What is accounts payable

Introduction to Accounts Payable (AP)

When a business invests in some capital on credits without paying the creditor, it is known as Accounts Payable. The debtor needs to pay back to the creditor in short period of time which makes it a liability. Accounts Payable refers to the current liabilities that a company is indebted to vendors and creditors.

If a good is being purchased by a company prior to making any payments then the company providing goods is the creditor to the company purchasing goods. If there is no promissory note given by the company for receiving the goods then the bills sent by the vendor is recorded in the company’s accounts payable or invoice payables.  The company from whom it was bought need to be reported when the goods are acquired. The term may also refer to the person who is responsible for working as an accountant or ‘accounts payable’ person. 

Accounts Payable involves the payments made to the supplier in a short period of time to avoid non-payment. We avail services such as electricity, the internet, and telephone for which we pay at the end of the month. It means that a customer is handed over the bill after a particular billing period. This turns out to be Accounts Payable.

An account payable will include the following:

• The punctual giving out of precise and valid vendor invoices

• Precise recording of the suitable general ledger accounts

Being efficient and effective in the accounts payable process will influence the organization’s relationship with creditors, credit rating, and cash position.

Accounts payable process (APP)

APP is one of the most important functions of an organization since it includes expenditures of almost every sphere other than the company payroll. APP pays only those bills in a company that is valid and precise. The APP needs to be updated constantly so that vendors get an exact idea of the company’s performance and financial position. Moreover, if APP does not work well and bills are paid in prior to their due date, creating a possibility that there would be fewer finances for other payments that have a close deadline. Following are the components of APP:

Receiving report

A receiving report is a document that states that the goods have been received by the client’s company. It may be a printed document or a soft copy and needs to be compared with the receiving organization’s purchase order.

Three-way match

It ensures timely delivery of payment by entering correct data into the accounts payable processing system and reduces the risk of duplicate payments.

The following information needs to be compared to complete the three-way match—

• The company’s purchase order which contains the quantity cost and description of the purchase order.

• The receiving report that has the quantity of good and the description of the purchase order.

• The vendor’s invoice needs comparison with the description, the amount of good, cost and terms.

Vouchers

Vouchers are used as approvals of the completion of the accounts payable process. It is a supporting document along with the purchase order, receiving report and vendor’s invoice. It is also used to store information about each vendor and their bill.

Statements from vendors

Statements are issued by vendors to their clients in order to procure the amount that is yet to be paid by the client. Vendor statements must always be compared to company’s records and to avoid duplicate payments the vendor’s invoice can be used instead of the vendor’s statements.

Current trends in Account payable

Improving processes:

 The shift in focus improvises APP by better collection and analysis of data will prove in enhancing the chances of discounts due to early payments.

Eliminating paper

Digitalization of paperwork has emerged as a large-scale positive impact by including the following factors:

• Eco friendly

• Cost efficient

• Requires less man power

• Yields more and accurate results in a short period of time

• Less room for mistakes

Increasing cloud adoption

Traditional methods of storage of data were costlier and vulnerable to risks. Thus cloud adoption—gives users the mere security and—is inexpensive in comparison while proving a better option and being accepted globally by big and small businesses.

Conclusion

It can be concluded that account payable process is one of the most important and efficient processes in a business that help aid businessmen all over the world to get a better understanding of their company’s goods, purchases, vendors etc.