What Is Accounts Payable, And How Does It Work?

Mar 7

Definition Of Accounts Payable

Accounts payable (AP) is a short-term debt and a liability on a balance sheet in which a company owes money to its vendors/suppliers who have delivered products or services on credit to the company. Accounts payable is the department in charge of handling vendor invoices and bills, as well as recording short-term obligations in the general ledger (GL). Before providing payment to their suppliers, the AP department would verify invoices against (buy) orders and ensure that the products or services were received.

Workflow For Accounts Payable

When a supplier or vendor sends a bill or invoice to the accounts payable department of a company, the accounts payable workflow begins. Accounts payable clerks will ensure that the invoice is legitimate and not a duplicate upon receipt, code the invoice to the general ledger, and do a 2 or 3 way match, depending on the organization's process. The invoice will then be sent to accounts payable for review, and once accepted, it will be processed for payment.

Maintaining the master vendor file, receiving vendor bills, coding or uploading invoices into a financial or accounts payable automation system, validating and matching invoices, routing for approval, and processing payments are all processes in the accounts payable process. Responding to vendor questions, negotiating conditions, and ensuring that suppliers are paid on schedule are all part of the accounts payable process. Internal controls for recognizing duplicate or fraudulent invoices, avoiding duplicate payments, and accounts payable audits are among the other accounts payable procedures.

Software For Accounts Payable

Accounts payable software helps businesses automate manual AP procedures such as GL-coding, invoice approvals, notifications, and duplicate invoice detection. Accounts payable software increases control over financial data by providing visibility into current liabilities and procedures. Accounts payable automation software, or AP automation software, is a term used to describe the software used in AP.

Accounts Receivable Job Description, Responsibilities, And Qualifications

In any financial department, accounts payable is a key role. To be fully successful, you'll need a combination of "soft" and "hard" abilities. Many people, including those in other financial professions, are unaware of all the responsibilities that go into running a successful accounts payment process.

The job description for an Accounts Payable Clerk often includes the following responsibilities:

Calculating, publishing company transactions, processing invoices, and checking financial data for record-keeping.
Clarifying any ambiguous invoice items, pricing, or signatures.
Obtaining accurate statistics and information on invoice payments.
Verifying and computing all invoice extensions and totals.
Checking for prior payments in vendor files and assigning voucher numbers.
Keeping copies of vouchers, invoices, and correspondence for filing.
Making vouchers that include the invoice number, date, vendor address, item description, quantities, and coding in accordance with accounting standards and procedures.
Reconciling bank statements is a time-consuming process.

These many jobs need a wide range of abilities. Accounts Payable professionals have the following skills:

Extremely meticulous attention to detail
Analyzing data
Ability to establish solid vendor relationships based on basic accounting knowledge
Data input abilities that are both quick and precise

Clearly, any schmo will not suffice. To make a significant contribution to the department's performance, your next AP employee will require a diverse set of skills and certifications. Using the list above throughout the interview process will be very helpful, but is there anything else you should look for in a candidate?

When Interviewing APs, Look For The Following Skills

Although AP is mostly a numerical career, it also need strong communication abilities. The greatest AP specialists are adept at handling both statistics and a variety of human interactions, both within and outside your company. They interact with not just the major approvers in various departments, but also those people who provide crucial information to the process and manage key vendor connections.

Finding the perfect individual with communication skills and accounting knowledge, as well as training them to operate effectively inside your business, may take a lot of time away from your already overburdened AP staff.

Is It Time To Grow Your Accounts Payable Team?

Is your accounts payable department having trouble keeping up with the workload? Is the CFO putting pressure on you to improve AP's performance?

If your company is fast expanding and your present AP team is struggling to keep up with the volume of invoices, it may be time to employ someone new. You must, however, consider the added expense of a wage (plus benefits for a full-time employee) as well as the time it will take current employees to onboard the new employee. After you've considered all of these aspects, it would be worthwhile to revisit your current resources to determine if they could be enhanced.

Make The Best Decision For Your Company: Hire Or Optimize

If the idea of selecting and installing a new AP solution appears too onerous, it may seem easier to just employ a new worker – even part-time – to relieve the pressure. Before you spend time and money on the recruiting and training process (which can take weeks or more), consider if you truly need another body or if there is a way to improve your current procedures.

Examine the great impact an intelligent invoice management system may have on your accounts payable department without requiring any changes to your current operations. The idea is to increase communication in all aspects of approvals while allowing AP to maintain complete control. There's no need to commit any time or money up front, so it won't be long until you realize your AP team's actual potential. Instead, enhanced communication and speedier approvals will boost their work happiness and productivity.