relevant data solely to the
authorised parties. Besides this, it gives a higher sense of
transparency through all stages of the process about when and
how much to pay to vendors, how to scale operations and how to
accelerate efficiency.
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ENCOURAGING WORKPLACE COOPERATION
All the parties involved in assimilating and approving invoices,
with the support of the speed and brilliance of the digital storage
structure, can have concurrent access to all the necessary files.
This accessibility gives way to real-time collaboration along with
smooth efficiency when allocating documents, checking
credentials, receiving clarification, and operating through
inaccuracies. Accounts payable software for small businesses is
less complicated as compared to big businesses.
Accounts Payable Job Description,
Responsibilities & Skills
Account payable management is one of the most important
business processes that help in managing the accounts
payable obligations of the entity in an effective and timely
manner. Account payable management is an important too l for
the sound functioning of the business. Let us learn the importance
of Accounts paying management:•
Responsibility
It assists the company in timely payment to vendors which
ultimately results in long-term relationships with the vendor and
helps in maintaining strong creditworthiness with the vendor for
future business as well.
•
Ensuring Proper Flow of Business
It helps to ensure the proper flow of goods or services by the
vendor for the future as well without any hurdles and also attracts
discounts and benefits from the vendor.
•
Ensuring the Deadlines or Due Date
It helps to ensure the important due dates and helps the
company to never come on the list of defaulters.
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Proper Cash Flow Management
It helps to maintain proper cash inflows and outflows by t imely
evidencing the transaction. Account payable management helps
a company to verify the authenticity of the invoice, as well as
proper internal control, helps to safeguard the company from any
fraudulent invoices or unfair practices or exceptional losses.
Accounts payable is the recording and processing of financial
transactions relating to procurement and supplies. The roles can
be specifically divided into:1. Data entry role:Feeding the system with invoice details accurately
2. Payment processing role:Ensuring timely payment of invoices to maintain proper
creditworthiness
3. Handling disputes and legal matters:Providing timely redress of disputes if any, and helping the
company maintain a healthy relationship with the vendor or
creditor.
4. Vendor or creditor maintenance:Properly recording and timely recording of the vendors or
creditors database.
5. Accounts payable manager:Ensuring the team is coordinating well with the vendor and
proper documentation of invoices is happening for accuracy
and efficiency. Accounts Payable Accounting (AP) Accounting:When recording accounts payable entry; debit the assets and
credit the accounts payable account. Assets Dr To Accounts
Payable Cr. When the payment is made, Debit the accounts
payable account and credit cash or bank. Accounts Payable Dr
To Cash or Bank Cr. Accounts payable form an integral part of
the balance sheet and are directly related to cash flows
affecting the financial position of the company and the cash
cycle. Like every component of the balance sheet,
Accounts payable can also be forecasted in a financial model
with the below approaches:•
Days payable outstanding:-
DPO= Average accounts payable / Cost of goods sold or
purchases X 365
•
DPO= Average Accounts payable / (Cost of sales / Number of
days in accounting period)
The more data you have, the more accurate your future accounts
payable forecasts will be and you will be able to identify trends.
You can also improve your cash flows and maintain your desired
cash flow and desired cash cycle to avoid liquidity problems or a
shortage of cash.
The Bottom Line - Conclusion
Recently accounts payable process companies have started the
adoption of automation. It automation, centralizes and simplifies
every bit of the accounts payable process. A manual AP process
can be now simplified through Invoice OCR & Accounts Payable
Software.
1. Once Invoices reach one destination - data extraction from
invoices.
2. Automatic classification involving the type of document and
any supporting documents then organizes using business logic.
3. Numbers are quickly verified against calculation.
4. Invoices are matched with Purchase Orders.
5. Payments are made automatically as per the organization’s
policy.
6. Easily exportable PDFs to be documented in the company’s
system.