What is Accounts Payable? +Role, Process, Steps (2023)

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Accounts Payable handles all the expenses incurred in your company – besides processing salaries. Having a reliable Accounts Payable system can help you generate accurate and timely financial data to make smarter decisions.

What Is Accounts Payable?

Accounts Payable (AP) is the term used when a firm acquires items on credit that must be paid back within a short period. In a ledger, it is classified as a liability and falls under the category of current liabilities. AP is a type of debt that must be paid in time to avoid default.

Another frequent use of Accounts Payable refers to the business department or division in charge of making payments to suppliers and other creditors on behalf of the firm.

To further understand the concept, let’s take a look at a practical example. Company X needs to procure raw material to produce a finished good. It purchases required raw materials from Company Y on credit.

Now, Company X will record this transaction as Accounts Payable as it still has to pay the other company. At the same time, Company Y will record this transaction as Accounts Receivable as it still has to receive the amount from Company X.

Accountants record a sale under the accounting (Accrual) technique, despite any money exchange taking place. While processing AP transactions, the accounts department must take utmost caution.

Modern-day companies use accounts payable software to avoid discrepancies. Procure-to-pay solution like Kissflow Procurement Cloud provides 3 way matching in accounts payable that connect invoices to contracts, POs, GRNs, and service entry sheets with automated checks. This makes the entire process risk free and efficient.

Role of Accounts Payable

It’s tempting to believe that the sole function of Accounts Payable is to ensure making payments as scheduled. But even a single purchase transaction involves several processes. AP may have to deal with hundreds of transactions weekly or monthly, even in a medium-sized company. As you go up, the numbers and the complexity of transactions become even more astounding.

So, other than processing & making timely payments, AP departments are responsible for:

Internal Payments

Accounts Payable controls the flow of petty cash that is used to cover small expenses that occur during a day. It may include paying for unscheduled mail, out-of-stock office supplies needed urgently, or some other unforeseeable expense. Accounts Payable is also responsible for reimbursing internal payments often paid by the employees initially. That may include any expense paid on behalf of the company by the employee.

Vendor Payments

Maintaining a good relationship with your vendors is crucial. That’s where Accounts Payable comes in. They organize and maintain vendor information, point of contact, number, payment terms, and collect W-9 information. The accounts payable software can also help quickly generate an end-of-month aging analysis report that provides an overview of the total credit owed to the vendor.

Business Travel Expense

Accounts payable handles requests and distributes cash to cover travel expenditures if advance travel payments are allowed. When the traveler returns, AP would be in charge of settling the difference between money received and funds spent, as well as processing travel reimbursement requests.

Others Functions

Apart from paying vendors and reimbursements, Accounts Payable is responsible for organizing and prioritizing invoices that are to be paid urgently, matching the invoice, purchase order & good receives a note, ensuring that invoices are approved on time, and producing receiving reports.

All of which can be easily managed by easy-to-use accounts payable automation software and accelerating the process by connecting everything with the finance department.

What Is the Accounts Payable Process?

Before processing a vendor payment, the AP department will have to complete a series of processes to avoid any mistakes. With the varying and increasing amounts and orders, it is necessary to establish rules.

First of all, the invoice is received by the AP department if goods are purchased. Then the invoice is verified against the purchase order to match the items ordered, verify the vendor’s name, date and authorization. Once the invoice is received and verified, it is logged into the ledger and entered as an expense.

Now, this expense needs to be paid before the due date or according to the agreement with the vendor. It is necessary to verify the information on the check, the vendor’s bank account, payment vouchers, the original invoice, and the purchase order.

What Is Included in Accounts Payable?

Amounts owing to vendors or suppliers for products or services received but not yet paid are called accounts payable. The AP balance on the balance sheet is the total of all outstanding payments due to vendors. The cash flow statement shows the rise or reduction in total AP from the previous period. Management may decide to pay off its overdue obligations as soon as possible in order to maintain the cash flow.

Why Kissflow Procurement Cloud?

While Accounts Payable is the most hectic, paper extensive, and challenging task, some companies have made the process efficient using accounts payable automation software.

Most invoices can be managed without human involvement thanks to invoice management software, while the AP department handles exceptions and anomalies. That saves a lot of time and improves the accuracy of the entire procedure.

Kissflow Procurement Cloud allows Accounts Payable to generate PO and Non-PO-backed invoices, i.e., direct invoices, along with automatically generated credit notes backed by invoices and PO. It also enables 3 way matching based on the supplier setting recorded during the onboarding. If the materials match the recorded settings, it also generates invoices automatically.

To avoid over-invoicing, KPC prevents the supplier from creating or submitting a new invoice to meet the tolerance value. If the submitted invoice exceeds thresholds, the invoice will land in the AP Action queue for further investigation & action.

You can also resolve the problem of creating multiple invoices against one PO using the Kissflow Procurement Cloud solution. To explore more accounts payable automation benefits like integration with the finance department and other stakeholders for timely approvals, try Kissflow Procurement Cloud and make your Accounts Payable more effective and efficient.

Everything You Need To Know About Accounts Payable – Its Role, Process, and the Complete Steps Involved