Accounts Payable: From Company to Suppliers & Creditors


Account Payable appears under current liabilities on a balance sheet. An AP department is accountable for making adjustments to suppliers and other creditors in a company.

Role of Accounts Payable

The accounts payable offices are responsible for more than just handling incoming bills and invoices. Accounts Payable is regularly in larger companies but accounts payable and receivable tasks are generally combined. While the scope of the business ultimately defines the role reports payable plays, AP fulfils at least three essential roles in addition to paying bills.

Also check – Accounts Receivable: Understanding Definition & Concept

Business Travel Expenses

Larger businesses or business that need staff to travel may have their AP department achieve their travel expenses. The travel administration by the AP department might include making advance airline, car rental and hotel reservations. Then, depending on a company’s checks, account payable might process requests and distribute funds to cover travel expenses. After business travel has occurred, AP would then be responsible for settling funds distributed versus funds spent or processing travel reimbursement appeals.

Internal Payments

Accounts Payable is liable for distributing internal reimbursement payments, controlling and administering petty cash and regulating the distribution of sales tax exemption certificates.

Employees must use in a manual log report, receipts or both substantiate reimbursement applications. Small expenses like miscellaneous postage, out-of-pocket office supplies or company meeting lunch are handled as petty cash. In addition, AP often addresses a collection of sales tax exemption certificates issued to administrators to ensure qualifying business investments don’t incorporate sales tax expense.

Vendor Payments

Accounts Payable organizes and manages vendor contact information, payment terms and Internal Revenue Service W-9 information manually or using a computer database. Depending on a company’s internal controls, an AP department handles pre-approved purchase orders or accounts payable verify purchases after an investment is made. The AP department also handles end-of-month ageing analysis reports that lets management how much the business currently owes.

Other Functions

The accounts payable department also reduces costs by recognizing details and developing strategies to save business money. An instance is if an invoice gets paid within a discount term that many merchants provide. AP is also a straight line contact between a business and its merchant representatives. For instance, strong business relationships between the two could benefit the company, and a vendor might offer flexible credit terms.

Accounts Payable Process

The accounts payable section will have a set of plans to follow before getting a vendor payment. Set guidelines are necessary because of the value and volume of transactions throughout any period.

The process includes:

  • Receiving the bill: If goods were bought, the bill supports tracing the accepted quantity. The validity of the account can be known during this period too.
  • Review bill details: Ensure that the bill incorporates vendor name, date, authorization, and verified and matching elements to the purchase order.
  • Updating credentials once the invoice is received: Ledger accounts must be renewed based on the received statements, and an investment entry is usually needed. Managerial approval might be necessary at this stage, with the approval hierarchy appended to the bill value.
  • Making timely payment: All payments should be concocted before or at their due date on a bill, as allowed upon between a seller and a purchasing company. Necessary documents need to be prepared and verified. Details listed on the cheque, payment vouchers, vendor bank account features, the actual bill and purchase order must be scrutinized. A managerial authorization might be needed at this point too.

The accounts payable method should have internal checks to ensure a company’s cash and assets are safe:

  • Prevent paying a fraudulent invoice
  • Prevent paying an inaccurate invoice
  • Prevent paying a vendor invoice twice
  • Be sure that all seller invoices are valued for

What Is Included in Accounts Payable?

Accounts Payable is on a firm’s balance sheet as a current liability and is a combination of short-term credits stretched by sellers and creditors for good and services acquired by a business. An AP department also necessitates care of internal payments for business investments, travel and petty cash.

Automated Accounting Process

As the accounts payable method is essential for every organization, much time must be invested for its successful implementation. It will minimize the time and cost of invoice processing, employee headcount and much more to have efficient accounts. Automation will also assist in reducing human errors and increasing efficiency.

Accounting software obtainable in the market can streamline the accounts payable method. These reduce most of the paperwork required in accounting. Using electronic invoices, scanned copies of reports, email permissions, etc., will reduce the time needed in managing the payables and improve the day-to-day administration of the businesses. To add, they usually blend with the organizations ERP. Many other value-added services can be availed from this accounting software. They ultimately improve business efficiency.