What accounts payable is

Christian Barra

What is Accounts Payable

Accounts payable (also called AP) refers to the money owed to vendors or suppliers for goods or services your company purchased on credit.

It is important to pay close attention to your AP expenditures. A proper AP process in place protects your cash and assets and avoids paying for inaccurate invoices.

For any purchasing organization, accounts payable is recorded as a short-term liability in the balance sheet.

How accounts payable affect your cash flow

Accounts payable can have a major impact on your company's cash flow. Your organizations can take advantage of supplier agreements and increase cash flow and cash on hand.

For example, if you want to increase cash reserves for a certain period, you can extend the time the business takes to pay all outstanding invoices.

This flexibility to pay later must be carefully considered. As it might threaten your ongoing relationships with your vendors.

Using an AP platform can help you optimize your cash flow in a safe and secure way.

What is the Accounts Payable Process?

An accounts payable process within an organization begins when a supplier or vendor submits an invoice.

The entire process looks like this:

  • Invoice Capture: You enter the invoice and vendor details in your ERP or accounting software
  • Invoice Approval: You review and approval of supplier invoices
  • Payment Execution: You get authorization and execute the payment
  • Reconciling bank statements: You reconcile the payment in your accounting or ERP software

The Accounts Payable Team

The AP Team manages the entire process of accounts payable. This role is critical and involves the entry, approval, payment, and reconciliation of vendor invoices.

And today the AP team has a strategic function. It includes fraud prevention, cost reduction, cash-flow management, internal controls and vendor financing.

And if your company has a two-sided marketplace business model, then your suppliers are also your customers. So managing their payments is even more important.

The Manual Accounts Payable Process

Run away from a manual accounts payable process. Using a spreadsheet might work, especially if the volume is low. But once you reach 100 invoices/months, it's like hell.

Inaccurate data, improper or late payments, unhappy suppliers. Auditing and reporting are impossible. And it prevents your team members from working on higher-value activities.

That's where an AP platform can help.

Why Automate Accounts Payable?

Every company receives invoices and makes payments to vendors.

Processing invoices and paying bills manually requires a considerable amount of time. It doesn't scale, it's costly and can lead to errors. On average, it costs $5-15 to manually process an invoice, and it really affects the visibility of your company's operations.

An AP platform streamlines and automates your AP process. It can improve inefficiencies associated with the manual AP process and reduce costs up to 80%. From invoice capture to payment execution and keeps your information up-to-date and ready to use.